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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1996
[ ] 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
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First Financial Caribbean Corporation
-------------------------------------
(Exact name of the 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,
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, 1996 - 9,111,092
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FIRST FINANCIAL CARIBBEAN CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of June 30, 1996 (Unaudited) and December 31, 1995 . . . . . . . . . 3
Consolidated Statements of Income and Retained Earnings (Unaudited) - Quarters ended
June 30, 1996 and June 30, 1995 and six months ended June 30, 1996 and June 30, 1995 . . . . . . . . 4
Consolidated Statement of Cash Flows (Unaudited) - Six-month period ended June 30,
1996 and June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2 - Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3 - Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4 - Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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3
FIRST FINANCIAL CARIBBEAN CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
(unaudited) (audited)
----------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 49,341 $ 59,872
Mortgage loans held for sale, net 263,818 245,484
Mortgage-backed securities held for trading 389,136 407,941
Securities held to maturity 112,637 77,945
Securities available for sale 7,438 14,579
Loans receivable, net 86,686 51,355
Accounts receivable and mortgage servicing advances, net 12,626 9,592
Accrued interest receivable 9,245 8,155
Mortgage servicing rights 16,515 11,164
Excess servicing fees receivable 17,462 10,407
Property, leasehold improvements and equipment, net 6,548 6,505
Cost in excess of fair value of net assets acquired 6,552 6,526
Real estate held for sale, net 2,251 2,085
Prepaid and other assets 8,909 6,312
--------- ---------
Total Assets $ 989,164 $ 917,922
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Loans payable $ 199,158 $ 234,707
Securities sold under agreements to repurchase 389,965 363,728
Deposit accounts 136,512 95,740
Notes payable 71,723 51,682
Advances from Federal Home Loan Bank of N.Y. 15,401 10,407
Convertible Subordinated Debentures 10,000 10,000
Accounts payable and other liabilities 21,019 17,376
Income tax payable 183 388
Deferred tax liability 5,497 4,877
--------- ---------
Total liabilities 849,458 788,905
--------- ---------
Commitments and contingencies
--------- ---------
Stockholders' equity:
10.5% Cumulative Convertible Preferred Stock, Series A,
$1.00 par value, 2,000,000 shares authorized; no shares
outstanding (1995 - 108,397) --- 108
Common stock, $1.00 par value, 10,000,000 shares
authorized; 9,125,092 shares issued and outstanding (1995 - 9,125 8,884
8,884,170)
Paid-in capital 38,673 38,331
Retained earnings 92,368 81,892
--------- ---------
140,166 129,215
Unrealized (loss) gain on securities available for sale (301) 9
Treasury stock at par value, 14,000 shares (14) (14)
Unearned compensation under employment contracts (145) (193)
--------- ---------
Total stockholders' equity 139,706 129,017
--------- ---------
Total liabilities and stockholders equity $ 989,164 $ 917,922
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
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4
FIRST FINANCIAL CARIBBEAN CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF DOLLARS, EXCEPT FOR PER SHARE DATA)
Unaudited
<TABLE>
<CAPTION>
Quarter Ended Six-Month Period Ended
--------------------- ----------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Mortgage loans sales and fees 6,539 $ 1,210 $13,422 $ 3,705
Servicing income 2,946 2,752 5,697 5,441
Interest income 16,353 15,544 32,600 30,918
Gain on sale of servicing rights --- 3,623 --- 3,623
Rental and other income 146 148 300 299
------- ------- ------- -------
25,984 23,277 52,019 43,986
------- ------- ------- -------
Expenses:
Interest 10,826 10,404 21,818 20,184
Employee cost, net (See Note g) 1,946 1,300 4,533 3,872
Taxes, other than payroll and income taxes 236 287 483 523
Maintenance 163 162 290 298
Advertising 800 539 1,624 994
Professional services 706 679 1,387 1,377
Telephone 448 444 920 855
Rent 515 517 1,047 1,019
Other, net (See Note g) 3,219 1,799 5,242 3,761
------- ------- ------- -------
18,859 16,131 37,344 32,883
------- ------- ------- -------
Income before income taxes 7,125 7,146 14,675 11,103
Income taxes:
Current 231 59 668 59
Deferred (140) 950 620 1,477
------- ------- ------- -------
91 1,009 1,288 1,536
------- ------- ------- -------
Net Income 7,034 6,137 13,387 9,567
Retained earnings at beginning of period 86,885 69,153 81,892 66,706
Less cash dividends paid:
Convertible preferred stock --- 48 14 97
Common stock 1,551 1,083 2,897 2,017
------- ------- ------- -------
Retained earnings at the end of period $92,368 $74,159 $92,368 $74,159
======= ======= ======= =======
Net Income per share:
Primary $ 0.77 $ 0.84 $ 1.49 $ 1.32
Fully Diluted $ 0.74 $ 0.81 $ 1.41 $ 1.26
</TABLE>
The accompanying notes are an integral part of this statement.
