<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission file number 0-17224
First Financial Caribbean Corporation
(Exact name of registrant as specified in its charter)
Puerto Rico 66-0312162
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1159 F.D. Roosevelt Avenue,
Puerto Nuevo
San Juan, Puerto Rico 00920-2998
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, (809) 749-7100
including area code
Former name, former address and Not applicable
former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares of Common Stock outstanding at June 30, 1994 - 6,950,264
Page 1 of 31 pages.
Exhibit Index on page 16.
<PAGE> 2
2
FIRST FINANCIAL CARIBBEAN CORPORATION
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet as of June 30, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income and Retained Earnings -
Quarters ended June 30, 1994 and June 30, 1993 and six-month
periods ended June 30, 1994 and June 30, 1993 . . . . . . . . 4
Consolidated Statement of Cash Flows - Six-month periods
ended June 30, 1994 and June 30, 1993 . . . . . . . . . . . . 5
Notes to Consolidated Condensed Financial Statements. . . . . 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 13
Item 2 - Changes in Securities . . . . . . . . . . . . . . . . . . . 13
Item 3 - Defaults Upon Senior Securities . . . . . . . . . . . . . . . 13
Item 4 - Submission of Matters to a Vote of Security Holders . . . . . 13
Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . 14
Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE> 3
3
FIRST FINANCIAL CARIBBEAN CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
(unaudited) (audited)
----------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 24,287 $ 37,307
Accounts receivable, net 25,817 22,816
Mortgage loans held for sale 233,074 272,077
Mortgage-backed securities held for sale 259,981 125,716
Investments held to maturity 25,435 6,530
Property, leasehold improvements and equipment, net 7,614 5,771
Cost in excess of fair value of net assets acquired 6,520 6,537
Real estate held for sale, net 2,336 2,928
Other assets 7,834 6,749
--------- ---------
Total assets $ 592,898 $ 486,431
========= =========
Escrow funds (See contra) $ 50,672 $ 62,650
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Loans payable $ 188,218 $ 192,794
Securities sold under agreements to repurchase 242,920 143,200
Deposits 40,225 26,451
Advances from FHLB 1,525 2,431
Payables and accrued liabilities 30,716 38,402
Income tax payable 291 3,749
Deferred tax liability 4,689 2,460
--------- ---------
Total liabilities 508,584 409,487
--------- ---------
Stockholders' equity:
10.5% Cumulative Convertible Preferred Stock, Series A, $1
par value, 2,000,000 shares authorized; 313,350 shares
issued and outstanding (1993 - 414,413) (liquidating
preference of $10 per share, aggregating $3,133,500) 313 414
Common stock, $1 par value, 10,000,000 shares authorized;
6,964,264 shares issued and outstanding (1993-6,762,138) 6,964 6,762
Paid-in capital 16,784 16,885
Retained earnings 60,556 53,219
--------- ---------
84,617 77,280
Treasury stock at par value,14,000 shares (14) (14)
Unearned compensation under employment contracts (289) (322)
--------- ---------
Total stockholders' equity 84,314 76,944
--------- ---------
Commitments and contingencies
--------- ---------
Total liabilities and stockholders' equity $ 592,898 $ 486,431
========= ==========
Liability for escrow funds (See contra) $ 50,672 $ 62,650
========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 4
4
FIRST FINANCIAL CARIBBEAN CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(In thousands of dollars, except for shares outstanding and per share data)
Unaudited
<TABLE>
<CAPTION>
Quarter Ended Six-Month Period Ended
June 30, 1994 June 30, 1993 June 30, 1994 June 30, 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Mortgage loans sales and fees $ 3,621 $ 8,882 $ 7,096 $ 16,504
Servicing income 3,263 1,724 6,032 4,330
Interest income 11,951 5,926 20,675 11,032
Gain on sale of servicing rights ---- 2,378 ---- 2,378
Rental and other income 132 76 239 120
----------- ----------- ----------- -----------
18,967 18,986 34,042 34,364
----------- ----------- ----------- -----------
Expenses:
Interest 5,489 2,411 9,060 4,693
Loan origination costs, administrative and
general 7,641 6,656 15,442 12,719
----------- ----------- ----------- -----------
13,130 9,067 24,502 17,412
----------- ----------- ----------- -----------
Income before income taxes and cumulative effect
of change in accounting principle 5,837 9,919 9,540 16,952
Income taxes:
Current 94 2,755 202 5,394
Deferred 958 207 1,245 360
----------- ----------- ----------- -----------
1,052 2,962 1,447 5,754
----------- ----------- ----------- -----------
Income before cumulative effect of change in
accounting principle 4,785 6,957 8,093 11,198
Cumulative effect of change in accounting
principle-adoption of SFAS 115, net of income
taxes of $880 ---- ---- 1,215 ----
----------- ----------- ----------- -----------
Net income 4,785 6,957 9,308 11,198
Retained earnings at beginning of period 56,756 38,493 53,219 35,042
Less cash dividends paid:
Convertible preferred stock 82 129 168 263
Common stock 903 654 1,803 1,310
----------- ----------- ----------- -----------
Retained earnings at end of period $ 60,556 $ 44,667 $ 60,556 $ 44,667
=========== =========== =========== ===========
Earnings per share:
Primary:
Income before cumulative effect of change in
accounting principle $ 0.68 $ 1.04 $ 1.15 $ 1.67
Cumulative effect ---- ---- 0.18 ----
----------- ----------- ----------- -----------
Net Income $ 0.68 $ 1.04 $1.33 $ 1.67
=========== =========== =========== ===========
Fully Diluted:
Income before cumulative effect of change in
accounting principle $ 0.63 $ 0.92 $ 1.07 $ 1.48
Cumulative effect ---- ---- 0.16 ----
----------- ----------- ----------- -----------
Net income $ 0.63 $ 0.92 $ 1.23 $ 1.48
=========== =========== =========== ===========
Weighted average number of shares outstanding:
Primary 6,950,264 6,568,612 6,895,660 6,561,870
=========== =========== =========== ===========
Fully diluted 7,576,964 7,576,964 7,576,964 7,576,964
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 5
5
FIRST FINANCIAL CARIBBEAN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Six-Month Period Ended June 30,
1994 1993
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,308 $ 11,198
-------- --------
Adjustments to reconcile net income to net cash (used) provided by operating
activities:
Amortization of cost in excess of fair value of net assets acquired . . . . . . . 164 115
Amortization of purchased servicing rights . . . . . . . . . . . . . . . . . . . . 360 246
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 690 320
Gain on sale of servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . --- (2,378
Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . (1,215) ---
Allowances for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 121
Decrease (increase) in mortgage loans held for sale . . . . . . . . . . . . . . . 39,003 (76,392)
(Increase) decrease in mortgage-backed securities . . . . . . . . . . . . . . . . (131,729) 20,814
Increase in interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . (3,120) (740)
