DORAL FINANCIAL CORP, 424B4, 1999-02-17

DORAL FINANCIAL CORP
424B4, 1999-02-17
MORTGAGE BANKERS & LOAN CORRESPONDENTS

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<PAGE> 1

PROSPECTUS Filed pursuant to Rule 424(b)(4)
Registration No. 333-66453

1,300,000 SHARES

(DORAL FINANCIAL CORPORATION LOGO)
7% NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES A

PRICE TO PUBLIC: $50 PER SHARE

Doral Financial is offering to the public 1,300,000 shares of its 7%
Noncumulative Monthly Income Preferred Stock, Series A. The Series A Preferred
Stock has the following characteristics:

- Annual dividends of $3.50 per share, payable monthly, if declared by
the board of directors. Missed dividends never have to be paid.

- Redeemable at Doral Financial's option beginning on February 28, 2004.

- No mandatory redemption or stated maturity.

There is currently no public market for the Series A Preferred Stock. The
Nasdaq National Market has approved the Series A Preferred Stock for quotation
under the symbol "DORLP."

INVESTING IN THESE SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 7 OF THIS PROSPECTUS.

<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public Offering Price.............................. $50.00 $65,000,000
Underwriting Discounts............................. $ 1.575 $ 2,047,500
Proceeds to Doral Financial........................ $48.425 $62,952,500
</TABLE>

Doral Financial has also granted the underwriters an over-allotment option
to purchase up to 195,000 additional shares.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR
COMMONWEALTH OF PUERTO RICO SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED
BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY.

PAINEWEBBER INCORPORATED OF PUERTO RICO POPULAR SECURITIES
(JOINT LEAD MANAGERS)

SANTANDER SECURITIES PRUDENTIAL SECURITIES INCORPORATED SALOMON SMITH BARNEY
INC.

THE DATE OF THIS PROSPECTUS IS FEBRUARY 16, 1999
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Dividends Will Not Be Paid Unless
Declared By the Board of
Directors........................ 7
Missed Dividends Never Have To Be
Paid............................. 7
Banking Regulations May Restrict
Doral Financial's Ability to Pay
Dividends........................ 7
Payment of Dividends May Be
Restricted by Doral Financial's
Contracts........................ 7
Fluctuations in Interest Rates May
Hurt Doral Financial's
Business......................... 7
Doral Financial May Suffer Losses
From Mortgage Loans It Sells But
Retains the Credit Risk.......... 8
Increases in Doral Financial's
Originations of Commercial Loans
Has Increased Its Credit Risk.... 8
Doral Financial Is Exposed To
Greater Risk Because Its Business
Is Concentrated In Puerto Rico... 8
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Doral Financial's Business Would Be
Disrupted If Its Computer Systems
Cannot Work Properly With Year
2000 Data........................ 8
Forward-Looking Statements............ 9
Recent Developments................... 9
Use of Proceeds....................... 10
Capitalization........................ 11
Selected Financial Data............... 12
Summary of Certain Terms of the Series
A Preferred Stock................... 14
Description of Capital Stock.......... 19
Taxation.............................. 21
Underwriting.......................... 29
Incorporation of Certain Documents by
Reference........................... 30
Available Information................. 31
Legal Matters......................... 31
Experts............................... 31
</TABLE>

------------------------

Prospective investors may rely only on the information incorporated by
reference or contained in this prospectus. Neither Doral Financial nor any
underwriter has authorized anyone to provide prospective investors with
information different from that incorporated by reference or contained in this
prospectus. This prospectus is not an offer to sell nor is it seeking an offer
to buy these securities in any jurisdiction where the offer or sale is not
permitted. The information contained in this prospectus is correct only as of
the date of this prospectus, regardless of the time of the delivery of this
prospectus or any sale of these securities.

2
<PAGE> 3

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus, including the information incorporated by
reference into this prospectus and the "Risk Factors" section beginning on page
7.

Unless otherwise stated, all information in this prospectus assumes that
the underwriters will not exercise their over-allotment option to purchase any
of the 195,000 shares subject to that option.

THE COMPANY

Doral Financial is the leading mortgage banking institution in Puerto Rico
based on the volume of origination of first mortgage loans secured by single
family residences and the size of its mortgage servicing portfolio. Doral
Financial originated and purchased $1.5 billion in mortgage loans for the nine
months ended September 30, 1998 and had a mortgage servicing portfolio of $5.5
billion as of September 30, 1998.

Doral Financial is also engaged in the commercial banking and securities
business. As of September 30, 1998, Doral Financial had total banking assets of
$628.4 million and deposits of $410.8 million.

Doral Financial is a bank holding company subject to regulation and
supervision by the Federal Reserve Board. Unlike many bank holding companies,
Doral Financial has significant operations at the holding company level. As of
September 30, 1998, Doral Financial had assets of $1.5 billion at the holding
company level.

Doral Financial's principal executive offices are located at 1159 Franklin
D. Roosevelt Avenue, San Juan, Puerto Rico, and its telephone number is (787)
749-7100.

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<PAGE> 4

THE OFFERING

Series A Preferred Stock
Offered.................... 1,300,000 shares; 1,495,000 shares if the
underwriters exercise their over-allotment option
in full.

Offering Price............. $50 per share.

Liquidation Preference..... If Doral Financial is liquidated or dissolved, you
will be entitled to receive $50 per share plus
accrued dividends for the current month from any
assets available for distribution. You will be
paid before any of Doral Financial's assets are
distributed to holders of common stock or any
stock ranking junior to the Series A Preferred
Stock.

Dividends.................. Dividends will be paid on the last day of each
month beginning on March 31, 1999. The board of
directors must approve each dividend payment and
any payment it does not approve never has to be
paid. The annual dividend rate is equal to 7% of
the liquidation preference per share.

No Voting Rights........... You will not have any voting rights, except as
described on page 17 of this prospectus.

Redemption at Doral
Financial's Option......... Series A Preferred Stock may be redeemed beginning
on February 28, 2004 at Doral Financial's option.
Redemption prices are discussed on page 15 of
this prospectus.

No Maturity Date or
Mandatory Redemption....... The Series A Preferred Stock does not have a
maturity date. Doral Financial is not required to
provide for the retirement of the Series A
Preferred Stock by mandatory redemption or
sinking fund payments.

Rank....................... The Series A Preferred Stock ranks senior to the
common stock of Doral Financial and on an equal
basis to Doral Financial's outstanding preferred
stock for purposes of dividend rights and the
distribution of assets upon liquidation. Doral
Financial may not issue preferred stock ranking
senior to the Series A Preferred Stock without
the approval of holders of at least two-thirds of
the Series A Preferred Stock.

Nasdaq National Market
Symbol..................... DORLP

4
<PAGE> 5

SUMMARY FINANCIAL AND OPERATING DATA

You should read the summary financial information presented below together
with Doral Financial's consolidated financial statements and notes which are
incorporated by reference into this prospectus and with the historical financial
information of Doral Financial included under "Selected Financial Data"
beginning on page 12 of this prospectus.

Net income for 1994 includes the cumulative effect of a change in the
method of accounting for unrealized gains and losses on trading securities. When
Doral Financial adopted this new accounting pronouncement in 1994, it
reclassified approximately $132 million of mortgage-backed securities and
recognized a net gain of $1.2 million.

Net income for the year ended December 31, 1997 reflects a non-cash
extraordinary charge to earnings of $12.3 million. The charge resulted from the
issuance by Doral Financial to Popular, Inc., a bank holding company
headquartered in San Juan, Puerto Rico, of shares of convertible preferred stock
in exchange for the cancellation of $8.5 million of Doral Financial's
subordinated debentures owned by Popular, Inc. The charge was equal to the
excess of the fair value of the preferred stock on the date of the exchange over
the net carrying amount of the debentures on Doral Financial's financial
statements. For the year ended December 31, 1997, the return on average assets
ratio computed on income before this extraordinary item would have been 2.19%
and the return on average equity ratio would have been 19.29%.

The return on average assets ratio is computed by dividing net income by
average total assets for the period. The return on average equity ratio is
computed by dividing net income by average stockholders' equity for the period.
Both ratios have been computed using month end averages. These ratios for the
nine month periods ended September 30, 1998 and 1997, have been presented on an
annualized basis.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net income............... $ 37,978 $ 23,631 $ 20,231 $ 27,041 $ 19,560 $ 17,430 $ 21,320
Cash dividends paid...... $ 7,380 $ 5,229 $ 7,199 $ 6,008 $ 4,374 $ 3,943 $ 3,142
BALANCE SHEET DATA:
Total assets............. $2,715,539 $1,546,105 $1,857,789 $1,106,083 $ 917,922 $ 768,019 $ 486,431
Stockholders' equity..... $ 259,382 $ 170,679 $ 186,955 $ 150,531 $ 129,017 $ 90,496 $ 76,945
OPERATING DATA:
Mortgage loans originated
and purchased.......... $1,497,000 $ 716,000 $1,037,000 $ 817,000 $ 636,000 $ 824,000 $1,433,000
Loan servicing
portfolio.............. $5,500,000 $3,600,000 $4,655,000 $3,068,000 $2,668,000 $2,644,000 $2,375,000
SELECTED RATIOS:
Return on Average
Assets................. 2.21% 2.38% 1.37% 2.68% 2.32% 2.78% 5.28%
Return on Average
Equity................. 22.69% 19.62% 11.99% 19.35% 17.82% 20.82% 31.49%
</TABLE>

5
<PAGE> 6

CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS

The ratios shown below measure Doral Financial's ability to generate
sufficient earnings to pay the fixed charges or expenses of its debt and
dividends on its preferred stock. The ratios of earnings to combined fixed
charges and preferred stock dividends were computed by dividing earnings by
combined fixed charges and preferred stock dividends.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------------------
1998 1997 1996 1995 1994 1993
------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
Including Interest on Deposits............... 1.52x 1.61x 1.67x 1.49x 1.76x 3.75x
Excluding Interest on Deposits............... 1.60x 1.72x 1.76x 1.53x 1.79x 3.75x
</TABLE>

For purposes of computing the consolidated ratios of earnings to combined
fixed charges and preferred stock dividends, earnings consist of pre-tax income
from continuing operations plus fixed charges and amortization of capitalized
interest, less interest capitalized. Fixed charges consist of interest expensed
and capitalized, amortization of debt issuance costs, and Doral Financial's
estimate of the interest component of rental expense. Ratios are presented both
including and excluding interest on deposits.

The term "preferred stock dividends" is the amount of pre-tax earnings that
is required to pay dividends on Doral Financial's outstanding preferred stock.

6
<PAGE> 7

RISK FACTORS

You should carefully consider the following factors and other information
in this prospectus, including the information incorporated by reference in this
prospectus, before deciding to invest in the Series A Preferred Stock.

DIVIDENDS WILL NOT BE PAID UNLESS DECLARED BY THE BOARD OF DIRECTORS

Monthly dividends will only be paid if declared by Doral Financial's board
of directors. The board of directors is not obligated or required to declare
monthly dividends.

MISSED DIVIDENDS NEVER HAVE TO BE PAID

If the board of directors does not declare a dividend for a particular
month, those dividends never have to be paid.