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FIRST FINANCIAL CARIBBEAN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six-Month Period Ended
June 30,
-------------------------
1996 1995
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,387 $ 9,567
--------- ---------
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of excess servicing fee receivable . . . . . . . . . . . . . . . . . 629 441
Amortization of cost in excess of fair value of net assets acquired . . . . . . . 188 188
Amortization of mortgage servicing rights . . . . . . . . . . . . . . . . . . . . 467 274
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 862 774
Gain on sale of servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . --- (3,623)
Allowances for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366 166
Origination and purchases of mortgage loans held for sale . . . . . . . . . . . . (382,391) (268,769)
Principal repayment and sales of loans held for sale . . . . . . . . . . . . . . 219,267 164,190
Purchases of mortgage-backed securities held for trading . . . . . . . . . . . . . (56,887) (64,262)
Principal repayments and sales of mortgage-backed securities held for trading . . 220,483 165,818
Increase in interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . (1,090) (533)
Decrease in loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,548) (73,805)
Increase in loans payable related to securities sold not yet purchased . . . . . . --- 19,835
Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,048 293
Increase in securities sold under agreements to repurchase . . . . . . . . . . . . 26,237 75,162
Increase (decrease) in payables and accrued liabilities . . . . . . . . . . . . . 1,595 (1,739)
Decrease in income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . (205) (2,572)
Deferred tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620 1,477
Amortization of unearned compensation under employment contracts . . . . . . . . . 48 32
--------- ---------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,311) 13,347
--------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . 10,076 22,914
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of mortgage-backed securities and investments held to maturity . . . . . . (40,154) (10,841)
Principal repayments of investments held to maturity . . . . . . . . . . . . . . . . 5,462 5,584
Origination of loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . (41,169) (20,166)
Principal repayments of loans receivable . . . . . . . . . . . . . . . . . . . . . . 5,838 2,392
Principal repayments and sales of securities available for sale . . . . . . . . . . 6,831 ---
Increase in accounts receivable and mortgage servicing advances . . . . . . . . . . (3,401) (3,614)
Additions to excess servicing fee receivable . . . . . . . . . . . . . . . . . . . . (7,683) (1,194)
Purchase of property, leasehold improvements and equipment . . . . . . . . . . . . . (906) (153)
Additions to cost in excess of fair value of net assets acquired . . . . . . . . . . (214) (155)
Proceeds from disposal of real estate held for sale . . . . . . . . . . . . . . . . 572 1,159
Acquisition of real estate held for sale . . . . . . . . . . . . . . . . . . . . . . (739) (1,368)
Increase in mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . (5,817) (2,116)
Proceeds from sale of servicing rights . . . . . . . . . . . . . . . . . . . . . . . --- 3,708
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,597) (2,963)
--------- ---------
Net cash used by investing activities . . . . . . . . . . . . . . . . . . . . . . (83,977) (29,727)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,041 14,900
Increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,771 22,229
Dividends declared and paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,911) (2,114)
Increase (repayment) of advances from FHLB . . . . . . . . . . . . . . . . . . . . . 4,994 (6)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . 475 ---
--------- ---------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . 63,370 35,009
--------- ---------
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . (10,531) 28,196
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . 59,872 35,916
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . $ 49,341 $ 64,112
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Noncash financing activities-conversion of preferred stock . . . . . . . . . . . . . $ 216 $ 230
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash used to pay interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,770 $ 19,891
========== =========
Cash used to pay income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 874 $ 3,965
========== =========
</TABLE>
The accompanying notes are an integral part of this statement.