(Decrease) increase in loans payable . . . . . . . . . . . . . . . . . . . . . . . (4,576) 63,858
Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 849 1,233
Increase (decrease) in securities sold under agreements to repurchase . . . . . . 99,720 (17,353
(Decrease) increase in payables and accrued liabilities . . . . . . . . . . . . . (8,976) 12,554
(Decrease) increase in income tax payable . . . . . . . . . . . . . . . . . . . . (2,108) 4,254
Amortization of unearned compensation under employment contracts . . . . . . . . . 32 150
-------- --------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,791) 6,802
-------- --------
Net cash (used) provided by operating activities . . . . . . . . . . . . . . . . . (1,483) 18,000
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . --- (3,380)
(Increase) decrease in investments held to maturity. . . . . . . . . . . . . . . . . (18,904) 5,245
Decrease (increase) in accounts receivable . . . . . . . . . . . . . . . . . . . . . 3 (7,018)
Purchase of property, leasehold improvements and equipment . . . . . . . . . . . . . (2,533) (1,429)
Additions to cost in excess of fair value of net assets acquired . . . . . . . . . . (148) (406)
Proceeds from disposal of real estate held for sale . . . . . . . . . . . . . . . . 1,422 936
Acquisition of real estate held for sale . . . . . . . . . . . . . . . . . . . . . . (829) (19)
Servicing rights acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (111) (11)
Proceeds from sale of servicing rights . . . . . . . . . . . . . . . . . . . . . . . --- 2,378
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,334) (20)
-------- --------
Net cash used by investing activities . . . . . . . . . . . . . . . . . . . . . . (22,434) (3,724)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,774 ---
Dividends declared and paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,971) (1,573)
Repayment of advances from FHLB . . . . . . . . . . . . . . . . . . . . . . . . . . (906) ---
Decrease in loans payable related to mortgage notes receivable . . . . . . . . . . . --- (3,040)
-------- --------
Net cash provided (used) by financing activities . . . . . . . . . . . . . . . . . 10,897 (4,613)
-------- --------
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . (13,020) 9,663
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . 37,307 18,687
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . $ 24,287 $ 28,350
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 6
6
FIRST FINANCIAL CARIBBEAN CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
a. The Consolidated Condensed Financial Statements (unaudited) have
been prepared in conformity with the accounting policies stated in
the Company's Annual Audited Financial Statements included in the
Company's 1993 Annual Report to Stockholders, and should be read in
conjunction with the Notes to the Consolidated Financial Statements
appearing in that report. All adjustments (consisting only of
normal recurring accruals) which are, in the opinion of management,
necessary for a fair presentation of results for the interim periods
have been reflected.
b. The results of operations for the six-month period ended June 30,
1994 are not necessarily indicative of the results to be expected
for the full year.
c. In January 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for certain investments in
Debt and Equity Securities." The adoption of SFAS 115 requires the
Company to classify and account for investments in equity securities
that have readily determinable fair values and all investments in
debt securities in one of the following three categories:
- Debt securities that the enterprise has the positive
intent and ability to hold to maturity are classified as
held to maturity and reported at amortized cost.
- Debt and equity securities that are bought and held
principally for the purpose of selling them in the near
term are classified as trading and reported at fair
value, with unrealized gains and losses included in
earnings. Mortgage-backed securities held for sale in
conjunction with mortgage banking activities must be
classified as trading securities.
- Debt and equity securities not classified as either
held-to-maturity or trading are classified as available-
for-sale and reported at fair value, with unrealized
gains and losses excluded from earnings and reported in a
separate component of shareholders' equity.
The adoption of this standard resulted in the classification of
approximately $132 million in mortgage-backed securities as trading
securities and the recognition of a gross unrealized gain of
approximately $2.5 million as of January 1, 1994 ($1.215 million net
of taxes and related expenses). This unrealized gain is shown in
the accompanying Consolidated Statement of Income and Retained
Earnings under the caption "Cumulative Effect of Change in
Accounting Principle -- Adoption of SFAS 115." Unrealized gains and
losses on holdings of trading securities after January 1, 1994 are
included in earnings as a component of mortgage loan sales and fees.
At June 30, 1994, the Company classified $259.9 million in
mortgage-backed securities as trading securities with a resulting
gross unrealized gain of approximately $1.5 million. Mortgage loan
sales and fees decreased by approximately $800,000 and $1.0 million
for the quarter and six-month periods ended June 30, 1994,
respectively, reflecting the reduction in gross unrealized gains of
the Company's trading securities portfolio.
d. Primary net income per share is determined by dividing net income,
after deducting preferred stock dividends, by the weighted average
number of shares of common stock outstanding considering the
dilutive effect of restricted stock awards. Fully diluted net
income per share has been computed based on the assumption that all
the shares of the Company's 10 1/2% Cumulative Convertible Preferred
Stock, Series A (the "Series A Preferred Stock") are converted into
common stock.
<PAGE> 7
7
e. Cash dividends per share paid for the quarter and six-month period
ended June 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Quarter Ended Six-Month period ended
June 30, June 30,
------------------- ----------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Series A Preferred Stock $0.2625 $0.2625 $0.525 $0.525
Common Stock $ 0.13 $ 0.10 $ 0.26 $ 0.20
</TABLE>
f. At June 30, 1994, escrow funds include approximately $11.1 million
deposited with Doral Federal Savings Bank ("Doral Federal"). These
funds are included in the Company's financial statements. Escrow
funds also include approximately $39.6 million deposited with other
banks which are excluded from the Company's assets and liabilities.
g. On October 25, 1993 the Company declared a two-for-one stock split
on its shares of common stock outstanding. The stock split was
effected in the form of a stock dividend of one additional share of
common stock for each share of common stock held of record date on
November 22, 1993. As a result, a total of 3,381,069 shares of
common stock were issued on December 10, 1993. Also as a result of
the stock split referred to above, each outstanding share of the
Company's Series A Preferred Stock is now convertible into two
shares of common stock at a conversion price of $5 per share.
