On April 8, 2008, the Company's Board of Directors approved the 2008 Stock Incentive Plan (the “Plan”) subject to shareholder approval, which was obtained at the annual shareholders' meeting held on May 7, 2008. The Plan replaced the 2004 Omnibus Incentive Plan. Stock options granted are expensed over the stock option vesting period based on fair value which is determined using the Black-Scholes option-pricing method at the date the options are granted.

The aggregate number of shares of common stock which the Company may issue under the Plan is limited to 6,750,000. No options were granted by the Company for the six month period ended June 30, 2011.

On July 22, 2008, four independent directors were each granted 2,000 shares of restricted stock and stock options to purchase 20,000 shares of common stock at an exercise price equal to the closing price of the stock on the grant date. The restricted stock became 100% vested during the first quarter of 2010. The stock options vest ratably over a five year period commencing with the grant date.

On June 25, 2010, the Board of Directors of Doral Financial Corporation approved and adopted a retention program for six of the Company's officers (the “Retention Program”). Pursuant to the Retention Program, the Company granted 3,000,000 shares of the Company's common stock as restricted stock to such officers. The restricted stock will vest in installments so long as at the time of vesting the employee has been continuously employed by the Company from the date of grant, as follows: 33% will vest 12 calendar months after the grant date, an additional 33% will vest 24 calendar months after the grant date, and the remaining 33% will vest 36 calendar months after the grant date. Notwithstanding the foregoing, 100% of the restricted stock will vest (i) upon the occurrence of a change of control of the Company; (ii) if the Company's terminates the employee's employment without cause or the employee terminates his or her employment for good reason (as defined in the agreement); or (iii) upon such employee's death.

On March 22, 2011, five directors were each granted 25,000 shares of restricted stock. The restricted stock will vest in installments as follows: (i) 50% of the shares shall vest 12 calendar months after the grant date, and (ii) an additional 50% of the shares will vest 24 calendar months after the grant date. In April 2011, five officers were granted a total of 1,192,728 shares of restricted stock with similar conditions as those granted in June 2010.

Stock-based compensation recognized was as follows:

		Quarters Ended				Six Month Periods Ended
		June 30,				June 30,
(In thousands)		2011		2010		2011		2010

Stock-based compensation recognized, net		$	1,043	$	56	$	1,703	$	73

Unrecognized at end of period:
	Stock options	$	95	$	214	$	95	$	214
	Restricted stock	$	6,581	$	8,182	$	6,581	$	8,182

The fair value of the options granted in 2008 was estimated using the Black-Scholes option-pricing model, with the following assumptions:

Weighted-average exercise price	$	13.70
Stock option estimated fair value	$	5.88
Expected stock option term (years)		6.50
Expected volatility		39.00	%
Expected dividend yield		—	%
Risk-free interest rate		3.49	%

Expected volatility is based on the historical volatility of the Company's common stock over a ten-year period. The Company uses empirical research data to estimate options exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield is based on management's expectation that the Company will not resume dividend payments on its Common Stock for the foreseeable future.

Doral Financial's nonvested restricted stock activity for the quarter and six months ended June 30, 2011 is as follows:

Nonvested Restricted Shares		Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2010			3,000,000	$	2.74
	Granted		125,000		1.17
Nonvested at March 31, 2011			3,125,000		2.68
	Granted		1,192,728		1.11
	Vested		(1,000,000)		(2.74)
Nonvested at June 30, 2011			3,317,728	$	2.12

As of June 30, 2011, the total amount of unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan was approximately $6.7 million related to stock options and restricted stock granted. That cost is expected to be recognized over a period of 4 years for the stock options and 3 years for the restricted stock. As of June 30, 2011, the total fair value of stock options and restricted stock was $10.3 million.