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6
FIRST FINANCIAL CARIBBEAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
a. The Consolidated Financial Statements (unaudited) include the
accounts of First Financial Caribbean Corporation and its wholly-owned
subsidiaries ("FFCC" or the "Company"), Doral Mortgage Corporation
("Doral"), RSC Corp. ("RSC"), Centro Hipotecario, Inc. and Doral Federal
Savings Bank ("Doral Federal"). All significant intercompany accounts
and transactions have been eliminated in consolidation. The Consolidated
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 Annual Report on Form 10-K for the
year ended December 31, 1995, 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 quarter and six-month period ended June
30, 1996 are not necessarily indicative of the results to be expected for
the full year.
c. Cash dividends per share paid for the quarter and six-month period ended
June 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Quarter Ended Six-Month Period Ended
June 30, June 30,
---------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Series A Preferred Stock $0.12 $0.2625 $0.3825 $0.525
Common Stock $0.17 $0.15 $0.32 $0.28
</TABLE>
All outstanding shares of Series A Preferred Stock were redeemed on May
10, 1996.
d. At June 30, 1996, escrow funds include approximately $28.1 million
deposited with Doral Federal Savings Bank ("Doral Federal"). These funds
are included in the Company's financial statements. Escrow funds also
include approximately $7.9 million deposited with other banks which are
excluded from the Company's assets and liabilities.
e. Certain reclassifications of prior years' data have been made to conform
to 1996 classifications.
f. The number of average shares of common stock used for computing the
primary and fully diluted net income per share was as follows:
<TABLE>
<CAPTION>
Quarter Ended Six-Month Period Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary 9,092,942 7,211,514 9,020,462 7,198,324
Fully diluted 9,683,394 7,576,964 9,679,136 7,576,964
</TABLE>
g. Employee costs and other expenses are shown in the Consolidated Statement
of Income and Retained Earnings net of direct loan origination costs that,
pursuant to SFAS No. 91, are capitalized as part of the carrying cost of
mortgage loans and are offset against mortgage loan sales and fees when the
loans are sold. Employee costs would have been $7.5 million and $6.5
million, respectively, for the quarters ended June 30, 1996 and 1995, and
$15.1 million and $12.2 million, respectively, for the six-month periods
ended June 30, 1996 and 1995, except for the application of SFAS No. 91.
Other expenses would have been $3.9 million and $2.8 million, respectively,
for
<PAGE> 7
7
the quarters ended June 30, 1996 and 1995, and $7.4 million and $5.5
million, respectively, for the six-month periods ended June 30, 1996 and
1995, except for the application of SFAS No. 91.
Set forth below is a breakdown of direct loan origination costs that were
deferred pursuant to SFAS No. 91.
<TABLE>
<CAPTION>
Quarter Ended Six-Month Period Ended
June 30, June 30,
----------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Employee Costs $5,516 $5,226 $10,536 $ 8,354
Other Costs 715 975 2,150 1,806
------ ------ ------- -------
$6,231 $6,201 $12,686 $10,160
====== ====== ======= =======
</TABLE>
h. On May 12, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights" ("SFAS No. 122"), an amendment to SFAS No. 65.
The Company elected to adopt this standard for its financial statement
reporting in the second quarter of 1995. SFAS No. 122 prohibits
retroactive application. Accordingly, the Company's financial statement
reporting for the first quarter of 1995 was accounted for under the
original SFAS No. 65 and the results for the six-month period ended June
30, 1996 are not directly comparable to the results for the six-month
period ended June 30, 1995 with respect to this specific matter.
For the quarter and six-month period ended June 30, 1996, the Company
realized additional net income of approximately $1.8 million and $2.8
million, respectively (representing $2.9 million and $4.6 million of
gross revenues, respectively) from the adoption of SFAS No. 122, compared
to additional net income of $320,000 ($550,000 of gross revenues,
respectively) for the quarter and six-month period ended June 30, 1995.
If the Company had not adopted SFAS No. 122 in the second quarter of
1995, the Company would have reported a net income of approximately $5.2
million for the second quarter of 1996 ($0.58 and $0.55 per common share
on a primary and fully-diluted basis, respectively) and $10.5 million for
the six-month period ended June 30, 1996 ($1.16 and $1.11 per common
share on a primary and fully-diluted basis, respectively).