For purposes of the computation of earnings per share and common
stock dividends per share, the stock split including the effect of
the preferred stock's change in the computation of common stock
equivalents, was retroactively recognized for the first quarter of
1993.
h. Supplemental Income Statement Information. The following expenses
are included in loan origination costs and general and
administrative expenses in the accompanying statement for the
following periods:
<TABLE>
<CAPTION>
Quarter Ended June 30, Six-Month period Ended June 30,
----------------------- -------------------------------
1994 1993 1994 1993
------ ------- ------- -------
<S> <C> <C> <C> <C>
Employee cost . . . . . . . . . . . . . $ 8,137 $11,066 $15,837 $16,594
Taxes, other than payroll and income
taxes. . . . . . . . . . . . . . . . . 186 108 356 214
Maintenance . . . . . . . . . . . . . . 158 133 354 284
Advertising . . . . . . . . . . . . . . 1,111 712 1,942 1,602
Professional services . . . . . . . . . 794 926 1,654 1,839
Telephone . . . . . . . . . . . . . . . 564 403 1,079 741
Rent . . . . . . . . . . . . . . . . . 722 564 1,358 838
Other . . . . . . . . . . . . . . . . . 3,025 2,725 7,297 5,089
------- ------- ------- -------
14,697 16,637 29,877 27,201
Less - Deferrable direct loan
origination costs related to FAS-91:
Off-set against loan fees . . . . . (5,148) (9,405) (9,340) (13,655)
Deferred as part of loan inventory . (1,908) (576) (5,095) (827)
------- ------- ------- ------
$ 7,641 $ 6,656 $15,442 $12,719
======= ======= ======= =======
</TABLE>
i. Investments held to maturity consist of mortgage-backed securities,
U.S. Treasury notes and Federal Home Loan Bank notes purchased
by Doral Federal for investment purposes.
<PAGE> 8
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The interim Consolidated Condensed Statement of Cash Flows reflect the working
capital needs of the Company.
Operating activities used approximately $1.5 million of net cash during the
six-month period ended June 30, 1994 versus approximately $18.0 million
provided in the comparable period of 1993. The major changes were an increase
of approximately $99.7 million in securities sold under agreements to
repurchase and an increase of approximately $131.7 million in mortgage-backed
securities held for sale. Both increases relate to a decision made in the
first quarter of 1994 to increase holdings of mortgage-backed securities to
maximize net interest income produced by these securities, a substantial
portion of which is tax exempt to the Company under Puerto Rico income tax law.
Investing activities used cash of $22.4 million in the first six months
of 1994 due primarily to investments in the amount of $18.9 million in
mortgage-backed securities, U.S. Treasury notes and Federal Home Loan Bank
notes purchased by the Company's thrift subsidiary, Doral Federal, which are
held to maturity. Purchases of furniture, equipment and leasehold improvements
used cash of $2.5 million. Acquisitions of real estate owned used cash of
$829,000 while disposals contributed cash of $1.4 million. Acquisitions of
servicing rights used cash of $111,000 due mainly to the Company's decision to
enter the wholesale mortgage loan purchase market during the second quarter of
1994. When the Company purchases mortgage loans together with the related
servicing rights, a portion of the purchase price is allocated to the servicing
rights acquired.
During the first six-months of 1994, financing activities provided $10.9
million of cash due to additional deposits amounting to $13.8 million attracted
by Doral Federal, net of quarterly dividend payments of $1.9 million and
repayment of advances to the Federal Home Loan Bank of $906,000.
Total liabilities were approximately 6.0 and 5.3 times stockholders' equity at
June 30, 1994 and December 31, 1993, respectively. The increased leverage at
June 30, 1994 was due to a significant increase in securities sold under
agreements to repurchase as compared to December 31, 1993. The additional debt
was incurred to finance purchases of mortgage-backed securities held for sale.
FFCC borrows money under warehousing lines of credit to fund its
mortgage loan commitments and repays the borrowings as the mortgages are sold.
The warehousing lines of credit then become available for additional
borrowings. FFCC held mortgage loans prior to sale for an average period of
approximately 173 days for the six-month period ended June 30, 1994 and 98 days
during the year ended December 31, 1993. The increase in the days mortgage
loans were held prior to sale was due to higher levels of mortgage-backed
securities held for sale and a decision made by the Company to hold such
mortgage-backed securities for longer periods of time in order to maximize net
interest income. At June 30, 1994 and December 31, 1993, FFCC had available
warehousing lines of credit of $122.5 million. At June 30, 1994 and December
31, 1993, FFCC had used approximately $54.2 million and $54.8 million,
respectively, of credit available under its warehousing lines of credit.
FFCC's warehousing lines of credit are generally terminable at the discretion
of the lender.
FFCC also obtains short-term financing through repurchase agreement lines of
credit with financial institutions and investment banking firms. Under these
agreements, FFCC sells GNMA, FNMA or FHLMC-guaranteed mortgage-backed
securities and simultaneously agrees to repurchase them at a future date at a
fixed price. FFCC uses the
<PAGE> 9
9
proceeds of such sales to repay borrowings under its warehousing lines
of credit. The effective cost of funds under repurchase agreements is
typically lower than the cost of funds borrowed under FFCC's warehousing lines
of credit. At June 30, 1994, FFCC had used approximately $222.6 million of
credit available under its repurchase agreement lines of credit.
FFCC's continued use of repurchase agreements will depend on the cost of
repurchase agreements relative to the cost of borrowing under its warehousing
lines of credit with banks.
In addition, included among FFCC's credit facilities are gestation or
pre-sale facilities which permit the Company to obtain more favorable rates
once mortgage loans have been pooled for securitization but prior to the actual
issuance of the mortgage-backed securities as well as to finance such
mortgage-backed securities upon their issuance. At June 30, 1994 and December
31, 1993, FFCC had available gestation facilities of $300 million and $150
million, respectively. At June 30, 1994 and December 31, 1993, FFCC had used
approximately $105.2 million and $36.1 million, respectively, of credit
available under its gestation facilities. Approximately $84.9 million of the
$105.2 million used by the Company at June 30, 1994 were used to finance
mortgage loans while approximately $20.3 million were used to finance
mortgage-backed securities.
The monthly weighted average interest rate of FFCC's borrowings for warehousing
lines of credit and for repurchase agreement lines of credit was 4.84% and
3.64%, respectively, for the six-month period ended June 30, 1994 compared to
4.25% for warehousing lines of credit and 3.34% for repurchase agreements in
each case for the year ended December 31, 1993.