BANKING REGULATIONS MAY RESTRICT DORAL FINANCIAL'S ABILITY TO PAY DIVIDENDS

Doral Financial may not be able to pay dividends in the future if it does
not earn sufficient operational income. Federal Reserve Board policy is that a
bank holding company should pay dividends only out of its current operating
earnings. Doral Financial had income from operations of $38.0 million for the
nine months ended September 30, 1998.

PAYMENT OF DIVIDENDS MAY BE RESTRICTED BY DORAL FINANCIAL'S CONTRACTS

Doral Financial is a party to contracts that prevent it from paying
dividends if it does not comply with some terms of those contracts. In addition,
Doral Financial issued its 7.84% Senior Notes due 2006 under an agreement that
prohibits it from paying dividends if the aggregate amount of dividends paid on
its capital stock exceeds certain limits tied to earnings and proceeds from the
sale of capital stock. As of September 30, 1998, after giving effect to this
offering, Doral Financial could have paid up to $139.3 million in dividends
under that agreement.

FLUCTUATIONS IN INTEREST RATES MAY HURT DORAL FINANCIAL'S BUSINESS

Interest rate fluctuations is the primary market risk affecting Doral
Financial. Changes in interest rates affect the following areas of its business:

- the number of mortgage loans originated and purchased;

- the interest income earned on loans and securities;

- gain on sale of loans;

- the value of securities holdings; and

- the value of its servicing asset.

Increases in Interest Rates Reduce Demand for Mortgage Loans. Higher
interest rates increase the cost of mortgage loans to consumers and reduce
demand for mortgage loans, which hurts Doral Financial's profits. Reduced demand
for mortgage loans results in reduced loan originations by Doral Financial and
lower mortgage origination income. Demand for refinance loans is particularly
sensitive to increases in interest rates. Doral Financial has for many years
relied on refinance loans for a significant portion of its mortgage loan
production. For the nine months ended September 30, 1998, refinance loans
represented approximately 62% of Doral Financial's total dollar volume of loans
originated.

Increases in Interest Rates Reduce Net Interest Income. Increases in
short-term interest rates reduce net interest income, which is an important part
of Doral Financial's earnings. Net interest income is the difference between the
interest received by Doral Financial on its assets and the interest paid on its
borrowings. Most of Doral Financial's assets, like its mortgage loans and
mortgage-backed securities are long-term assets with

7
<PAGE> 8

fixed interest rates. In contrast, most of Doral Financial's borrowings are
short-term. When interest rates rise, Doral Financial must pay more in interest
while interest earned on its assets does not rise as quickly. This causes
profits to decrease.

Increases in Interest Rates May Reduce or Eliminate Gain on Sale of
Mortgage Loans. If long-term interest rates increase between the time Doral
Financial commits to or establishes an interest rate on a mortgage loan and the
time it sells the loan, Doral Financial may realize a reduced gain or a loss on
such sale.

Increases in Interest Rates May Reduce the Value of Mortgage Loans and
Securities' Holdings. Increases in interest rates may reduce the value of Doral
Financial's financial assets and have an adverse impact on its earnings and
financial condition. Doral Financial owns a substantial portfolio of mortgage
loans, mortgage-backed securities and other debt securities with fixed interest
rates. The market value of an obligation with a fixed interest rate generally
decreases when prevailing interest rates rise.

Decreases in Interest Rates May Adversely Affect Value of Servicing
Asset. Decreases in interest rates lead to increases in the prepayment of
mortgages by borrowers, which may reduce the value of Doral Financial's
servicing asset. The servicing asset is the estimated present value of the fees
Doral Financial expects to receive on the mortgages it services over their
expected term. Doral Financial assigns this value based on what other persons
have paid for similar servicing rights in recent transactions. If prepayments
increase above expected levels, the value of the servicing asset decreases
because the amount of future fees expected to be received by Doral Financial
decreases. Doral Financial may be required to recognize this decrease in value
by taking a charge against its earnings, which causes its profits to decrease.

DORAL FINANCIAL MAY SUFFER LOSSES FROM MORTGAGE LOANS IT SELLS BUT RETAINS THE
CREDIT RISK

Doral Financial often retains all or part of the credit risk on sales of
mortgage loans that do not qualify for the guarantee programs of GNMA, FNMA or
FHLMC and may suffer losses on these loans. Doral Financial suffers losses on
these arrangements when foreclosure sale proceeds of the property underlying a
defaulted mortgage loan are less than the outstanding principal balance of these
loans and the costs of holding and disposing of the related property. As of
September 30, 1998, Doral Financial's outstanding obligations on mortgage loans
it had sold but retained all or part of the credit risk was $329.5 million.

INCREASES IN DORAL FINANCIAL'S ORIGINATIONS OF COMMERCIAL LOANS HAS INCREASED
ITS CREDIT RISKS

Doral Financial's recent increase in originations of mortgage loans secured
by income producing residential buildings and commercial properties has
increased its credit risks. These loans involve greater credit risks than
residential mortgage loans because they are larger in size and more risk is
concentrated in a single borrower. The properties securing these loans are also
harder to dispose of in foreclosure. For the nine month period ended September
30, 1998, Doral Financial originated approximately $93.9 million in mortgage
loans secured by income producing residential buildings and commercial
properties.

DORAL FINANCIAL IS EXPOSED TO GREATER RISK BECAUSE ITS BUSINESS IS CONCENTRATED
IN PUERTO RICO

Because approximately 95% of Doral Financial's mortgage loans are secured
by properties located in Puerto Rico, Doral Financial is exposed to a greater
risk of delinquency or default on these mortgage loans resulting from adverse
economic, political or business developments and natural hazard risks that
affect Puerto Rico. If Puerto Rico's real estate market experiences an overall
decline in property values, the rates of delinquency, foreclosure, bankruptcy
and loss on the mortgage loans would probably increase substantially. This would
cause Doral Financial's profitability to decrease.

DORAL FINANCIAL'S BUSINESS WOULD BE DISRUPTED IF ITS COMPUTER SYSTEMS CANNOT
WORK PROPERLY WITH YEAR 2000 DATA

Doral Financial could experience a significant disruption to its business
operations that could have an adverse effect on its profitability if its
computer systems and the computer systems provided by third party vendors on
which it relies are not able to properly use date calculations in the year 2000.
Doral Financial is taking steps that it believes are adequate to make sure this
does not happen. However, Doral Financial cannot assure you that these efforts
will be completely successful. Problems suffered by providers of basic services,
8
<PAGE> 9

such as telephone, water, sewer and electricity could also have an adverse
impact on Doral Financial's daily operations. Doral Financial is in the process
of revising its existing business interruption contingency plans to address any
disruptions of these basic services.

FORWARD-LOOKING STATEMENTS

This prospectus, including information incorporated in this prospectus by
reference, contains certain "forward-looking statements" concerning Doral
Financial's operations, performance and financial condition, including its
future economic performance, plans and objectives and the likelihood of success
in developing and expanding its business. These statements are based upon a
number of assumptions and estimates which are subject to significant
uncertainties, many of which are beyond the control of Doral Financial. The
words "may," "would," "could," "will," "expect," "anticipate," "believe,"
"intend," "plan," "estimate" and similar expressions are meant to identify these
forward-looking statements. Actual results may differ materially from those
expressed or implied by these forward-looking statements.

RECENT DEVELOPMENTS

UNAUDITED RESULTS FOR THE QUARTER AND YEAR ENDED DECEMBER 31, 1998

On January 12, 1999, Doral Financial released its unaudited earnings for
the quarter and year ended December 31, 1998. Doral Financial reported net
income of $14.9 million or $0.35 per diluted share for the fourth quarter of
1998, compared to income before an extraordinary charge of $8.9 million or $0.23
per diluted share for the fourth quarter of 1997. After the extraordinary
charge, Doral Financial reported a net loss of $3.4 million or $0.09 per diluted
share for the fourth quarter of 1997.

For the year ended December 31, 1998, Doral Financial reported net income
of $52.8 million or $1.26 per diluted share, compared to income before the
extraordinary charge of $32.5 million or $0.85 per diluted share for 1997. After
the extraordinary charge, Doral Financial reported net income of $20.2 million
or $0.53 per diluted share for the year ended December 31, 1997.

Doral Financial's mortgage loan originations and purchases were $815
million for the quarter ended December 31, 1998 and $2.31 billion for the year
ended December 31, 1998, compared to $321 million for the quarter ended December
31, 1997 and $1.04 billion for the year ended December 31, 1997. Doral
Financial's servicing portfolio totaled $6.2 billion as of December 31, 1998.

EXPANSION IN MAINLAND UNITED STATES

During the second quarter of 1998, Doral Financial commenced a multi-family
and commercial lending unit in the New York City metropolitan area. This unit
originates loans secured by first mortgages on multi-family apartment buildings
and, to a lesser extent, other commercial properties. This unit closed $53.4
million in loans for the quarter ended September 30, 1998. Doral Financial
intends to sell most of these loans to third parties and to retain the servicing
rights.

During the third quarter of 1998, Doral Financial also commenced a
wholesale mortgage operation in the Chicago metropolitan area. This operation is
primarily dedicated to the purchase of residential mortgage loans that conform
to the requirements of the Federal Home Loan Mortgage Corporation or the Federal
National Mortgage Association, the packaging of such loans into FHLMC or FNMA
mortgage-backed securities and the sale of such mortgage-backed securities to
third parties while retaining the servicing rights to the underlying loans. To a
lesser extent, this unit also originates adjustable rate mortgages for sale to
banks and other investors. Purchases of loans by the wholesale operation for the
quarter ended September 30, 1998, amounted to $12.2 million.

Doral Financial is also in the process of organizing a new federal savings
association in the New York City metropolitan area which it anticipates will
open for business during the second quarter of 1999.

9
<PAGE> 10

USE OF PROCEEDS

The net proceeds to Doral Financial after deducting expenses from the sale
of shares of Series A Preferred Stock are estimated at approximately
$62,652,500. If the Underwriters' over-allotment option is exercised in full,
the net proceeds are estimated at $72,095,375. Doral Financial intends to use
the net proceeds for general corporate purposes, which may include:

- making capital contributions to its banking and non-banking subsidiaries;

- investing in mortgage servicing rights through the internal origination
of mortgage loans, the acquisition of mortgage loans with the related
servicing rights and the purchase of contracts to service mortgage loans;

- funding possible acquisitions of mortgage banking and other financial
institutions; and

- increasing working capital.

Doral Financial has no current agreements or understandings regarding any
possible acquisitions.

10
<PAGE> 11

CAPITALIZATION

The following table shows the unaudited indebtedness and capitalization of
Doral Financial at September 30, 1998, on an actual basis and as adjusted to
give effect to the issuance of the shares of Series A Preferred Stock offered by
this prospectus. The table also assumes that the underwriters do not exercise
their over-allotment option. In addition to the indebtedness reflected below,
Doral Financial had deposits of $410.8 million. This table should be read
together with Doral Financial's Consolidated Financial Statements and related
notes incorporated by reference into this prospectus.