SFAS No. 122 requires that part of the cost of originating a mortgage
loan be allocated to the mortgage servicing right based on its fair value
relative to the aggregate fair value of the loan and the related servicing
right taken as a whole. To determine the fair value of the servicing
rights pursuant to SFAS No. 122, the Company used the market prices under
comparable servicing sale contracts.
SFAS No. 122 also requires that all capitalized mortgage servicing rights
be evaluated for impairment based on the excess of the carrying amount of
mortgage servicing rights over their fair value. For purposes of
measuring impairment, capitalized mortgage servicing rights are
stratified pool by pool on the basis of interest rates. An impairment is
recognized whenever the prepayment pattern of the mortgage pool shows
that the fair value of the related capitalized servicing rights is less
than its carrying amounts. An impairment is recognized by charging such
excess to income. The Company determined that no reserve for impairment
was required for the six-month period ended June 30, 1996.
<PAGE> 8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements arise from loan originations and purchases,
repayments of debt upon maturity, payments of operating and interest
expenses, servicing advances and loan repurchases. The Company's primary
sources of liquidity are sales in the secondary mortgage market of the loans it
originates and purchases, short term borrowings under warehouse, gestation and
repurchase agreement lines of credit secured by pledges of its loans and
mortgage-backed securities (in most cases until such loans are sold and the
lenders repaid) and revenues from operations. In the past, the Company has
also relied on privately-placed debt financings and public offerings of
preferred and common stock. Doral Federal, the Company's thrift subsidiary,
also relies on deposits, borrowings from the Federal Home Loan Bank of New York
(the "FHLB-NY") as well as term notes backed by letters of credit of the
FHLB-NY.
Total liabilities were approximately 6.08 and 6.12 times stockholders' equity
at June 30, 1996 and December 31, 1995, respectively. The Company's decreased
leverage at June 30, 1996 reflects a net increase in stockholders' equity of
$10.7 million while liabilities increased by $60.6 million, primarily as a
result of an increase in deposit accounts held by Doral Federal.
The interim Consolidated Statement of Cash Flows reflects the working capital
needs of the Company. Operating activities provided approximately $10.1
million of net cash during the six-month period ended June 30, 1996, compared
to approximately $22.9 million in the comparable period of 1995. Mortgage
loan originations for the six-month period ended June 30, 1996 increased by 47%
as compared to the 1995 period. Increased originations resulted in increased
sales of mortgage-backed securities and loans held for sale during the period.
FFCC held mortgage loans (including mortgage loans converted into
mortgage-backed securities) prior to sale for an average period of
approximately 267 days for the six-month period ended June 30, 1996 and 352
days during the year ended December 31, 1995. The decrease in days was due to
increased sales of mortgage-backed securities held for trading.
Investing activities used cash of approximately $83.9 million during the
six-month period ended June 30, 1996 due primarily to origination of loans
receivable and purchases of securities held to maturity of approximately $41.2
million and $40.2 million, respectively. The Company capitalized $5.8 million
of mortgage servicing rights during the first half of 1996 related to the
adoption of SFAS No. 122 and mortgage loan purchases from third parties.
During the first six months of 1996, financing activities provided
approximately $63.4 million of net cash primarily due to additional deposits
amounting to approximately $40.8 million received by Doral Federal, the
Company's thrift subsidiary, and an increase of approximately $20 million in
notes payable, of which approximately $15 million represent term notes issued
by Doral Federal.
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.
Included among FFCC's warehousing line of credit facilities are gestation or
presale facilities that permit the Company to obtain more favorable rates once
mortgage loans are in the process of securitization but prior to actual
issuance of the mortgage-backed securities as well as to finance such
mortgage-backed securities upon their issuance. At June 30, 1996 and December
31, 1995, FFCC had available warehousing and gestation lines of credit of $665
million and $525 million, respectively. At June 30, 1996 and December 31,
1995, FFCC had used approximately $157.5 million and
<PAGE> 9
9
$171.6 million, respectively, of credit available under its warehousing lines
of credit. FFCC's warehousing lines of credit are generally subject to
termination 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 or collateralized mortgage obligations and simultaneously agrees to
repurchase them at a future date at a fixed price. FFCC uses the 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,
1996, FFCC had used approximately $389.9 million of credit under repurchase
agreements. 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 and other financial institutions.