Servicing agreements relating to the mortgage-backed securities programs of
FNMA, FHLMC and GNMA and certain other investors as well as mortgage loans sold
to certain other purchasers, require FFCC to advance funds to make scheduled
payments of principal, interest, taxes and insurance, if such payments have not
been received from the borrowers. Funds advanced by FFCC pursuant to these
arrangements are generally recovered by FFCC within 30 days. During the
six-month period ended June 30, 1994, the monthly average amount of funds
advanced by the Company under such servicing agreements was approximately $3
million.
During the six-month period ended June 30, 1994, the Company collected an
average of $1.0 million per month in net servicing fees, including late
charges. At June 30, 1994 and December 31, 1993, the servicing portfolio
amounted to approximately $2.6 billion and $2.4 billion, respectively. The
Company may, from time to time, in the future determine to sell portions of its
servicing portfolio as well as to purchase servicing rights from third parties.
FFCC generally has been able to provide for its growth and expansion
and for continued liquidity with funds from short-term borrowings and revenues
from operations. FFCC expects that it will have adequate resources to finance
its operations. The Company will continue to explore alternative and
supplementary methods of financing its operations, including both debt and
equity financing. There can be no assurance, however, that the Company will be
successful in consummating any such transactions.
Assets and Liabilities
At June 30, 1994, total assets were approximately $593 million compared to
approximately $486 million at December 31, 1993. This increase was primarily
due to an increase of $134 million in mortgage-backed securities held for sale
as a direct result of a decision made by the Company in the first quarter of
1994 to increase its holdings of mortgage-backed securities in order to
maximize interest income produced by these securities. Total liabilities were
$509 million at June 30, 1994 compared to $409 million at December 31, 1993.
This increase was largely the result of an increase in securities sold under
agreements to repurchase related to the financing of the higher level of
mortgage-backed securities held for sale.
As of June 30, 1994, FFCC held approximately $2.3 million of real estate owned,
compared to $2.9 million as of December 31, 1993.
The Company has various mechanisms to reduce its exposure to interest
rate fluctuations, as they affect the values of the portfolio holdings of
mortgage loans and mortgage-backed securities and the prices of newly created
loans and loans to be originated. Among other things, the Company enters into
options on futures contracts designated as trading hedges which are marked to
market on a monthly basis with the resulting gains and losses charged to
operations. Losses on futures contracts are generally indicative of higher
profits on sale of mortgage loans. Changes in the market value of futures
contracts that qualify as hedges of existing assets or liabilities are
recognized as an adjustment of the carrying amount of the hedged items. For
the quarter and six-month periods ended June 30, 1994, FFCC experienced gains
of approximately $848,000 and $1,057,000, respectively, from its hedging
activities, compared to losses of $189,000 and $364,000 for the quarter and
six-month period in 1993, respectively.
<PAGE> 10
10
Results of Operations for Quarters Ended June 30, 1994 and 1993
Net income for the quarter ended June 30, 1994 decreased to $4.8 million from
$7.0 million for the comparable period of 1993. This decrease is largely
attributable to a lower level of loan originations, lower gains on the sale of
mortgage loans, the effect of increased competition on pricing decisions and
higher operating costs. In addition, the 1993 quarter reflected a $1.9 million
after tax gain from the sale of servicing rights while no such sales were made
in 1994.
Revenues from mortgage loan sales and origination fees decreased to $3.6
million for the quarter ended June 30, 1994 from $8.9 million for the
comparable period of 1993. This decrease was due to a combination of lower
prices on the sales of mortgage loans and mortgage-backed securities resulting
from increases in prevailing interest rates, reduced fees as a result of
competition and a reduction in the volume of loan originations. This decrease
also reflected a decrease in mortgage loan sales and fees in the amount of
approximately $800,000 for the quarter ended June 30, 1994 as a result of the
adoption by the Company of SFAS 115. The Company entered the Puerto Rico
wholesale mortgage loan purchase market during the second quarter of 1994 to
diversify its sources of loan production and compensate for the decrease in the
market caused by higher interest rates and increased competition. The total
volume of loans originated and purchased was $252 million for the three-month
period ended June 30, 1994 compared to $412 million for the three-month period
ended June 30, 1993. The total volume of loans purchased was approximately
$6.0 million for the three-month period ended June 30, 1994. The decrease in
loan originations was the result of decreased demand for mortgage loans,
especially refinancing loans, due to increases in mortgage interest rates.
Net interest income increased by approximately $2.9 million for the
three-month period ended June 30, 1994 versus the comparable period of 1993.
The Company realized a greater percentage of total revenues from interest
income due to an increase in the amount of mortgage loans and mortgage-backed
securities held for sale and to an increase in the length of time during which
the Company holds its inventory prior to sale. During the second quarter the
Company continued to maintain its holdings of mortgage-backed securities held
for future sale and to maximize the interest income produced by these
securities, a substantial portion of which is tax-exempt to the Company under
Puerto Rico law. The result was to increase both the Company's net interest
income and its level of assets held for sale, as well as decrease the Company's
effective tax rate. The Company continues to maintain and monitor its hedging
program to manage the risk to the value of its mortgage-backed securities
portfolio due to changes in interest rates. Net interest income totaled $6.4
million in the 1994 second quarter, versus $3.5 million a year earlier. The
results for the second quarter reflect both the current mortgage market
environment and the manner in which the Company is strategically addressing
this environment. Higher interest rates have negatively impacted the refinance
market, and have increased the likelihood that total mortgage production in
Puerto Rico will continue to be lower than levels experienced by the industry
during the first quarter of 1994. Because of the Company's ability to finance
its mortgage-backed securities inventory with low-cost tax advantaged funds,
the Company has the opportunity to increase earnings through investment in
mortgage-backed securities, an activity that improves net interest income
while lowering the Company's effective tax rates.
The weighted average interest rate spread was 454 basis points during the
second quarter of 1994 compared to 455 basis points for the comparable period
of 1993.
When FFCC sells the mortgage loans it has originated or purchased, it generally
retains the rights to service such loans and receives the related servicing
fees. Mortgage loan servicing fees are based on a percentage of the principal
balances of the mortgages serviced and are credited to income as mortgage
payments are collected. Loan servicing income increased 89% to approximately
$3.3 million for the quarter ended June 30, 1994 compared to $1.7 million for
the same period in 1993. The increase is primarily attributable to growth in
the Company's servicing portfolio.