<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term borrowings
Loans payable............................................. $ 416,150 $ 416,150
Short-term portion of notes payable....................... 64,429 64,429
Short-term portion of securities sold under agreements to
repurchase............................................. 1,030,152 1,030,152
---------- ----------
Total short-term borrowings....................... $1,510,731 $1,510,731
========== ==========
Long-term borrowings
Long-term portion of notes payable........................ $ 53,410 $ 53,410
Long-term portion of securities sold under agreements to
repurchase............................................. 100,200 100,200
Advances from the Federal Home Loan Bank.................. 32,000 32,000
Senior Notes.............................................. 75,000 75,000
---------- ----------
Total long-term borrowings........................ $ 260,610 $ 260,610
========== ==========
Stockholders' Equity
Serial preferred stock, $1 par value, 2,000,000 shares
authorized; 8,460 shares of 8% Convertible Cumulative
Preferred Stock outstanding and 1,300,000 Series A
Preferred Stock, as adjusted........................... $ 8 $ 1,308
Common stock, $1.00 par value, 50,000,000 shares
authorized; 40,484,920 shares issued and 40,428,920
outstanding(1)......................................... 40,485 40,485
Paid-in capital........................................... 70,252 131,605
Legal Surplus............................................. 1,704 1,704
Retained earnings......................................... 144,851 144,851
Accumulated other comprehensive income(2)................. 2,138 2,138
Treasury Stock at par value, 56,000 shares................ (56) (56)
---------- ----------
Total stockholders' equity........................ $ 259,382 $ 322,035
========== ==========
</TABLE>

- ---------------

(1) Does not include up to 1,933,714 shares of common stock issuable upon
conversion of outstanding shares of 8% Convertible Cumulative Preferred
Stock.
(2) Consists of unrealized gain on securities available for sale, net of
deferred tax.

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<PAGE> 12

SELECTED FINANCIAL DATA

The following table shows certain selected consolidated financial and
operating data of Doral Financial on a historical basis as of and for the
nine-month periods ended September 30, 1998 and 1997, and for each of the five
years in the period ended December 31, 1997. This information should be read
together with Doral Financial's Consolidated Financial Statements and the
related notes incorporated by reference in this prospectus. Financial
information for the nine-month periods ended September 30, 1998 and 1997, is
derived from unaudited financial statements, which, in the opinion of
management, include all adjustments necessary for a fair presentation of the
results for those periods. These adjustments consist only of normal recurring
accruals. Results for the nine-month period ended September 30, 1998, are not
necessarily indicative of results for the full year. Doral Financial has made
certain reclassifications to data for years prior to 1998 to conform to 1998
classifications.

Net income for the year ended December 31, 1997, reflects a non-cash
extraordinary charge to earnings of $12.3 million resulting from the issuance to
Popular, Inc. of shares of convertible preferred stock in exchange for the
cancellation of $8.5 million of Doral Financial's subordinated debentures owned
by Popular, Inc. The charge represented the excess of the fair value of the
preferred stock on the date of the exchange over the net carrying amount of the
debentures on Doral Financial's financial statements. The return on average
assets computed on income before extraordinary item for the year ended December
31, 1997, would have been 2.19% and the return on average equity would have been
19.29%.

The return on average assets ratio is computed by dividing net income by
average assets for the period. The return on average equity ratio is computed by
dividing net income by average stockholders' equity for the period. The average
equity to average assets ratio is computed by dividing average assets for the
period by average stockholders' equity. All ratios have been computed using
month end averages. The return on average assets and average equity ratios for
the nine-month periods ended September 30, 1998 and 1997, have been presented on
an annualized basis. All per share information shown in the table has been
adjusted to reflect two-for-one stock splits effected on August 28, 1997 and May
20, 1998.

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<PAGE> 13

<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Extraordinary
item -- non-cash loss
on extinguishment of
debt.................. -- -- 12,317 -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income...... $ 37,978 $ 23,631 $ 20,231 $ 27,041 $ 19,560 $ 17,430 $ 21,320
=========== =========== =========== =========== =========== =========== ===========
Cash dividends
paid.......... $ 7,380 $ 5,229 $ 7,199 $ 6,008 $ 4,374 $ 3,943 $ 3,142
=========== =========== =========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Mortgage loans held for
sale.................. $ 670,194 $ 326,252 $ 406,297 $ 261,608 $ 245,484 $ 263,773 $ 262,515
Securities held for
trading, net.......... 692,405 611,297 620,288 436,125 418,348 327,960 129,180
Securities held to
maturity.............. 130,764 191,024 143,534 107,222 77,945 66,804 6,530
Securities available for
sale.................. 490,641 71,548 240,876 12,007 14,579 -- --
Loans receivable, net... 200,327 165,702 133,055 128,766 51,355 34,809 9,561
Total assets............ 2,715,539 1,546,105 1,857,789 1,106,083 917,922 768,019 486,431
Loans payable and
securities sold under
agreements to
repurchase............ 1,546,502 907,056 1,103,448 584,294 598,436 569,436 335,994
Notes payable........... 192,839 150,141 164,934 152,126 51,682 17,055 --
Deposits accounts....... 410,772 250,945 300,494 158,902 95,740 66,471 26,451
Stockholders' equity.... 259,382 170,679 186,955 150,531 129,017 90,496 76,945
NET INCOME PER COMMON
SHARE:
Basic:
Income before
cumulative effect
and extraordinary
item................ $ 0.94 $ 0.65 $ 0.89 $ 0.75 $ 0.67 $ 0.58 $ 0.79
Cumulative effect..... -- -- -- -- -- 0.04 --
Extraordinary item.... -- -- (0.34) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income...... $ 0.94 $ 0.65 $ 0.55 $ 0.75 $ 0.67 $ 0.62 $ 0.79
=========== =========== =========== =========== =========== =========== ===========
Diluted:
Income before
cumulative effect
and extraordinary
item................ $ 0.91 $ 0.62 $ 0.85 $ 0.71 $ 0.64 $ 0.54 $ 0.71
Cumulative effect..... -- -- -- -- -- 0.04 --
Extraordinary item.... -- -- (0.32) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income...... $ 0.91 $ 0.62 $ 0.53 $ 0.71 $ 0.64 $ 0.58 $ 0.71
=========== =========== =========== =========== =========== =========== ===========
OTHER PER SHARE DATA:
Cash dividends:
Common Stock.......... $ 0.17 $ 0.14 $ 0.195 $ 0.165 $ 0.145 $ 0.13 $ 0.10
10 1/2% Preferred
Stock............... -- -- -- 0.3825 1.05 1.05 1.05
8% Convertible
Cumulative Preferred
Stock............... 60.00 -- 15.33 -- -- -- --
Weighted average shares
outstanding:
Basic................. 39,776,664 36,641,484 36,680,158 36,266,244 29,231,680 27,770,936 26,459,416
Diluted............... 41,743,051 38,728,632 38,728,632 38,725,072 31,040,540 30,307,856 30,067,856
OPERATING DATA:
Mortgage loans
originated and
purchased............. $ 1,497,000 $ 716,000 $ 1,037,000 $ 817,000 $ 636,000 $ 824,000 $ 1,433,000
Loan Servicing
Portfolio........... 5,500,000 3,600,000 4,655,000 3,068,000 2,668,000 2,644,000 2,375,000
SELECTED RATIOS:
Return on Average
Assets................ 2.21% 2.38% 1.37% 2.68% 2.32% 2.78% 5.28%
Return on Average
Equity................ 22.69% 19.62% 11.99% 19.35% 17.82% 20.82% 31.49%
Average Equity to
Average Assets........ 9.76% 12.11% 11.39% 13.81% 13.02% 13.35% 16.77%
</TABLE>

13
<PAGE> 14

SUMMARY OF CERTAIN TERMS OF THE SERIES A PREFERRED STOCK

The following summary contains a description of the material terms of the
Series A Preferred Stock. The summary is subject to and qualified in its
entirety by reference to Doral Financial's Restated Certificate of Incorporation
and to the Certificate of Designation creating the Series A Preferred Stock (the
"Certificate of Designation"), copies of which are incorporated by reference as
exhibits to the registration statement of which this prospectus is a part.

DIVIDENDS

If declared at the option of Doral Financial's board of directors, holders
of record of the Series A Preferred Stock will be entitled to receive cash
dividends in the amount of $3.50 per share each year, which is equivalent to 7%
of the liquidation preference of $50 per share. Doral Financial is not required
to declare or pay dividends on the Series A Preferred Stock, even if it has
funds available for the payment of such dividends. Dividends may only be paid
out of funds that are legally available for this purpose.

Dividends on the Series A Preferred Stock will accrue from their date of
original issuance and will be payable on the last day of each month in United
States dollars beginning on March 31, 1999. Payment of dividends will be made to
the holders of record of the Series A Preferred Stock as they appear on the
books of Doral Financial on the second Business Day immediately preceding the
relevant date of payment. In the case of the dividend payable on March 31, 1999,
this dividend will cover the period from the date of issuance of the Series A
Preferred Stock to March 31, 1999. If any date on which dividends are payable is
not a Business Day, then payment of the dividend will be made on the next
Business Day without any interest or other payment in respect of the delay. If
December 31 of any year is not a Business Day, then the dividend payable on such
date will be made on the immediately preceding Business Day. A "Business Day" is
a day other than a Saturday or Sunday or a general banking holiday in San Juan,
Puerto Rico or New York, New York.

Dividends on the Series A Preferred Stock will be noncumulative. If the
board of directors does not declare a dividend for any monthly dividend period
on the Series A Preferred Stock, then the holders of Series A Preferred Stock
will not have a right to receive a dividend for that monthly dividend period,
whether or not dividends on the Series A Preferred Stock are declared for any
future monthly dividend period.

Dividends for any monthly dividend period will be paid in equal
installments in the amount of $0.2917 per share. The aggregate payment made to
each holder will be rounded to the next lowest cent. The amount of dividends
payable for any period shorter than a full monthly dividend period will be
computed on the basis of the actual number of days elapsed in that period.

Dividend payments will be mailed to the record holders of the Series A
Preferred Stock at their addresses appearing on the register for the Series A
Preferred Stock.

The terms of the Series A Preferred Stock do not permit Doral Financial to
declare, set apart or pay any dividend or make any other distribution of assets
on, or redeem, purchase, set apart or otherwise acquire shares of common stock
or of any other class of stock of Doral Financial ranking junior to the Series A
Preferred Stock as to the payment of dividends or as to the distribution of
assets upon liquidation, dissolution or winding up of Doral Financial, unless
certain conditions are met. Those conditions are (1) all accrued and unpaid
dividends on the Series A Preferred Stock for the twelve monthly dividend
periods ending on the immediately preceding dividend payment date shall have
been paid or are paid contemporaneously, (2) the full monthly dividend on the
Series A Preferred Stock for the then current month has been or is
contemporaneously declared and paid or declared and set apart for payment, and
(3) Doral Financial has not defaulted in the payment of the redemption price of
any shares of Series A Preferred Stock called for redemption. See "Redemption at
the Option of Doral Financial." The above limitations do not apply to stock
dividends or other distributions made in stock of Doral Financial ranking junior
to the Series A Preferred Stock as to the payment of dividends and as to the
distribution of assets. The above limitations also do not apply to conversions
or exchanges for stock of Doral Financial ranking junior to the Series A
Preferred Stock as to the payment of dividends and as to the distribution of
assets.