The monthly weighted average interest rate of FFCC's borrowings for warehousing
lines of credit and for repurchase agreement lines of credit was 6.7% and 5.5%,
respectively, for the six-month period ended June 30, 1996 compared to 7.5% for
warehousing lines of credit and 5.9% for repurchase agreements in each case for
the year ended December 31, 1995.
Doral Federal obtains funding for its lending activities through the receipt of
deposits, FHLB-NY advances and from other borrowings, such as term notes backed
by FHLB-NY letters of credit and repurchase agreements with brokerage houses. As
of June 30, 1996, Doral Federal held $142.0 million in deposits at a weighted
average interest rate of 3.64%, approximately 29% of which consisted of
non-interest bearing deposits. Approximately $10.8 million of the total deposits
consisted of brokered certificates of deposit obtained through broker-dealers
with maturities ranging from three to five years. Doral Federal, as a member of
FHLB-NY, has access to collateralized borrowings from the FHLB-NY up to a
maximum of 30% of its total assets. Advances and reimbursement obligations with
respect to letters of credit must be secured by qualifying assets with a market
value between 105% and 115% of the advances. At June 30, 1996, Doral Federal had
$15.4 million in outstanding advances from the FHLB-NY at a weighted average
interest rate cost of 6.28%. In addition, as of June 30, 1996, Doral Federal
had $33.1 million outstanding in term notes secured by FHLB-NY letters of credit
at an average interest rate cost of 6.01%. Approximately $5.0 million
principal amount of such term notes bear interest at a fluctuating rate based on
the London Interbank bid rate for dollar deposits ("LIBID"). The interest rate
of such floating rate note has effectively been fixed pursuant to an interest
rate swap agreement with a major brokerage house. The interest rates on all
term notes are subject to an upward adjustment to a rate equal to 100% of LIBID
for a term equal to the remaining term of the Note as a result of the recent
changes to Section 936. See "Prospective Trends--Repeal of Section 936" herein.
As of June 30, 1996, Doral Federal met all its minimum regulatory capital
requirements (i.e., tangible and core capital of at least 1.5% and 3.0%,
respectively, of adjusted total assets and risk-based capital at least 8% of
risk adjusted total assets). As of June 30, 1996, Doral Federal had tangible
capital and core capital of $17.3 million or approximately 8.22% of adjusted
total assets. As of such date, Doral Federal had risk-based capital of $17.6
million or 19.14% of risk adjusted total assets.
Servicing agreements relating to the mortgage-backed securities programs of
FNMA, FHLMC and GNMA and certain other investors and 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. FFCC generally recovers funds advanced
pursuant to these arrangements within 30 days. During the six-month period
ended June 30, 1996, the monthly average amount of funds advanced by the
Company under such servicing agreements was approximately $5.9 million.
During the six-month period ended June 30, 1996, the Company collected an
average of approximately $950,000 per month in net servicing fees, including
late charges. At June 30, 1996 and December 31, 1995, the servicing portfolio
amounted to approximately $2.9 billion and $2.7 billion, respectively. The
Company may, from time to time, determine to sell portions of its servicing
portfolio and to purchase servicing rights from third parties.
FFCC expects that it will continue to have adequate liquidity and financing
arrangements 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.
<PAGE> 10
10
ASSETS AND LIABILITIES
At June 30, 1996, total assets were $989 million compared to $918 million at
December 31, 1995. This increase was due primarily to a net increase of $34.7
million and $35.4 million in securities held to maturity and loans receivable,
respectively, at Doral Federal. As of June 30, 1996, Doral Federal had $209
million in assets compared to $160 million at December 31, 1995. Total
liabilities were $849 million at June 30, 1996 compared to $789 million at
December 31, 1995. This increase was largely the result of an increase in
deposit accounts at Doral Federal. At June 30, 1996, Doral Federal's deposit
accounts totaled $142 million compared to $114 million at December 31, 1995.
Deposit accounts include $28.1 million in non-interest bearing demand deposits
representing escrow funds and other servicing accounts from First Financial's
servicing operations. All other deposits at June 30, 1996 represent retail
deposits, most in the form of certificates of account. The increase in deposits
is primarily due to the offering of competitive interest rates and increased
market recognition achieved by Doral Federal.