FFCC records as an asset an excess servicing receivable on those loans sold
with servicing rights retained whenever the stated servicing fee rate is
materially higher than the current servicing fee rate on those loans sold. The
excess servicing receivable is recognized at the time of sale as an
adjustment to the resulting gain or loss on the loans sold and is recorded in
the accompanying Consolidated Statement of Income and Retained Earnings under
"Mortgage loan sales and fees." Amortization of excess servicing is based on
the amount and estimated timing of future cash flows. Amortization of excess
servicing for each of the quarters ended June 30, 1994 and 1993 was
<PAGE> 11
11
approximately $100,000 and $19,000, respectively. The amortization of
excess servicing is recorded as a reduction of servicing income. The Company's
servicing portfolio totaled $2.6 billion at June 30, 1994 compared to $1.9
billion at the same date a year ago. The Company's servicing portfolio at June
30, 1994 increased approximately $200 million over the December 31, 1993 level.
The cost of acquiring the rights to service mortgage loans is capitalized. The
amount capitalized is amortized in proportion to, and over the period of
estimated net servicing income. Any unamortized balance related to rights sold
is charged to income at time of sale. Capitalized servicing rights are
analyzed quarterly by stratifying the mortgage servicing portfolio and
reviewing the payment history on a pool-by-pool basis. Whenever it is
determined that there is a prepayment pattern indicative that the fair value of
the purchased mortgage servicing rights (determined based on estimated future
net cash flows discounted at current rates) will be less than their carrying
amounts, an impairment is recognized by charging such excess to income. At
June 30, 1994 the unamortized balance of purchased servicing rights
approximates their fair value. The amortization of purchased mortgage
servicing rights for the quarters ended June 30, 1994 and 1993 was $180,000 and
$123,000, respectively, and is recorded in the accompanying Consolidated
Statement of Income and Retained Earnings under "Loan origination costs,
administrative and general." The Company entered the Puerto Rico wholesale
mortgage market during the second quarter of 1994 and acquired approximately
$6.0 million in FHA and VA mortgages from third parties. As a result of such
acquisitions, the Company capitalized approximately $111,000 in servicing
rights during the second quarter of 1994.
Other expenses (excluding interest expense) increased to $7.6 million during
the three-month period ended June 30, 1994 compared to $6.7 million for the
comparable period of 1993. The 1994 second quarter figure includes
approximately $0.5 million in non-interest expenses attributable to the
operations of Doral Federal.
The provision for income taxes decreased to $1.1 million for the three-month
period ended June 30, 1994, compared to $3.0 million for the three months ended
June 30, 1993, due to a decrease in income before taxes together with a
decrease in the effective tax rate, due primarily to an increase in the
proportion of total income before taxes consisting of tax exempt income.
Interest on FHA and VA mortgages secured by real property in Puerto Rico and
GNMA mortgage-backed securities consisting of such mortgages are tax exempt
under Puerto Rico law.
Results of operations for six months ended June 30, 1994 and June 30, 1993
The Company's income from operations and net income for the six months
ended June 30, 1994 decreased 28% to $8.1 million and 17% to $9.3 million,
respectively, compared to $11.2 for the corresponding period in 1993. Six
months results for 1994 include a benefit of $1.2 million from the cumulative
effect of the adoption of SFAS No. 115 "Accounting for certain investments in
Debt and Equity securities" as of January 1, 1994. Year ago earnings reflected
a $2.4 million gain from the sale of mortgage servicing rights. No such sales
were made in the first six months of 1994.
Revenues from mortgage loan sales and fees decreased 57% to $7.1 million from
$16.5 a year ago. This decrease was due to a combination of lower prices on
the sales of mortgage loans and mortgage-backed securities related to increases
in prevailing interest rates, reduced fees as a result of competitive factors
and a reduction in the volume of loan originations. Such decrease also
reflected a reduction in mortgage loan sales and fees in the amount of $1.0
million for the six-month period ended June 30, 1994 as a result of the
adoption by the Company of SFAS 115. The total volume of loans originated was
$486 million for the six-month period ended June 30, 1994 compared to $679
million for the year ago period. The decrease of 28% in loan originations was
the result of decreased demand for mortgage loans, including refinancing loans,
due to increases in mortgage interest rates. Refinancing loans comprised 68%
of production in the first six-months of 1994 compared to 73% for the same
period in 1993.
Net interest income increased by approximately $6.3 million or 83% for the
six-month period ended June 30, 1994 versus the comparable period of 1993.
This increase was largely the result of carrying a significantly larger
portfolio of mortgage-backed securities which are financed with low-cost funds.
The weighted average interest rate spread was 447 basis points during the first
half of 1994 compared to 438 basis points for the comparable period of 1993.
<PAGE> 12
12
Loan servicing income increased 39% to approximately $6.0 million for
the six-month period ended June 30, 1994 compared to $4.3 million for the same
period in 1993. The increase in loan servicing income is due primarily to
growth in the Company's servicing portfolio. Amortization of excess servicing
for each of the six-month periods ended June 30, 1994 and 1993 was
approximately $200,000 and $28,000, respectively. The amortization of excess
servicing is recorded as a reduction of servicing income. For the six-month
periods ended June 30, 1994 and 1993, amortization of purchased mortgage
servicing rights was $360,000 and $246,000, respectively.
Other expenses (excluding interest expense) increased to $15.4 million during
the six-month period ended June 30, 1994 compared to $12.7 million for the
comparable period of 1993. The 1994 six-month period includes approximately
$1.5 million in non-interest expenses attributable to the operations of Doral
Federal and higher depreciation and rent expenses generally related to prior
year expansion activities.
The provision for income taxes decreased to $2.2 million for the six-month
period ended June 30, 1994, including $880,000 attributed to the cumulative
effect of adopting SFAS 115, compared to $5.8 million for the six-months ended
June 30, 1993, due to a decrease in income before taxes together with a
decrease in the effective tax rate from 34% to 20%. The decrease in the
effective income tax rate was due primarily to an increase in the proportion of
total income before taxes consisting of tax exempt income. Interest on FHA and
VA mortgages and GNMA mortgage-backed securities are tax exempt under Puerto
Rico law.
<PAGE> 13
13
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Other than legal proceedings in the normal course of its business, the
Company is not a party to any material legal proceeding and, to the knowledge
of the Company's management, there are no material legal proceedings
threatened. In the opinion of the Company's management, the pending and
threatened legal proceedings of which management is aware will not have a
material adverse effect on the financial condition of the Company.