14
<PAGE> 15

If Doral Financial is unable to pay in full the dividends on the Series A
Preferred Stock and on any other shares of stock of equal rank as to the payment
of dividends with the Series A Preferred Stock, all dividends declared upon the
Series A Preferred Stock and any such other shares of stock will be declared pro
rata. In this event, each share of Series A Preferred Stock and of the other
classes of stock of equal rank will receive dividends in the same proportion as
the $50 per share liquidation preference of the Series A Preferred Stock bears
to the per share liquidation preference of the other classes of equally ranked
stock.

For a discussion of the tax treatment of distributions to stockholders see
"Taxation," "Puerto Rico Taxation," and "United States Taxation," and for a
discussion on certain potential regulatory limitations on Doral Financial's
ability to pay dividends, see "Risk Factors -- Payment of
Dividends -- Regulatory Considerations."

NO CONVERSION OR EXCHANGE RIGHTS

The Series A Preferred Stock will not be convertible into or exchangeable
for any other securities of Doral Financial.

REDEMPTION AT THE OPTION OF DORAL FINANCIAL

Doral Financial may not redeem the shares of the Series A Preferred Stock
prior to February 28, 2004. On and after that date, Doral Financial may redeem
the Series A Preferred Stock for cash, at its option, in whole or in part, at
the redemption prices shown below plus accrued and unpaid dividends for the then
current monthly dividend period to the redemption date. The redemption prices
for the twelve month periods beginning on February 28, 2004 are shown below.

<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
2004........................................................ $51.00
2005........................................................ 50.50
2006 and thereafter......................................... 50.00
</TABLE>

In the event that Doral Financial elects to redeem less than all of the
outstanding shares of the Series A Preferred Stock, the shares to be redeemed
will be allocated pro rata or by lot as may be determined by the board of
directors, or by any other method as the board of directors may consider fair.
Any method chosen by Doral Financial will conform to any rule or regulation of
any national or regional stock exchange or automated quotation system on which
the shares of the Series A Preferred Stock may at the time be listed or eligible
for quotation.

Doral Financial will mail a notice of any proposed redemption to the
holders of record of the shares of Series A Preferred Stock to be redeemed, at
their address of record, not less than 30 nor more than 60 days prior to the
redemption date. The notice of redemption to each holder of shares of Series A
Preferred Stock will specify the number of shares of Series A Preferred Stock to
be redeemed, the redemption date and the redemption price payable to the holder
upon redemption, and shall state that from and after the redemption date
dividends will cease to accrue. If Doral Financial redeems less than all the
shares owned by a holder, the notice shall also specify the number of shares of
Series A Preferred Stock of the holder which are to be redeemed and the numbers
of the certificates representing such shares. Any notice mailed in accordance
with these procedures shall be conclusively presumed to have been properly
given, whether or not the stockholder receives this notice. The failure by Doral
Financial to give this notice by mail, or any defect in the notice, to the
holders of any shares designated for redemption shall not affect the validity of
the proceedings for the redemption of any other shares of Series A Preferred
Stock.

If the redemption notice is properly mailed and Doral Financial pays the
redemption price, from and after the redemption date, all dividends on the
shares of Series A Preferred Stock called for redemption shall cease to accrue
and all rights of the holders of the shares being redeemed as stockholders of
Doral Financial shall cease on the redemption date. Holders will retain the
right to receive the redemption price upon presentation of their stock
certificates. If Doral Financial redeems less than all the shares represented by
any certificate, a new certificate representing the unredeemed shares shall be
issued without cost to the holder.

15
<PAGE> 16

At its option, Doral Financial may, on or prior to the redemption date,
irrevocably deposit the entire amount payable upon redemption of the shares of
the Series A Preferred Stock to be redeemed with a bank or trust company
designated by Doral Financial having its principal office in New York, New York,
San Juan, Puerto Rico, or any other city in which Doral Financial shall at that
time maintain a transfer agent with respect to its capital stock, and having a
combined capital and surplus of at least $50,000,000 (hereinafter referred to as
the "Depositary"). The Depositary will hold this amount in trust for payment to
the holders of the shares of the Series A Preferred Stock to be redeemed. If the
deposit is made and the funds deposited are immediately available to the holders
of the shares of the Series A Preferred Stock to be redeemed, Doral Financial
will no longer have any obligation to make payment of the amount payable upon
redemption of the shares of the Series A Preferred Stock to be redeemed.
Following the deposit, except as discussed in the next paragraph, holders of
these shares shall look only to the Depositary for payment.

Any funds remaining unclaimed at the end of two years after the redemption
date for which these funds were deposited shall be returned to Doral Financial.
After the funds are returned to Doral Financial, the holders of shares called
for redemption shall look only to Doral Financial for the payment of the
redemption price. Any interest accrued on any funds deposited with the
Depositary will belong to Doral Financial and shall be paid to it on demand.

After the redemption of any shares of the Series A Preferred Stock, the
redeemed shares will have the status of authorized but unissued shares of serial
preferred stock, without designation as to series, until these shares are once
more designated as part of a particular series by the board of directors of
Doral Financial.

Certain Regulatory Considerations Affecting Redemptions

Under current regulations, Doral Financial may not redeem the Series A
Preferred Stock, without the prior approval of the Federal Reserve Board.
Ordinarily, the Federal Reserve Board will not permit a redemption unless (1)
the shares are redeemed with the proceeds of a sale of common stock or perpetual
preferred stock, or (2) the Federal Reserve Board determines that Doral
Financial's condition and circumstances warrant the reduction of a source of
permanent capital.

Also, under Puerto Rico law, Doral Financial may not redeem any shares of
its capital stock unless the assets remaining after the redemption are
sufficient to pay any debts for which payment has not otherwise been provided.

LIQUIDATION PREFERENCE

Upon any liquidation, dissolution, or winding up of Doral Financial, the
record holders of shares of Series A Preferred Stock will be entitled to receive
out of the assets of Doral Financial available for distribution to shareholders,
before any distribution is made to holders of common stock or any other equity
securities of Doral Financial ranking junior upon liquidation to the Series A
Preferred Stock, the amount of $50 per share plus an amount equal to any accrued
and unpaid dividends for the current monthly dividend period to the date of
payment.

If Doral Financial is liquidated or dissolved and the amounts payable with
respect to the Series A Preferred Stock and any other shares of stock of equal
rank upon liquidation are not paid in full, the holders of the Series A
Preferred Stock and of the other shares will share ratably in any such
distribution of assets in proportion to the full liquidation preferences to
which each would otherwise be entitled. After payment of the full amount of the
liquidation preference to which they are entitled, the holders of shares of
Series A Preferred Stock will not be entitled to any further participation in
any distribution of assets of Doral Financial.

A consolidation or merger of Doral Financial with any other corporation, or
any sale, lease or conveyance of all or any part of the property or business of
Doral Financial, shall not be deemed to be a liquidation, dissolution, or
winding up of Doral Financial.

16
<PAGE> 17

VOTING RIGHTS

Holders of the Series A Preferred Stock will not be entitled to receive
notice of or attend or vote at any meeting of stockholders of Doral Financial,
except as described below.

If Doral Financial does not pay dividends in full on the Series A Preferred
Stock for eighteen consecutive monthly dividend periods, the holders of
outstanding shares of the Series A Preferred Stock, together with the holders of
any other shares of stock having the right to vote for the election of directors
solely in the event of any failure to pay dividends, acting as a single class,
will be entitled to appoint two additional members of the board of directors of
Doral Financial. They will also have the right to remove any member so appointed
from office and appoint another person in place of such member. To make this
appointment, the holders of a majority in liquidation preference of these shares
must send written notice to Doral Financial of the appointment or pass a
resolution adopted by a majority of holders at a separate general meeting of
those holders called for this purpose.

Not later than 30 days after the right of holders of Series A Preferred
Stock to elect directors arises, if written notice by a majority of the holders
has not been given as provided for in the preceding sentence, the board of
directors of Doral Financial or an authorized board committee is required to
call a separate general meeting for this purpose. If the board of directors
fails to convene this meeting within the 30-day period, the holders of 10% of
the outstanding shares of the Series A Preferred Stock and any such other stock
will be entitled to convene the meeting.

The provisions of the Restated Certificate of Incorporation and By-laws of
Doral Financial relating to the convening and conduct of general meetings of
stockholders will apply to any separate general meeting of this type. Any member
of the board of directors appointed as described above shall vacate office if
Doral Financial resumes the payment of dividends in full on the Series A
Preferred Stock and each other series of stock having similar voting rights for
twelve consecutive monthly dividend periods. The By-laws of Doral Financial
require a minimum of five members of the board of directors and a maximum of ten
members. As of the date of this prospectus, Doral Financial's board of directors
consisted of eight members.

Any change or cancellation of the rights and preferences of the Series A
Preferred Stock will require the approval of holders of at least two thirds of
the outstanding aggregate liquidation preference of the Series A Preferred
Stock. This approval can by evidenced either by a consent in writing or by a
resolution passed at a meeting of the holders of the Series A Preferred Stock.
The authorization or issuance of any shares of Doral Financial ranking senior to
the Series A Preferred Stock as to dividend rights or rights on liquidation or
similar events, will be considered a change requiring the consent of the Series
A Preferred Stock. Conversely, the authorization or issuance of shares ranking,
as to dividend rights or rights on liquidation or similar events, on a parity or
junior to the Series A Preferred Stock, will not be considered a change or
abrogation of the rights of the Series A Preferred Stock and the consent of the
holders of the Series A Preferred Stock will not be required in connection with
this action.

No vote of the holders of the Series A Preferred Stock will be required for
Doral Financial to redeem or purchase and cancel the Series A Preferred Stock in
accordance with the Restated Certificate of Incorporation or the Certificate of
Designation for the Series A Preferred Stock.

Doral Financial will cause a notice of any meeting at which holders of the
Series A Preferred Stock are entitled to vote to be mailed to each record holder
of the Series A Preferred Stock. Each notice will contain (1) the date of the
meeting, (2) a description of any resolution to be proposed for adoption at the
meeting, and (3) instructions for deliveries of proxies.

Certain Regulatory Issues Related to Voting Rights

Under regulations adopted by the Federal Reserve Board, if the holders of
shares of Series A Preferred Stock become entitled to vote for the election of
directors as described above, the Series A Preferred Stock could be deemed a
"class of voting securities." In this instance, a holder of 25% or more of the
Series A Preferred Stock could then be subject to regulation as a bank holding
company in accordance with the Bank Holding Company Act. A holder of 5% that
otherwise exercises a "controlling influence" over Doral Financial

17
<PAGE> 18

could also be subject to regulation under the Bank Holding Company Act. In
addition, at any time the Series A Preferred Stock is deemed a class of voting
securities, (1) any other bank holding company may be required to obtain the
approval of the Federal Reserve Board to acquire or retain 5% or more of the
outstanding shares of Series A Preferred Stock, and (2) any person other than a
bank holding company may be required to file with the Federal Reserve Board
under the Change in Bank Control Act to acquire or retain 10% or more of such
series.

