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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13
or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported): November 20, 1995
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First Financial Caribbean Corporation
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(Exact name of registrant as specified in this charter)
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Puerto Rico 0-17224 66-0312162
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(State or other jurisdiction of (Commission File No.) (IRS Employer Identification No.)
incorporation)
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1159 Franklin D. Roosevelt Avenue, San Juan, Puerto Rico 00920
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (809) 749-7100
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ITEM 5. OTHER EVENTS
Possible Repeal of Section 936
On November 20, 1995, the United States Congress passed the Seven-Year
Balanced Budget Revenue Reconciliation Bill of 1995 (the "Budget Bill"), which,
if enacted into law, would repeal Section 936 ("Section 936") of the Internal
Revenue Code of 1986, as amended (the "Code"). Section 936 provides incentives
for certain United States corporations ("936 Corporations") to invest in Puerto
Rico by providing a credit against their United States corporate income tax,
subject to certain limitations, for (i) a portion of their income derived from
the active conduct of a trade or business in Puerto Rico ("Active Income"); and
(ii) 100% of qualified possession source investment income ("QPSII"). QPSII
includes interest derived from mortgage loans secured by real property located
in Puerto Rico and mortgage-backed securities consisting of such loans as well
as interest on deposits with financial institutions which in turn use such funds
to finance the origination of mortgage loans and other qualifying assets. The
credit provided for QPSII tends to increase the demand for Puerto Rico mortgage
loans and mortgage-backed securities as well as reduce funding costs for
mortgage-banking institutions.
The Budget Bill would generally repeal the credit (the "936 Credit")
available under Section 936 for taxable years beginning after December 31,
1995. 936 Corporations that were engaged in the active conduct of a trade or
business on October 13, 1995 and that qualified for and elected the benefits
of Section 936 for taxable years beginning before December 31, 1995, would have
the benefit of a 10-year grandfather rule. Under the grandfather rule, the
amount of Active Income eligible for the 936 Credit would be subject to certain
caps that would vary depending upon whether the 936 Corporation computed its 936
Credit under the economic activity limit or under the percentage of income
limit. The credit available for QPSII would not be subject to the benefit of
the grandfather rule and would be eliminated for taxable years beginning after
December 31, 1995.
The Budget Bill must be signed by the President before becoming law.
There can be no assurance as to whether, or in what form, the Budget Bill will
be enacted into law or what other changes may be made to Section 936 as part of
the budget process.
While the final impact of the proposed repeal of Section 936 cannot be
determined at this time, the repeal of Section 936 as contemplated by the
Budget Bill or under similar legislation could have an adverse effect on the
general economic condition of Puerto Rico, the Company's predominant service
area, by reducing incentives for investment in Puerto Rico. Any such adverse
effect on the general economy of Puerto Rico could lead to an increase in
mortgage delinquencies and a reduction in the level of residential construction
and demand for mortgage loans. The elimination of Section 936, particularly the
elimination of the credit for QPSII, could also lead to a decrease in the
amount of funds invested in Puerto Rico financial assets by 936 Corporations
("936 Funds"), thereby increasing funding costs and decreasing liquidity in the
Puerto Rico financial market. The magnitude of the impact of any such changes
on the Company's profitability or financial condition cannot be determined at
this time. The Company has taken steps to attempt to reduce the impact of any
such adverse changes by diversifying its sources of funding and identifying
additional investors for its mortgage products. During recent periods, the
disparity between the cost of 936 Funds and other sources of funding have
decreased, thereby reducing the adverse effect that the loss of such funding
could have on the profitability of the Company.
ITEM 7. FINANCIAL STATEMENTS, PRO FORM, FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
99 Press Release dated December 5, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant had duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
FIRST FINANCIAL CARIBBEAN CORPORATION
By: /s/ Luis Alvarado
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Luis Alvarado
Executive Vice President
and Chief Financial Officer
Date: December 5, 1995
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EXHIBIT INDEX
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Exhibit Number Description Page
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99 Press Release dated December 5, 1995
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EXHIBIT 99
FOR: FIRST FINANCIAL
CARIBBEAN CORPORATION
CONTACT: RICHARD F. BONINI
SENIOR EXECUTIVE
VICE PRESIDENT
(212) 561-8711
(809) 749-7108
FOR IMMEDIATE RELEASE
December 5, 1995
FIRST FINANCIAL CARIBBEAN CORPORATION
ANNOUNCES FILING OF FORM 8-K
REGARDING POSSIBLE CHANGES
TO SECTION 936
San Juan, Puerto Rico, (December 5, 1995) - First Financial Caribbean
Corporation (NASDAQ: FRCC) today announced that it had filed a Form 8-K with
the Securities and Exchange Commission to report on the recent developments
regarding the possible repeal of Section 936 of the Internal Revenue Code of
1986. Section 936 provides incentives for U.S. corporations to invest in
Puerto Rico.
First Financial Caribbean Corporation, through its HF Mortgage Bankers
Division and Doral Mortgage Corporation, a wholly-owned subsidiary of the
Company, is the leading mortgage banker in Puerto Rico in terms of the volume
of origination of first mortgage loans on single family residences. The
Company, with 18 retail lending offices throughout Puerto Rico and two offices
in Florida, engages in the origination, sale and servicing of mortgage loans.
The Company also operates Doral Federal Savings Bank, a federally chartered
savings association.