ITEM 2 - CHANGES IN SECURITIES
Not Applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Stockholders Meeting of First Financial Caribbean Corporation
was held on May 26, 1994. A quorum was obtained with 5,576,293 votes
represented in person or by proxy, which represented approximately 80% of all
votes eligible to be cast at the meeting. Six directors of the Company,
Salomon Levis, Zoila Levis, Richard F. Bonini, Edgar M. Cullman, Jr., Frederick
M. Danziger, and John L. Ernst, were reelected for additional one-year terms
and two new directors, A. Brean Murray and Victor M. Pons, Jr. were also
elected for one-year terms. The following proposals were voted upon at the
meeting with the following results:
Proposal 1: Election of Directors
<TABLE>
<CAPTION>
NOMINEES FOR ONE-YEAR TERM VOTES FOR VOTES WITHHELD
<S> <C> <C>
Salomon Levis 5,246,361 329,932
Richard F. Bonini 5,247,561 328,732
Edgar M. Cullman, Jr. 5,247,161 328,732
Frederick M. Danziger 5,247,561 328,732
John L. Ernst 5,247,561 328,732
Zoila Levis 5,247,561 328,732
A. Brean Murray 5,218,761 357,532
Victor M. Pons, Jr. 5,234,661 341,632
</TABLE>
Proposal 2: Ratification of the Appointment of Price Waterhouse as the
Company's Independent Accountants for 1994.
For: 5,284,097
Against: 277,696
Abstain: 14,500
There were no broker non-votes with respect to any of the two proposals.
<PAGE> 14
14
ITEM 5 - OTHER INFORMATION
Dividend declaration
On July 20, 1994 Board of Directors authorized the declaration of a cash
dividend of $ 0.2625 per share to be paid on September 30, 1994 to shareholders
of record on September 15, 1994 of the Company's 10 1/2% Cumulative Convertible
Preferred Stock, Series A, and also authorized a quarterly $0.13 per share cash
dividend to be paid on September 1, 1994 to shareholders of record as of August
15, 1994 of the Company's Common Stock.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.2 - By-laws of FFCC, as amended as of May 26, 1994.
(b) Reports on Form 8-K
None.
<PAGE> 15
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FINANCIAL CARIBBEAN CORPORATION
(Registrant)
Date: August 12, 1994 /s/ Salomon Levis
---------------------------------------
Salomon Levis
Chairman of the Board
and Chief Executive Officer
Date: August 12, 1994 /s/ Richard F. Bonini
-----------------------------------------
Richard F. Bonini
Senior Executive Vice President
and Secretary
Date: August 12, 1994 /s/ Luis Alvarado
-----------------------------------------
Luis Alvarado
Executive Vice President
Chief Financial Officer and
Principal Accounting Officer
<PAGE> 16
16
INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
DESCRIPTION PAGE
3.2 - By-laws of FFCC, as amended as of May 26, 1994.
<PAGE> 1
EXHIBIT 3.2
AS AMENDED AS OF MAY 26, 1994
BY-LAWS
OF
FIRST FINANCIAL CARIBBEAN CORPORATION
ARTICLE I
OFFICES
The principal office of the Corporation within the Commonwealth of
Puerto Rico shall be located at the address stated in the Certificate of
Incorporation or in any certificate of appointment or change of agent or of
change of principal office which shall be filed with the Secretary of State on
behalf of the Corporation. The Corporation may have such other offices, either
within or without the Commonwealth of Puerto Rico, as the Board of Directors
may designate or as the business of the Corporation may require, from time to
time.
ARTICLE II
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders for
the election of the directors and for such other business as may come before
the meeting shall be held on the third Wednesday in April of each year at the
place and time fixed by the Board of Directors, except that the 1992 annual
meeting of shareholders shall be held on Monday, April 13, 1992.
Section 2. Special Meeting. Special meetings of the shareholders, for
any purposes, unless otherwise prescribed by statute, may be called by the
Chairman and Chief Executive Officer or by the Board of Directors.
<PAGE> 2
2
Section 3. Place of Meeting. Any meeting of the shareholders may be
held at such place, either within or without the Commonwealth of Puerto Rico,
as may be specified in the call and notice thereof or in the waiver of notice
thereof signed by all the shareholders.
Section 4. Notice of Meeting. Written or printed notice stating the
time and place of the meeting shall be delivered not less than ten (10) days
before the date of the meeting, either personally or by mail, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States Mail,
addressed to the shareholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid. Such notice need not
state the purposes of the meeting unless required by the laws of the
Commonwealth of Puerto Rico. Notice of any meeting of shareholders shall not
be required to be given to any shareholder who shall have waived such notice
either before or after the time fixed for holding such meeting, and such notice
shall be deemed waived by any shareholder who shall attend such meeting in
person or by proxy, except a shareholder who shall attend such meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened. Notice
of any adjourned meeting of the shareholders shall not be required to be given.
Section 5. Closing of Transfer Books or Fixing of Record Date. The
Board of Directors may direct that such transfer books of the Corporation be
closed for a stated period not exceeding fifty days preceding the date of any
meeting of shareholders or the date for payment of any dividend or allotment of
rights or the date when any change or conversion or exchange of capital stock
of the Corporation shall go into effect; provided, however, that in lieu of
closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for the determination of the
<PAGE> 3
3
shareholders entitled to notice of such meeting or payment of such dividend or
allotment of such rights or conversion or exchange of such capital stock, such
date in any case to be not more than fifty days prior to the date on which the
particular action is to be taken. If the stock transfer books are not closed
and no record date is fixed for the determination of shareholders entitled to
receive payment of a dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board of Directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment thereof except where
the determination has been made through the closing of the stock transfer books
and the stated period of closing has expired.
Section 6. Quorum. The holders of a majority of the outstanding
shares of the Corporation entitled to vote, present in person or represented by
proxy, shall constitute a quorum at any meeting of the shareholders. In the
absence of a quorum at any meeting, or any adjournment thereof, a majority in
interest of the shareholders present in person or represented by proxy may
adjourn the meeting from time to time without further notice. At such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally held.
The shareholders present at a duly held meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 7. Proxies. At all meetings of shareholders, the vote of any
shareholder may be cast in person or by his proxy or proxies (who need not be
stockholders) appointed by an instrument in writing subscribed by such
shareholder or by his duly authorized
<PAGE> 4
4
attorney-in-fact and delivered to the secretary of the meeting. No appointment
of proxy shall be valid after twelve months from the date thereof, unless
otherwise provided.