Section 12 of the Puerto Rico Banking Law requires that the Office of the
Commissioner of Financial Institutions of Puerto Rico approve any change of
control involving a bank organized under the Banking Law. The Banking Law
requires that the Office of the Commissioner be informed not less than 60 days
prior to any transfer of voting stock of a Puerto Rico bank that results in any
person owning, directly or indirectly, more than 5% of the outstanding voting
stock of the bank. For the purposes of Section 12 of the Banking Law, the term
"control" means the power to, directly or indirectly, direct or influence
decisively the administration or the norms of the bank. The Office of the
Commissioner has made an administrative determination that these provisions of
the Banking Law are applicable to a change in control of Doral Financial.

Pursuant to the Banking Law, if the Office of the Commissioner receives
notice of a proposed transaction that may result in a change of control of Doral
Financial, the Office of the Commissioner is required to investigate and
determine whether a change of control has occurred. The Office of the
Commissioner will issue an authorization for the transfer of control of Doral
Financial if the results of its investigations are in its judgment satisfactory.
The decision of the Office of the Commissioner is final and unreviewable.

RANK

The Series A Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding up and dissolution, rank:

- senior to all classes of common stock of Doral Financial, and to all
other equity securities issued by Doral Financial the terms of which
specifically provide that those equity securities will rank junior to the
Series A Preferred Stock;

- on a parity with Doral Financial's outstanding 8% Convertible Cumulative
Preferred Stock (Liquidation Preference $1,000 per share) and with all
other equity securities issued by Doral Financial the terms of which
specifically provide that those equity securities will have equal rank as
the Series A Preferred Stock; and

- junior to all equity securities issued by Doral Financial the terms of
which specifically provide that those equity securities will rank senior
to the Series A Preferred Stock.

For this purpose, the term "equity securities" does not include debt
securities convertible into or exchangeable for equity securities.

Doral Financial may not issue shares ranking, as to dividend rights or
rights on liquidation, winding up and dissolution, senior to the Series A
Preferred Stock, except with the consent of the holders of at least two-thirds
of the outstanding aggregate liquidation preference of the Series A Preferred
Stock. See "Voting Rights" above.

TRANSFER AGENT; DIVIDEND DISBURSING AGENT; REGISTRAR

ChaseMellon Shareholder Services, LLC will initially act as the transfer
agent, dividend disbursing agent and registrar for the Series A Preferred Stock.
Holders of the Series A Preferred Stock may contact ChaseMellon, at the
following address: ChaseMellon Shareholder Services, LLC, P.O. Box 3315, So.
Hackensack, NJ 07606, toll-free telephone number 1-800-851-9677.

The transfer of a share of Series A Preferred Stock may be registered upon
the surrender of the certificate evidencing the share of Series A Preferred
Stock to be transferred, together with the form of transfer endorsed on it duly
completed and executed, at the office of the transfer agent and registrar.

18
<PAGE> 19

Registration of transfers of shares of Series A Preferred Stock will be
effected without charge by or on behalf of Doral Financial, but upon payment of
any tax or other governmental charges which may be imposed in relation to it or
the giving of an indemnity as the transfer agent and registrar may require.

Doral Financial will not be required to register the transfer of a share of
Series A Preferred Stock after the share has been called for redemption.

REPLACEMENT OF LOST CERTIFICATES

If any certificate for a share of Series A Preferred Stock is mutilated or
alleged to have been lost, stolen or destroyed, the holder may request a new
certificate representing the same share. Doral Financial will issue a new
certificate subject to delivery of the old certificate or, if alleged to have
been lost, stolen or destroyed, compliance with the conditions as to evidence of
ownership, indemnity and the payment of out-of-pocket expenses of Doral
Financial as Doral Financial may determine.

NO PREFERENTIAL RIGHTS TO PURCHASE ADDITIONAL SECURITIES

Holders of the Series A Preferred Stock will have no preemptive or
preferential rights to purchase or subscribe for any securities of Doral
Financial.

NO REPURCHASE AT THE OPTION OF THE HOLDERS

Holders of the Series A Preferred Stock will have no right to require Doral
Financial to redeem or repurchase any shares of Series A Preferred Stock.

NO MANDATORY REDEMPTION OR SINKING FUNDING OBLIGATION

The shares of Series A Preferred Stock are not subject to any mandatory
redemption, sinking fund or similar obligation.

PURCHASE OF SHARES BY DORAL FINANCIAL

Doral Financial may, at its option, purchase shares of the Series A
Preferred Stock from holders thereof from time to time, by tender, in privately
negotiated transactions or otherwise.

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED CAPITAL

Doral Financial is authorized to issue 50,000,000 shares of common stock,
$1.00 par value, and 2,000,000 shares of serial preferred stock, $1.00 par
value. The following is a summary of certain rights and privileges of the common
stock and serial preferred stock. Statements in this summary are qualified in
their entirety by reference to Doral Financial's Restated Certificate of
Incorporation, as amended, and to the General Corporation Law of Puerto Rico.

COMMON STOCK

As of February 1, 1999, there were 40,484,920 shares of common stock issued
and 40,428,920 shares of common stock outstanding. As of that date, a total of
1,933,714 of Doral Financial's authorized but unissued shares had been reserved
for possible issuance upon the conversion of all outstanding shares of Doral
Financial's 8% Convertible Cumulative Preferred Stock (the "8% Preferred
Stock"), 2,000,000 shares were reserved for issuance in connection with Doral
Financial's 1997 Employee Stock Option Plan and 288,776 shares were reserved for
use with Doral Financial's Restricted Stock Plan. In addition, 800,000 shares
were reserved for issuance to honor certain contractual purchase rights to a
private investor. The common stock is traded in the over-the-counter market on
the NASDAQ National Market System under the symbol "DORL." The holders of the
common stock are entitled to one vote for each share held of record on all

19
<PAGE> 20

matters submitted to a vote of stockholders. Each share of common stock has the
same relative rights as, and is identical in all respects with, each other share
of common stock. There are no cumulative voting rights for the election of
directors.

Subject to the rights of holders of the outstanding 8% Preferred Stock and
any other outstanding shares of serial preferred stock, in the event of the
liquidation, dissolution or distribution of assets of Doral Financial, the
holders of common stock are entitled to share ratably in the assets legally
available for distribution to stockholders. The common stock has no redemption,
conversion or sinking fund privileges.

Subject to any dividend preferences which may be established with respect
to any series of serial preferred stock, the holders of common stock are
entitled to receive, pro rata, dividends when and as declared by the board of
directors out of funds legally available for the payment of dividends.

Holders of common stock do not have preemptive rights to subscribe for or
purchase additional securities of Doral Financial.

ChaseMellon Shareholder Services, LLC is the transfer agent and registrar
for the common stock.

SERIAL PREFERRED STOCK

The Restated Certificate of Incorporation authorizes the board of directors
to fix the designation, voting powers, preferences, limitations and relative
rights of any series of Doral Financial's serial preferred stock at the time of
issuance. As of the date of this prospectus, the 8% Preferred Stock described
below is the only series of serial preferred stock designated by Doral
Financial, other than the Series A Preferred Stock.

OUTSTANDING SERIAL PREFERRED STOCK

Doral Financial has outstanding 8,460 shares of 8% Preferred Stock. All
shares of 8% Preferred Stock are held by Popular, Inc. Popular acquired the 8%
Preferred Stock in a private transaction with Doral Financial, in which Popular
exchanged convertible debentures of Doral Financial in the principal amount of
$8.46 million it had previously acquired. Popular is the parent company of
Popular Securities, Inc., one of the underwriters of this offering.

Doral Financial entered into the exchange because the 8% Preferred Stock
qualified as Tier 1 capital for purposes of compliance with the regulatory
requirements applicable to bank holding companies while the convertible
debentures did not qualify for this treatment.

Dividend Rights and Limitations. The holders of the shares of 8% Preferred
Stock are entitled to receive cumulative cash dividends when, as and if declared
by the board of directors, at the annual rate of 8% of the $1,000 liquidation
preference thereof payable monthly. The holders of the 8% Preferred Stock are
entitled to receive such dividends prior to any payment of dividends or
distribution of assets to holders of the common stock and to any other class of
capital stock ranking junior to the 8% Preferred Stock with respect to the
payment of dividends.

Liquidation Rights. Upon the liquidation, dissolution or winding up of
Doral Financial, whether voluntary or involuntary, the holders of the 8%
Preferred Stock are entitled to receive out of the assets of Doral Financial an
amount in cash equal to $1,000 per share plus accrued and unpaid dividends
thereon to the date of the distribution. This distribution must be made before
any payment may be made to the holders of common stock or any other securities
of Doral Financial ranking junior to the 8% Preferred Stock as to the
distribution of assets upon liquidation. No distribution of this type or payment
on account of liquidation, dissolution or winding up of Doral Financial may be
made to the holders of the shares of any class or series of stock ranking on a
parity with the 8% Preferred Stock as to the distribution of assets upon
liquidation, unless the holders of the 8% Preferred Stock receive like amounts
ratably in accordance with the full distributive amounts which they and the
holders of parity stock are respectively entitled to receive upon this
preferential distribution.

20
<PAGE> 21

After the payment to the holders of the 8% Preferred Stock of the full
preferential amounts provided for above, the holders of the 8% Preferred Stock
will have no right or claim to any of the remaining assets of Doral Financial.

Conversion Rights. The holders of shares of 8% Preferred Stock have the
right, at their option, to convert such shares their shares of common stock of
Doral Financial at any time on or before December 1, 2005, at a conversion price
of $4.375 per share, subject to adjustment from time to time upon the occurrence
of certain events. As of October 30, 1998, the 8,460 shares of 8% Preferred
Stock held by Popular were convertible into 1,933,714 shares of common stock, or
approximately 4.6% of the outstanding common stock.

Redemption. The 8% Preferred Stock is subject to redemption in whole or in
part, at the option of Doral Financial with the consent of the Federal Reserve
on or after January 1, 2001, and on or prior to December 31, 2002, at a price of
$1,020 per share and after this period at redemption prices declining to a price
of $1,000 per share on or after January 1, 2005. There is no mandatory
redemption or sinking fund obligation with respect to the 8% Preferred Stock.

Voting Rights. The holders of shares of 8% Preferred Stock are not
entitled to any voting rights except as required by law or in connection with
any changes of the terms or rights of the 8% Preferred Stock.

Rank vis-a-vis Series A Preferred Stock. The 8% Preferred Stock will have
the same rank as the Series A Preferred Stock as to the payment of dividends and
as to the distribution of assets upon liquidation, dissolution or winding up of
Doral Financial.

TAXATION

GENERAL

In the opinion of Pietrantoni Mendez & Alvarez, counsel to Doral Financial,
the following discussion summarizes the material Puerto Rico and United States
tax considerations relating to the purchase, ownership and disposition of Series
A Preferred Stock. This discussion does not intend to describe all of the tax
considerations that may be relevant to a particular investor in light of that
person's particular circumstances and does not describe any tax consequences
arising under the laws of any state, locality or taxing jurisdiction other than
Puerto Rico and the United States.

This discussion is based on the tax laws of Puerto Rico and the United
States as in effect on the date of this prospectus, as well as regulations,
administrative pronouncements and judicial decisions available on or before such
date and now in effect. All of the foregoing are subject to change, which change
could apply retroactively and could affect the continued validity of this
summary.

YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE APPLICATION TO YOUR
PARTICULAR SITUATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW, AS WELL AS THE
APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX.

PUERTO RICO TAXATION

The following discussion does not intend to cover all aspects of Puerto
Rico taxation that may be relevant to a purchaser of Series A Preferred Stock in
light of the purchaser's particular circumstances, or to purchasers subject to
special rules of taxation, such as life insurance companies, "Special
Partnerships," "Subchapter N Corporations," registered investment companies, and
certain pension trusts.

For purposes of the discussion below, a "Puerto Rico corporation" is a
corporation organized under the laws of Puerto Rico and a "foreign corporation"
is a corporation organized under the laws of a jurisdiction other than Puerto
Rico.

OWNERSHIP AND DISPOSITION OF SERIES A PREFERRED STOCK

Taxation of Dividends.

General. Distributions of cash or other property made by Doral Financial
on the Series A Preferred Stock will be treated as dividends to the extent that
Doral Financial has current or accumulated earnings and

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<PAGE> 22

profits. To the extent that a distribution exceeds Doral Financial's current and
accumulated earnings and profits, the distribution will be applied against and
reduce the adjusted tax basis of the Series A Preferred Stock in the hands of
the holder. The excess of any distribution of this type over the adjusted tax
basis will be treated as gain on the sale or exchange of the Series A Preferred
Stock and will be subject to income tax as described below.

The following discussion regarding the income taxation of dividends on
Series A Preferred Stock received by individuals not residents of Puerto Rico
and foreign corporations not engaged in a trade or business in Puerto Rico
assumes that dividends will constitute income from sources within Puerto Rico.
Generally, a dividend declared by a Puerto Rico corporation will constitute
income from sources within Puerto Rico unless the corporation derived less than
20% of its gross income from sources within Puerto Rico for the three taxable
years preceding the year of the declaration. Doral Financial has represented
that it has derived more than 20% of its gross income from Puerto Rico sources
on an annual basis since its incorporation in 1972.

Individual Residents of Puerto Rico and Puerto Rico Corporations. In
general, individuals who are residents of Puerto Rico will be subject to a
special 10% income tax (the "10% Special Tax") on dividends paid on the Series A
Preferred Stock. This tax is generally required to be withheld by Doral
Financial. An individual may elect for this withholding not to apply, and in
that case he or she will be required to include the amount of the dividend as
ordinary income and will be subject to income tax thereon at the normal income
tax rates, which may be up to 33%.

Puerto Rico corporations will be subject to income tax on dividends paid on
the Series A Preferred Stock at the normal corporate income tax rates, subject
to the dividend received deduction discussed below. In the case of a Puerto Rico
corporation, no withholding will be imposed on dividends paid on the Series A
Preferred Stock. The dividend received deduction will be equal to 85% of the
dividend received, but the deduction may not exceed 85% of the corporation's net
taxable income. Based on the applicable maximum Puerto Rico normal corporate
income tax rate of 39%, the maximum effective income tax rate on these dividends
will be 5.85% after accounting for the dividend received deduction.

As a practical matter, dividends on the Series A Preferred Stock held in
"street name" through foreign financial institutions or other securities
intermediaries not engaged in trade or business in Puerto Rico will generally be
subject to a separate 10% withholding tax imposed on foreign corporations. See
"-- Foreign Corporations." Accordingly, individuals resident of Puerto Rico who
desire to file an election out of the applicable 10% Special Tax and applicable
withholding tax should have their shares of Series A Preferred Stock issued and
registered in their own name. Similarly, Puerto Rico corporations that own any
shares of Series A Preferred Stock and wish to avoid the withholding imposed on
foreign corporations should have their shares issued and registered in their own
name in order to ensure that no withholding is made on dividends.

United States Citizens Not Residents of Puerto Rico. Dividends paid on the
Series A Preferred Stock to a United States citizen who is not a resident of
Puerto Rico will be subject to the 10% Special Tax which will be withheld by
Doral Financial. These individuals may elect for the withholding not to apply,
and in that case he or she will be required to include the amount of the
dividend as ordinary income and will be subject to income tax thereon at the
normal income tax rates, which may be up to 33%. Notwithstanding the making of
this election, a separate 10% withholding tax will be required on the amount of
the dividend unless the individual timely files with Doral Financial a
withholding exemption certificate to the effect that the individual's gross
income from sources within Puerto Rico during the taxable year does not exceed
$1,300 if single or $3,000 if married. Withholding exemption certificates will
only be accepted by Doral Financial or its agent from individuals who have the
shares of Series A Preferred Stock registered in their names. Individuals who
hold shares of Series A Preferred Stock in "street name" will not be eligible to
file with Doral Financial or its agent withholding exemption certificates.

Individuals Not Citizens of the United States and Not Residents of Puerto
Rico. Dividends paid on the Series A Preferred Stock to any individual who is
not a citizen of the United States and who is not a resident of Puerto Rico will
generally be subject to a 10% tax which will be withheld at source by Doral
Financial.

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<PAGE> 23

Foreign Corporations. The income taxation of dividends paid on the Series
A Preferred Stock to a foreign corporation will depend on whether or not the
corporation is engaged in a trade or business in Puerto Rico.

A foreign corporation that is engaged in a trade or business in Puerto Rico
will be subject to the normal corporate income tax rates applicable to Puerto
Rico corporations on their net income that is effectively connected with the
trade or business in Puerto Rico. This income will include net income from
sources within Puerto Rico and certain items of net income from sources outside
Puerto Rico that are effectively connected with the trade or business in Puerto
Rico. Net income from sources within Puerto Rico will include dividends on the
Series A Preferred Stock. A foreign corporation that is engaged in a trade or
business in Puerto Rico will be entitled to claim the 85% dividend received
deduction discussed above in connection with Puerto Rico corporations.

In general, foreign corporations that are engaged in a trade or business in
Puerto Rico are also subject to a 10% branch profits tax. However, dividends on
the Series A Preferred Stock received by these corporations will be excluded
from the computation of the branch profits tax liability of these corporations.

A foreign corporation that is not engaged in a trade or business in Puerto
Rico will be subject to a 10% withholding tax on dividends received on the
Series A Preferred Stock.

Partnerships. Partnerships are generally taxed in the same manner as
corporations. Accordingly, the preceding discussion with respect to Puerto Rico
and foreign corporations is equally applicable in the case of most Puerto Rico
and foreign partnerships, respectively.

Taxation of Gains upon Sales or Exchanges Other Than Redemptions.

General. The sale or exchange of Series A Preferred Stock will give rise
to gain or loss equal to the difference between the amount realized on the sale
or exchange and the tax basis of the Series A Preferred Stock in the hands of
the holder. Any gain or loss that is required to be recognized will be a capital
gain or loss if the Series A Preferred Stock is held as a capital asset by the
holder and will be a long-term capital gain or loss if the stockholders' holding
period of the Series A Preferred Stock exceeds six months.

Individual Residents of Puerto Rico and Puerto Rico Corporations. Gain on
the sale or exchange of Series A Preferred Stock by an individual resident of
Puerto Rico or a Puerto Rico corporation will generally be required to be
recognized as gross income and will be subject to income tax. If the stockholder
is an individual and the gain is a long-term capital gain, the gain will be
taxable at a maximum rate of 20%.

If the stockholder is a Puerto Rico corporation and the gain is a long-term
capital gain, the gain will qualify for an alternative tax rate of 25%.

United States Citizens Not Residents of Puerto Rico. A United States
citizen who is not a resident of Puerto Rico will not be subject to Puerto Rico
income tax on the sale or exchange of Series A Preferred Stock if the gain
resulting therefrom constitutes income from sources outside Puerto Rico.
Generally, gain on the sale or exchange of Series A Preferred Stock will be
considered to be income from sources outside Puerto Rico if all rights, title
and interest in or to the Series A Preferred Stock are transferred outside
Puerto Rico, and if the delivery or surrender of the instruments that evidence
the Series A Preferred Stock is made to an office of a paying or exchange agent
located outside Puerto Rico. If the gain resulting from the sale or exchange
constitutes income from sources within Puerto Rico, an amount equal to 20% of
the payments received will be withheld at the source; and if the gain
constitutes a long-term capital gain, it will be subject to a tax at a maximum
rate of 20%. The amount of tax withheld at source will be creditable against the
shareholder's Puerto Rico income tax liability.

Individuals Not Citizens of the United States and Not Residents of Puerto
Rico. An individual who is not a citizen of the United States and who is not a
resident of Puerto Rico will be subject to the rules described above under
"-- United States Citizens Not Residents of Puerto Rico." However, if the gain
resulting from the sale or exchange of Series A Preferred Stock constitutes
income from sources within Puerto Rico, an

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<PAGE> 24

amount equal to 25% of the payments received will be withheld at the source;
provided, that if the gain resulting from the sale or exchange represents a
capital gain from sources within Puerto Rico, the individual will generally be
subject to tax on this gain at a fixed rate of 29%. The amount of tax withheld
at source will be creditable against the shareholder's Puerto Rico income tax
liability.

Foreign Corporations. A foreign corporation that is engaged in a trade or
business in Puerto Rico will generally be subject to Puerto Rico corporate
income tax on any gain realized on the sale or exchange of Series A Preferred
Stock if the gain is (1) from sources within Puerto Rico or (2) from sources
outside Puerto Rico and effectively connected with a trade or business in Puerto
Rico. Any such gain will qualify for an alternative tax of 25% if it qualifies
as a long-term capital gain.

In general, foreign corporations that are engaged in a trade or business in
Puerto Rico will also be subject to a 10% branch profits tax. In the computation
of this tax, any gain realized by these corporations on the sale or exchange of
Series A Preferred Stock and that is subject to Puerto Rico income tax will be
taken into account. However, a deduction will be allowed in the computation for
any income tax paid on the gain realized on the sale or exchange.

A foreign corporation that is not engaged in a trade or business in Puerto
Rico will generally be subject to a corporate income tax rate of 29% on any
capital gain realized on the sale or exchange of Series A Preferred Stock if the
gain is from sources within Puerto Rico. Gain on the sale or exchange of Series
A Preferred Stock will generally not be considered to be from sources within
Puerto Rico if all rights, title and interest in or to the Series A Preferred
Stock are transferred outside Puerto Rico, and if the delivery or surrender of
the instruments that evidence the Series A Preferred Stock is made to an office
of a paying or exchange agent located outside Puerto Rico. If the gain resulting
from the sale or exchange constitutes income from sources within Puerto Rico, an
amount equal to 25% of the payments received will be withheld at the source and
be creditable against the shareholder's Puerto Rico income tax liability. In the
case of such foreign corporation, no income tax will be imposed if the gain
constitutes income from sources outside Puerto Rico.

Partnerships. Partnerships are generally taxed as corporations.
Accordingly, the discussion with respect to Puerto Rico and foreign corporations
is equally applicable to most Puerto Rico and foreign partnerships,
respectively.

Taxation of Redemptions.

A redemption of shares of the Series A Preferred Stock for cash will be
treated as a distribution taxable as a dividend to the extent of Doral
Financial's current or accumulated earnings and profits if it is "essentially
equivalent to a dividend." Under regulations issued by the Department of the
Treasury of Puerto Rico (1) a redemption of stock that completely terminates a
shareholder's interest in a corporation does not constitute a dividend, and (2)
certain prorata redemptions among all the shareholders will be treated as a
dividend. In situations not described by these regulations, the Department of
the Treasury of Puerto Rico will generally follow principles applied by the
United States Internal Revenue Service under the United States Internal Revenue
Code of 1986, in determining whether a distribution is essentially equivalent to
a dividend. The Department of the Treasury of Puerto Rico, however, is not bound
by IRS determinations on this issue and is free to adopt a different rule.

If the redemption of the Series A Preferred Stock is not treated as a
dividend, it will generally generate gain or loss that will be measured as
provided above under "-- Taxation of Gains upon Sales or Exchanges (Not
including Redemptions)" for a sale or exchange of Series A Preferred Stock. Gain
on the redemption of Series A Preferred Stock will generally be recognized and
will be subject to income tax. If the stockholder of the Series A Preferred
Stock is an individual resident of Puerto Rico and the gain is a long-term
capital gain, the gain will be taxable at a maximum rate of 20%. If the
stockholder is a Puerto Rico corporation and the gain is a long-term capital
gain, the gain will qualify for the alternative tax rate of 25%.

If the stockholder of the Series A Preferred Stock is an individual who is
not a resident of Puerto Rico or a foreign corporation or foreign partnership,
any gain realized by the holder on the redemption of the Series A Preferred
Stock that is not taxable as a dividend may be subject to Puerto Rico income tax
if the

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<PAGE> 25

gain constitutes income from sources within Puerto Rico or is effectively
connected with a trade or business conducted by the holder in Puerto Rico. The
Puerto Rico income tax law does not clearly provide a source of income rule for
a gain of this nature. As a result thereof, these prospective shareholders
should be aware that a gain realized from a redemption of the Series A Preferred
Stock may be subject to Puerto Rico income tax.

ESTATE AND GIFT TAXATION

The transfer of Series A Preferred Stock by inheritance or gift by an
individual who is a resident of Puerto Rico at the time of his or her death or
at the time of the gift will not be subject to estate and gift tax if the
individual is a citizen of the United States who acquired his or her citizenship
solely by reason of birth or residence in Puerto Rico. Other individuals should
consult their own tax advisors in order to determine the appropriate treatment
for Puerto Rico estate and gift tax purposes of the transfer of the Series A
Preferred Stock by death or gift.

MUNICIPAL LICENSE TAXATION

Individuals and corporations that are not engaged in a trade or business in
Puerto Rico will not be subject to municipal license tax on dividends paid on
the Series A Preferred Stock or on any gain realized on the sale, exchange or
redemption of the Series A Preferred Stock.

A corporation or partnership, Puerto Rico or foreign, that is engaged in a
trade or business in Puerto Rico will generally be subject to municipal license
tax on dividends paid on the Series A Preferred Stock and on the gain realized
on the sale, exchange or redemption of the Series A Preferred Stock if the
dividends or gain are attributable to that trade or business. The municipal
license tax is imposed on the volume of business of the taxpayer, and the tax
rates range from a maximum of 1.5% for financial businesses to a maximum of 0.5%
for other businesses.

PROPERTY TAXATION

The Series A Preferred Stock will not be subject to Puerto Rico property
tax.

UNITED STATES TAXATION

The following discussion is limited to the United States federal tax
consequences of the ownership and disposition of the Series A Preferred Stock by
U.S. Holders, as defined below, and corporations organized under the laws of
Puerto Rico ("PR Corporations"). This discussion is based on the United States
Internal Revenue Code of 1986 (the "Code"), existing and proposed regulations of
the U.S. Department of the Treasury promulgated thereunder, administrative
pronouncements and judicial decisions, all of which are subject to change, even
with retroactive effect. This discussion deals only with Series A Preferred
Stock held by initial purchasers as capital assets within the meaning of Section
1221 of the Code. It does not discuss all of the tax consequences that may be
relevant to a purchaser in light of that person's particular circumstances or to
purchasers subject to special rules, such as entities that are taxed under the
Code as partnerships, "Subchapter S Corporations," life insurance companies, tax
exempt entities, dealers in securities, financial institutions, or to persons
whose functional currency is not the U.S. dollar.

As used herein, the term "U.S. Holder" means a beneficial owner of Series A
Preferred Stock that does not own directly, constructively or by attribution 10%
or more of the voting stock of the Company and is, for United States federal
income tax purposes:

- a citizen or resident of the United States,

- a corporation organized under the laws of a state of the United States,

- a corporation organized under the laws of the United States or of any
political subdivision thereof, or

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<PAGE> 26

- an estate or trust the income of which is subject to United States
federal income taxation regardless of its source.

The term "U.S. Holder" does not include individual Puerto Rico residents
who are not citizens or residents of the United States nor does it include PR
Corporations. As used herein, the term "Puerto Rico U.S. Holder" means an
individual U.S. Holder who is a bona fide resident of Puerto Rico during the
entire taxable year (or, in certain cases, a portion thereof).

OWNERSHIP AND DISPOSITION OF SERIES A PREFERRED STOCK

Taxation of Dividends.

General. Under the source of income rules of the Code, dividends on the
Series A Preferred Stock will constitute gross income from sources outside the
United States if less than 25% of Doral Financial's gross income on an ongoing
basis is effectively connected with a trade or business in the United States.
Since its incorporation in 1972, Doral Financial has not, nor does it expect in
the future, that 25% or more of its gross income will be effectively connected
with a trade or business in the United States. Accordingly, dividends on the
Series A Preferred Stock distributed by Doral Financial will constitute gross
income from sources outside the United States so long as Doral Financial
continues to meet the gross income test described above.

U.S. Holders other than Puerto Rico U.S. Holders. Subject to the
discussion under "-- Passive Foreign Investment Company Rules" below,
distributions made with respect to the Series A Preferred Stock, including the
amount of any Puerto Rico taxes withheld on the distribution, will be includable
in the gross income of a U.S. Holder, other than a Puerto Rico U.S. Holder, as
foreign source gross income to the extent the distributions are paid out of
current or accumulated earnings and profits of Doral Financial as determined for
United States federal income tax purposes. These dividends will not be eligible
for the dividends received deduction generally allowed to U.S. Holders that are
corporations. To the extent, if any, that the amount of any distribution by
Doral Financial exceeds its current and accumulated earnings and profits as
determined under United States federal income tax principles, it will be treated
first as a tax-free return of the U.S. Holder's tax basis in the Series A
Preferred Stock and thereafter as capital gain.

Subject to certain conditions and limitations contained in the Code, any
Puerto Rico income tax imposed on dividends distributed by Doral Financial in
accordance with Puerto Rico law will be eligible for credit against the U.S.
Holder's United States federal income tax liability. See "Puerto Rico
Taxation -- Ownership and Disposition of Series A Preferred Stock -- Taxation of
Dividends" above. For purposes of calculating a U.S. Holder's United States
foreign tax credit limitation, dividends distributed by Doral Financial will
generally constitute foreign source "passive income" or, in the case of certain
U.S. Holders (those predominantly engaged in the active conduct of a banking,
financing or similar business), foreign source "financial services income."

Puerto Rico U.S. Holders. In general, and subject to the discussion under
"-- Passive Foreign Investment Company Rules" below, distributions of dividends
made by Doral Financial on the Series A Preferred Stock to a Puerto Rico U.S.
Holder will constitute gross income from sources within Puerto Rico, will not be
includable in the stockholder's gross income and will be exempt from United
States federal income taxation. In addition, for United States federal income
tax purposes, no deduction or credit will be allowed that is allocable to or
chargeable against amounts so excluded from the Puerto Rico U.S. Holder's gross
income.

PR Corporations. In general, distributions of dividends made by Doral
Financial on the Series A Preferred Stock to a PR Corporation will not, in the
hands of the PR Corporation, be subject to United States income tax if the
dividends are not effectively connected with a United States trade or business
of the PR Corporation and the PR Corporation is not treated as a domestic
corporation for purposes of the Code. The Code provides special rules for PR
Corporations that are "Controlled Foreign Corporations," "Personal Holding
Companies," "Foreign Personal Holding Companies," or "Passive Foreign Investment
Companies."

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<PAGE> 27

Taxation of Capital Gains.

U.S. Holders other than Puerto Rico U.S. Holders. A U.S. Holder, other
than a Puerto Rico U.S. Holder, will recognize gain or loss on the sale or other
disposition of Series A Preferred Stock, including redemptions treated as sales
or exchanges of the Series A Preferred Stock under Section 302 of the Code, in
an amount equal to the difference between the U.S. Holder's adjusted tax basis
in the Series A Preferred Stock and the amount realized on the sale or other
disposition. Subject to the discussion under "-- Passive Foreign Investment
Company Rules" below, the gain or loss will be a capital gain or loss. U.S.
Holders should consult their own tax advisors concerning the treatment of
capital gains and losses. Redemptions of the Series A Preferred Stock that are
not treated as sales or exchanges under Section 302 of the Code will generally
be subject to income tax under the Code as dividends.

Gain recognized by a U.S. Holder on the sale or other disposition of Series
A Preferred Stock generally will be treated as United States source income.

Puerto Rico U.S. Holders. In general, and subject to the discussion under
"-- Passive Foreign Investment Company Rules" below, gain from the sale or
exchange of the Series A Preferred Stock, including redemptions treated as sales
or exchanges of the Series A Preferred Stock under Section 302 of the Code, by a
Puerto Rico U.S. Holder that is a resident of Puerto Rico for purposes of
Section 865(g)(1) of the Code (1) will constitute income from sources within
Puerto Rico, (2) will not be includable in the stockholder's gross income and
(3) will be exempt from United States federal income taxation. Also, no
deduction or credit will be allowed that is allocable to or chargeable against
amounts so excluded from the Puerto Rico U.S. Holder's gross income. Redemptions
of the Series A Preferred Stock that are not treated as sales or exchanges under
Section 302 of the Code will generally be subject to income tax under the Code
as dividends.

PR Corporations. In general, any gain derived by a PR Corporation from the
sale or exchange of the Series A Preferred Stock will not, in the hands of the
PR Corporation, be subject to United States income tax if the gain is not
effectively connected with a United States trade or business of the PR
Corporation and the PR Corporation is not treated as a domestic corporation for
purposes of the Code. The Code provides special rules for PR Corporations that
are "Controlled Foreign Corporations," "Personal Holding Companies," "Foreign
Personal Holding Companies," or "Passive Foreign Investment Companies."
Redemptions of the Series A Preferred Stock that are not treated as sales or
exchanges under Section 302 of the Code will generally be subject to income tax
under the Code as dividends.

Backup Withholding. Certain corporate U.S. Holders may be subject to
backup withholding at the rate of 31% on dividends paid or the proceeds of a
sale, exchange or redemption of Series A Preferred Stock. Generally, backup
withholding applies only when the taxpayer fails to furnish or certify a proper
taxpayer identification number or when the payor is notified by the IRS that the
taxpayer has failed to report payments of interest and dividends properly. U.S.
Holders should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining any applicable
exemption.