Section 8. Voting Shares. Each shareholder shall be entitled at each
meeting of the shareholders to one vote in person or by proxy for each share of
stock having voting rights held by him and registered in his name on the books
of the Corporation.
Section 9. Voting of Shares by Certain Holders. Shares outstanding in
the name of another corporation may be voted by such officer, agent or proxy as
the by-laws of such corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such
shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares to his name or to the name
of his nominee.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
<PAGE> 5
5
Shares of its own stock belonging to the Corporation or held by it in
a fiduciary capacity shall not be voted, directly or indirectly, at any
meeting, and shall not be counted in determining the total number of
outstanding shares at any given time.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the
Corporation shall be under the direction of its Board of Directors.
Section 2. Number Tenure and Qualifications. The number of directors
shall be eight. Each director shall hold office until the next annual election
of directors and until his successor shall be duly elected and qualified, or
until his death, resignation or removal. No director need be a shareholder of
the Corporation.
Section 3. Regular Meetings. The first meeting of each newly elected
Board of Directors shall be held immediately after, and at the same place as
the annual election of directors, if a quorum shall be then present, in which
case notice of such meeting need not be given. The Board of Directors may
provide, by resolution, the time and place, either within or without the
Commonwealth of Puerto Rico, for the holding of other regular meetings without
other notice than such resolution.
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman and Chief
Executive Officer or any two directors. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either
within or without the Commonwealth of Puerto Rico, as the place for holding any
special meeting of the Board of Directors called by them.
<PAGE> 6
6
Section 5. Notice. Notice of any special meeting shall be given at
least three (3) days prior thereto by written notice delivered personally or
mailed to each director at his business address, or by telegram or other
electronic communication, unless the special meeting is called for an
emergency, in which case such notice shall be given at least one (1) day prior
to the special meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail so addressed, with postage thereon
prepaid. If notice be given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegraph company. Each such
notice shall state the time and place of the meeting but need not state the
purposes thereof except as otherwise in these By-laws expressly provided.
Unless required by the laws of the Commonwealth of Puerto Rico or by these
By-laws, such notice shall not be required to be given to any director who
shall be present at such meeting, or who shall waive such notice in writing or
by telegraph, cable or radio, whether before or after the meeting, and any
meeting of the Board of Directors shall be a legal meeting without any notice
thereof having been given if all of the directors shall be present thereat.
Whenever the provisions of the laws of the Commonwealth of Puerto Rico or the
Certificate of Incorporation of the Corporation or these By-laws require that a
meeting of the Directors shall be duly called for a specific purpose, or that a
certain notice of the time, place and purposes of any such meeting shall be
given, in order that certain action may be taken at such meeting, a written
waiver of notice of the time, place and purposes of such meeting, whether
regular or special, signed by every director not present in person, either
before or after the time fixed for holding said meeting, shall be deemed
equivalent to such call and notice, and such action if taken at any such
meeting shall be as valid as it call and notice had been duly given.
Section 6. Quorum. Four directors shall constitute a quorum for the
transaction of business at any meeting of the Board of
<PAGE> 7
7
Directors, but if less than such a quorum is present at a meeting, a majority
of the directors present may adjourn the meeting from time to time without
further notice.
Section 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 8. Removal of Directors. Any director may be removed, either
with or without cause, at any time, by the affirmative vote of the holders of a
majority of the outstanding stock entitled to vote for the election of
directors of the Corporation, at a special meeting of the shareholders called
and held for such purpose.
Section 9. Vacancies. Any vacancy or vacancies in the Board of
Directors resulting from death, resignation, removal, an increase in the
authorized number of directors, or any other cause, may be filled by a majority
vote of the remaining directors, though less than a quorum, or by the
shareholders of the Corporation at the next annual meeting or any special
meeting called for such purpose, and each director so elected shall hold office
until the next annual election of directors and until his successor shall be
duly elected and qualified, or until his death, resignation or removal.
Section 10. Compensation. By resolution of the Board of Directors,
the directors may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors, and may be paid such fee for attendance at each
meeting of the Board of Directors or such stated salary as director as shall be
fixed by the Board of Directors; provided however, that Directors who are also
employees of the Corporation shall not be paid any additional fees or salary
besides what they are entitled to receive as employees of the Corporation. No
such payment shall preclude any
<PAGE> 8
8
director from serving the Corporation in any other capacity and receiving
compensation therefor.
Section 11. Committees. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board, designate one or more
committees to consist of two or more of the Directors of the Corporation. Any
such committee, to the extent provided in the resolution or resolutions or in
these By-laws, shall have and may exercise the powers of the Board of Directors
(other than to remove or elect officers) in the management of the business and
the affairs of the corporation and may have power to authorize the seal of the
Corporation to be affixed to all papers which may require it. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the Board of Directors.
ARTICLE IV
EXECUTIVE COMMITTEE
Section 1. Designation; Vacancies. The Executive Committee, if any,
shall be designated as provided in the Certificate of Incorporation, and shall
consist of not less than three members of the Board of Directors, one of whom
shall be designated the Chairman of the Executive Committee. The Chairman of
the Executive Committee shall preside at meetings of the Executive Committee,
and the Secretary of the Corporation, or such other person as the Executive
Committee shall from time to time determine, shall act as Secretary of the
Executive Committee.
The Board of Directors, by action of a majority of the whole Board,
shall fill vacancies in the Executive Committee.
Section 2. Powers. During the intervals between the meetings of the
Board of Directors, the Executive Committee, if designated, shall have, and may
exercise, all of the powers of the Board of
<PAGE> 9
9
Directors (other than the power to remove or elect officers) in the management
of the business and affairs of the Corporation, including the power to
authorize the seal of the Corporation to be affixed to all papers which may
require it, in such manner as the Executive Committee shall deem for the best
interests of the Corporation, in all cases in which specific directions shall
not have been given by the Board of Directors.
All actions by the Executive Committee shall be reported to the Board
of Directors at its meeting next succeeding such action, and shall be subject
to revision or alteration by the Board of Directors; provided, however, that no
rights of third parties shall be affected by any such revision or alteration.
Section 3. Procedures; Meetings; Quorum. The Executive Committee
shall meet at such times and at such place or places as may be provided by such
rules of procedure as the Executive Committee may adopt, or by resolution of
the Executive Committee or of the Board of Directors. At every meeting of the
Executive Committee the presence of a majority of all the members shall be
necessary to constitute a quorum and the affirmative vote of a majority of the
members present shall be necessary for the adoption by it of any resolution.