PASSIVE FOREIGN INVESTMENT COMPANY RULES

The Code provides special rules for distributions received by U.S. Holders
on stock of a Passive Foreign Investment Company ("PFIC") as well as amounts
received from the sale or other disposition of PFIC stock. For purposes of these
rules pledges are considered dispositions.

Based upon certain proposed Treasury Regulations under the PFIC provisions
of the Code (the "Proposed Regulations"), Doral Financial believes that it has
not been a PFIC for any of its prior taxable years and expects to conduct its
affairs in a manner so that it will not meet the criteria to be considered a
PFIC in the foreseeable future. If, contrary to Doral Financial's expectation,
the Series A Preferred Stock were considered to be shares of a PFIC for any
fiscal year, a U.S. Holder would generally be subject to special rules,
regardless of whether Doral Financial remains a PFIC, with respect to (1) any
"excess distribution" by Doral Financial to the U.S. Holder and (2) any gain
realized on the sale, pledge or other disposition of Series A Preferred Stock.
An "excess distribution" is, generally, any distributions received by the U.S.
Holder

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<PAGE> 28

on the Series A Preferred Stock in a taxable year that are greater than 125% of
the average annual distributions received by the U.S. Holder in the three
preceding taxable years, or the U.S. Holder's holding period for the Series A
Preferred Stock if shorter.

Under these rules, (1) the excess distribution or gain would be allocated
ratably over the U.S. Holder's holding period for the Series A Preferred Stock,
(2) the amount allocated to the current taxable year and any taxable year prior
to the first taxable year in which Doral Financial is a PFIC would be taxed as
ordinary income, and (3) the amount allocated to each of the other taxable years
would be subject to tax at the highest rate of tax in effect for the applicable
class of taxpayer for that year, and an interest charge for the deemed deferral
benefit would be imposed on the resulting tax attributable to each such year.

As an alternative to these rules, if Doral Financial were a PFIC and
effective for taxable years of U.S. Holders beginning after December 31, 1997,
U.S. Holders may, in certain circumstances, elect a mark-to-market treatment
with respect to their Series A Preferred Stock, provided that the Series A
Preferred Stock will constitute "marketable stock" for purposes of these rules.

In general, the Proposed Regulations provide that Puerto Rico U.S. Holders
would be subject to the rule described in (3) above only to the extent that any
excess distribution or gain is allocated to a taxable year during which the
individual held the Series A Preferred Stock and was not a bona fide resident of
Puerto Rico during the entire taxable year or, in certain cases, a portion
thereof.

Under current law, if Doral Financial is a PFIC in any year, a U.S. Holder
who beneficially owns Series A Preferred Stock during that year must make an
annual return on IRS Form 8621 that describes any distributions received from
Doral Financial and any gain realized on the disposition of Series A Preferred
Stock.

ESTATE AND GIFT TAXATION

The transfer of Series A Preferred Stock by inheritance or gift by an
individual who is a resident of Puerto Rico at the time of his or her death or
at the time of the gift will not be subject to U.S. federal estate and gift tax
if the individual is a citizen of the United States who acquired his or her
citizenship solely by reason of birth or residence in Puerto Rico. Other
individuals should consult their own tax advisors in order to determine the
appropriate treatment for U.S. federal estate and gift tax purposes of the
transfer of the Series A Preferred Stock by death or gift.

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<PAGE> 29

UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), Doral Financial has agreed to sell to each of
the underwriters named below, and each of the underwriters severally has agreed
to purchase from Doral Financial, the aggregate number of shares of Series A
Preferred Stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES(1)
- ------------ ---------
<S> <C>
PaineWebber Incorporated of Puerto Rico..................... 650,000
Popular Securities, Inc..................................... 260,000
Santander Securities Corporation of Puerto Rico............. 130,000
Prudential Securities Incorporated.......................... 130,000
Salomon Smith Barney Inc.................................... 130,000
---------
Total............................................. 1,300,000
=========
</TABLE>

- ---------------

(1) Assumes no exercise of the underwriters' over-allotment option.

Under the terms and conditions of the Underwriting Agreement, Doral
Financial is obligated to sell, and the underwriters are obligated to purchase,
all of the shares of Series A Preferred Stock shown in the table above, if any
of the shares of Series A Preferred Stock are purchased.

The underwriters propose to offer the shares of Series A Preferred Stock to
the public initially at the public offering price set forth on the cover page of
this prospectus and to certain selected dealers at the public offering price
less a concession not to exceed $1.00 per share. After the offering to the
public, the public offering price and the concession to selected dealers may be
changed by the underwriters.

Doral Financial has granted the underwriters an option exercisable for 30
days from the date of this prospectus, to purchase up to 195,000 additional
shares of Series A Preferred Stock to cover over-allotments, if any, at the
initial public offering price, less the underwriting discounts, as shown on the
cover page of this prospectus. If the underwriters exercise this option, then
each of the underwriters will have a firm commitment, subject to certain
conditions contained in the Underwriting Agreement, to purchase a number of
option shares proportionate to the underwriter's initial commitment as indicated
in the table above. The underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the shares of Series A
Preferred Stock offered hereby.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Doral Financial as well as the
proceeds received by Doral Financial from the offering, before deducting
expenses. The amounts are shown assuming both no exercise and full exercise of
the underwriters' option to purchase up to an additional 195,000 shares.

<TABLE>
<CAPTION>
TOTAL, ASSUMING
FULL EXERCISE OF
OVER-ALLOTMENT
PER SHARE TOTAL OPTION
--------- ----------- ----------------
<S> <C> <C> <C>
Public Offering Price..................................... $50.00 $65,000,000 $74,750,000
Underwriting Discount..................................... $ 1.575 $ 2,047,500 $ 2,354,625
Proceeds to Doral Financial............................... $48.425 $62,952,500 $72,395,375
</TABLE>

In connection with this offering, certain underwriters may engage in
passive market making transactions on the Nasdaq Stock Market's National Market
System immediately prior to the commencement of sales in this offering, in
accordance with Rule 103 of Regulation M. Passive market making consists of
displaying bids on the Nasdaq Stock Market limited by the bid prices and effect
in response to order flow. Net purchases by a passive market maker on each day
are limited to a specified percentage of the passive market maker's average
daily trading volume in the Series A Preferred Stock during a specified period
and must be discontinued when

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<PAGE> 30

that limit is reached. Passive market making may stabilize the market price of
the Series A Preferred Stock at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.

Until the distribution of the Series A Preferred Stock is completed, rules
of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for and purchase the Series A Preferred Stock. As an
exception to these rules, the underwriters may engage in certain transactions
that stabilize the price of the Series A Preferred Stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Series A Preferred Stock.

If the underwriters create a short position in the Series A Preferred Stock
in connection with the offering, i.e., if the underwriters sell more shares of
Series A Preferred Stock than are set forth on the cover page of this
prospectus, they may reduce that short position by purchasing shares of Series A
Preferred Stock in the open market. The underwriters may also elect to reduce
any short position by purchasing all or part of the over-allotment option
described above.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of these purchases.

Doral Financial estimates that the total expenses of this offering,
excluding underwriting discounts and commissions, will be $300,000.

In connection with this offering, Doral Financial has agreed to indemnify
the underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make in respect thereof.

The Series A Preferred Stock has been approved for quotation on the Nasdaq
Stock Market under the symbol "DORLP."

Several of the underwriters have from time to time been customers of,
engaged in transactions with, or performed services for, Doral Financial and its
subsidiaries in the ordinary course of business. The underwriters may continue
to do so in the future. In addition, Popular, Inc., the parent company of
Popular Securities, Inc., one of the underwriters, owns all the outstanding
shares of Doral Financial's 8% Preferred Stock. The shares of common stock
issuable upon conversion of the 8% Preferred Stock together with other shares of
common stock owned by Popular, Inc. equal approximately 4.9% of Doral
Financial's outstanding common stock.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Securities and Exchange Commission allows Doral Financial to
"incorporate by reference" the information it files with them, which means Doral
Financial can disclose important information to you by referring to these
documents. The information included in the following documents is incorporated
by reference and is considered a part of this prospectus. The most recent
information that Doral Financial files with the SEC automatically updates and
supersedes previously filed information. Doral Financial has previously filed
the following documents with the SEC and is incorporating them by reference into
this prospectus:

- Annual Report on Form 10-K for the year ended December 31, 1997;

- Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998; and

- Current Reports on Form 8-K dated January 21, 1998, October 7, 1998,
October 19, 1998 and January 12, 1999.

Doral Financial also incorporates by reference all documents filed by it
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, after the date of this prospectus and until all the shares being offered
by this prospectus are sold.

Doral Financial will provide, at no cost, to each person, including a
beneficial owner, to whom this prospectus is delivered, upon written or oral
request, a copy of any or all of the documents incorporated herein by reference,
other than exhibits to these documents unless such exhibits are specifically
incorporated by

30
<PAGE> 31

reference into such documents. Requests for copies should be directed to Doral
Financial Corporation, Attention: Mario S. Levis, Executive Vice President and
Treasurer, 1159 Franklin D. Roosevelt Avenue, San Juan, Puerto Rico 00920,
telephone: (787) 749-7108.

AVAILABLE INFORMATION

Doral Financial files annual, quarterly and current reports, proxy
statements and other information with the SEC. Doral Financial has also filed
with the SEC a Registration Statement on Form S-3, to register the Series A
Preferred Stock being offered in this prospectus. This prospectus, which forms
part of the Registration Statement, does not contain all of the information
included in the Registration Statement. For further information about Doral
Financial and the shares of Series A Preferred Stock offered in this prospectus,
you should refer to the Registration Statement and its exhibits.

You may read and copy any document filed by Doral Financial with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the Public Reference Room. Doral Financial files its SEC materials
electronically with the SEC, so you can also review Doral Financial's filings by
accessing the web site maintained by the SEC at http://www.sec.gov. This site
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. You can also obtain
more information about Doral Financial by visiting our web site at
http://www.doralfinancial.com.

LEGAL MATTERS

The validity of the shares of Series A Preferred Stock offered hereby will
be passed upon for Doral Financial by Pietrantoni Mendez & Alvarez, San Juan,
Puerto Rico. As of February 1, 1999, attorneys working in Pietrantoni Mendez &
Alvarez owned, in the aggregate, approximately 2,864 shares of common stock of
Doral Financial. Certain legal matters will be passed upon for the underwriters
by Axtmayer Adsuar Muniz & Goyco, P.S.C., San Juan, Puerto Rico.

EXPERTS

The consolidated financial statements of Doral Financial as of December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997, incorporated by reference into this prospectus, have been so incorporated
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

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<PAGE> 32

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1,300,000 SHARES

[DORAL FINANCIAL CORPORATION LOGO]

7% NONCUMULATIVE
MONTHLY INCOME
PREFERRED STOCK, SERIES A

PRICE TO PUBLIC: $50 PER SHARE

----------------------
PROSPECTUS
----------------------

PAINEWEBBER INCORPORATED
OF PUERTO RICO

POPULAR SECURITIES
(JOINT LEAD MANAGERS)

------------------------

SANTANDER SECURITIES

PRUDENTIAL SECURITIES
INCORPORATED

SALOMON SMITH BARNEY INC.

FEBRUARY 16, 1999

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