Section 4. Compensation. By resolution of the Board of Directors, the
members of the Executive Committee may be paid their expenses, if any, of
attendance at each meeting of the Executive Committee, and may be paid such fee
for attendance at each meeting of the Executive Committee as shall be fixed by
the Board of Directors.
<PAGE> 10
10
ARTICLE V
OFFICERS
Section 1. Number. The officers of the Corporation shall be a
chairman and chief executive officer, a president, one or more vice presidents
(the number thereof to be determined by the Board of Directors), a secretary
and a treasurer, each of whom shall be elected by the Board of Directors. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the Board of Directors. Any two offices (but not more than
two), other than the offices of president and secretary, may be held by the
same person.
Section 2. Election and Term of Office. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually
at the first meeting of the Board of Directors following the annual election of
directors. If the election of officers shall not be held at such meeting, such
election shall be held as soon thereafter as may be convenient. Each officer
shall hold office until his successor shall be duly elected and qualified or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided.
Section 3. Removal of Officers. Any officer may be removed, either
with or without cause, by the vote of a majority of the whole Board of
Directors or, except in case of any officer elected by the Board of Directors,
by any superior officer upon whom the power of removal may be conferred by the
Board of Directors or by these By-laws.
Section 4. Vacancies. A vacancy in any off ice resulting from death,
resignation, removal, or any other cause, may be filled by the Board of
Directors for the unexpired portion of the term.
<PAGE> 11
11
Section 5. The Chairman and Chief Executive Officer. The Chairman and
Chief Executive officer shall be the chief officer of the Corporation and shall
have responsibility for the general and active management of the business of
the Corporation, and shall see that all orders and resolutions of the Board are
carried into effect. He shall execute all authorized conveyances, contracts,
or other obligations in the name of the corporation except where the signing
and execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent of the Corporation. He shall preside at all
meetings of the Stockholders and Directors and shall be ex-officio a member of
all standing committees of the Board.
Section 6. The President. The President shall, in the absence or
disability of the Chairman and Chief Executive Officer, perform the duties and
exercise the powers of the Chairman of the Board. He shall have, as shall the
Chairman, power to exercise all conveyances, contracts or other obligations in
the name of the Corporation.
Section 7. The Vice Presidents. Each vice president shall have such
powers and perform such duties as the Board of Directors may determine or as
may be assigned to him by the Chairman and Chief Executive Officer. In the
absence of the President or in the event of his death, or inability or refusal
to act, the Vice President (or in the event there be more than one vice
president, the vice presidents in the order designated at the time of their
election, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers and be subject to all the restrictions upon the President.
Section 8. The Secretary. The Secretary shall (a) keep the minutes of
the meetings of the shareholders, the Board of Directors, the Executive
Committee (if designated), and all other
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committees, if any of which a secretary shall not have been appointed, in one
or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these By-laws and as required by
law; (c) be custodian of the corporate records and of the seal of the
Corporation and see that the seal of the Corporation is affixed to all
documents, the execution of which on behalf of the Corporation under its seal
is duly authorized; (d) keep a register of the post office address of each
shareholder which shall be furnished to the secretary by such shareholder; (e)
have general charge of the stock transfer books of the Corporation; and (f) in
general perform all duties incident to the office of secretary and such other
duties as from time to time may be assigned to him by the President or by the
Board of Directors.
Section 9. The Treasurer. The Treasurer shall (a) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(b) receive and give receipts for moneys due and payable to the Corporation
from any source whatsoever; (c) deposit all such moneys in the name of the
Corporation in such banks, trust companies, or other depositaries as shall be
selected in accordance with the provisions of Article VI of these By-laws; and
(d) in general perform all duties incident to the office of treasurer and such
other duties as from time to time may be assigned to him by the President or by
the Board of Directors. He shall, if required by the Board of Directors, give
a bond for the faithful discharge of his duties in such sum and with such
surety or sureties as the Board of Directors shall determine.
Section 10. Assistant Secretaries and Assistant Treasurers. At the
request of the Secretary or in his absence or disability, one or more assistant
secretaries designated by him or by the Board of Directors shall have all the
powers of the Secretary. At the request of the Treasurer or in his absence or
disability, one or more assistant treasurers designated by him or by the Board
of
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Directors shall have all the powers of the treasurer. The assistant
secretaries and assistant treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or
by the President or the Board of Directors.
ARTICLE VI
CONTRACTS, CHECKS AND DEPOSITS
Section 1. Contracts. Except as otherwise provided by law, these
By-laws or resolutions of the Board of Directors, any contract or other
instrument shall be valid and binding on the Corporation if executed and
delivered in its name and on its behalf by the President or in the President's
absence or disability by any vice president. The Board of Directors may,
however, authorize any other officer or officers or other agent or agents to
enter into any contract or execute and deliver any instrument in the name of
and on behalf of the Corporation, and such authority may be general or confined
to specific instances.
Section 2. Checks, Drafts, etc. All checks, drafts or other orders
for the payment of money, notes, or other evidences of indebtedness issued in
the name of the Corporation shall be signed by such officer or officers or
other agent or agents of the Corporation and in such manner as shall from time
to time be determined by resolution of the Board of Directors. Each of such
officers and agents shall give such bond, if any, as the Board of Directors may
require.
Section 3. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies, or other depositaries as the Board of Directors
may select or as may be designated by any officer or officers of the
Corporation.
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ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares
of stock of the Corporation shall be in such form and shall contain such
information as shall be required by law at the time the same are issued. Such
certificates shall be signed by the Chairman and Chief Executive Officer or a
vice president and by the Secretary or an assistant secretary. All
certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. The person in whose
name any shares shall stand on the books of the Corporation shall be deemed by
the Corporation to be the owner thereof for all purposes. All certificates
surrendered to the Corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except as otherwise provided
in the Certificate of Incorporation and except that in case of a lost,
destroyed, or mutilated certificate a new one may be issued therefor upon such
terms and indemnity to the Corporation as the Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his legal representative who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the secretary of the
Corporation, and on surrender for cancellation of the certificate for such
shares.
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ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year, unless
otherwise determined by the Board of Directors.
ARTICLE IX
SEAL
The corporate seal of the Corporation shall be in the form of a circle
and shall include the name of the Corporation and reference to the year and
place of its incorporation.