The Company's Mortgage Banking Business is subject to the risk that future
changes in interest rates may adversely affect the value of the Company's
portfolio of mortgage loans and mortgage-backed securities. Interest rate
fluctuations may also adversely affect net interest income. FFCC attempts to
reduce these risks through forward commitments and other hedging techniques.
The Company does not generally hedge conventional loans in the pipeline or in
the process of origination because these loans are generally offered to
customers at a certain spread over a prevailing rate that adjusts weekly rather
than established prior to closing and locked in for a specified period of time.
For FNMA and FHLMC conforming loans and FNMA and FHLMC mortgage-backed
securities, the Company seeks to obtain commitments for the purchase of such
loans or mortgage-backed securities following the funding of such loans. These
loans are normally sold to institutional investors or at the FNMA and FHLMC
cash windows. To the extent the Company does engage in offerings of mortgage
products which lock-in the interest rate until the closing date, it attempts to
obtain forward commitments at the time it fixes the rates for the loans.
Non-conforming conventional loans are normally sold in bulk to local financial
institutions or packaged into collateralized mortgage obligations. The sale of
non-conforming conventional loans normally takes longer than the sale of
conforming mortgage loans. Accordingly, the Company attempts to manage this
interest rate risk through the purchase of listed options on U.S. treasuries as
well as the purchase of option contracts in the over-the-counter market on
other interest rate sensitive instruments.
In the case of GNMA securities, the Company normally holds such securities for
longer periods prior to sale to maximize its net interest income and to take
advantage of the tax exempt status of the interest on such securities under
Puerto Rico law. Prices for GNMA certificates in Puerto Rico tend to be more
stable than on the mainland U.S. because of the tax exempt status of interest
paid on these securities under Puerto Rico law. This relative stability of
prices for Puerto Rico GNMA securities allows the Company to carry out a less
aggressive hedging strategy to attempt to protect the value of these assets
than what might otherwise be required. The Company seeks to protect itself
from interest rate risk associated with its inventory of GNMA securities by
purchasing listed options on treasury bond futures contracts and other interest
rate sensitive instruments, as well as purchasing options on U.S. GNMA
securities in the over-the-counter market. The Company has in place long-term
repurchase agreements secured by GNMA certificates with a principal amount of
approximately $24.4 million. The Company does not obtain forward commitments
or otherwise hedge such GNMA securities because they are financed pursuant to
long-term repurchase agreements. The Company has the right to substitute GNMA
certificates subject to the repurchase agreements with similar GNMA
certificates at any time.
Contracts designated as trading hedges are marked-to-market monthly with the
resulting gains and losses charged to operations. Changes in the market value
of such contracts that qualify as hedges of existing assets and liabilities are
recognized as an adjustment to the value of the asset or liability being
hedged. Investment in such options is increased or decreased in relation to
interest rates changes and other market factors.
The operations of the Company are also subject to interest rate risk because
its interest earning assets and interest-bearing liabilities reprice at
different times and varying amounts. FFCC's loans held for sale and
mortgage-backed securities
<PAGE> 11
11
held for trading inventories are fixed rate interest-earning assets that are
not subject to repricing (except for replacement of assets through repayments,
sales and new originations) while the short-term borrowings used to finance
these positions normally reprice quarterly. To protect against major
fluctuations in short-term interest rates, the Company purchases and writes
listed put options on financial instruments, including Eurodollars contracts.
This policy attempts to ensure a relatively stable short-term cost of funds
with respect to the loans receivable held by Doral Federal. FFCC attempts to
obtain long-term deposits and other long-term debt financing and/or advances
from the FHLB-NY and term notes backed by FHLB-NY letters of credit.
In the future, FFCC may use alternative hedging techniques including futures,
options or other hedge vehicles to help mitigate interest rate and market risk.
However, there can be no assurance that any of the above hedging techniques
will be successful. To the extent they are not successful, the Company's
profitability may be adversely affected. For the six months ended June 30,
1996, the Company experienced hedging gains of $4.4 million, while for the
six-month period ended June 30, 1995, the Company experienced hedging losses
of $3.3 million.
RESULTS OF OPERATIONS FOR QUARTERS ENDED JUNE 30, 1996 AND 1995
Net income for the quarter ended June 30, 1996 increased to $7.0 million from
$6.1 million for the comparable period of 1995. Doral Federal contributed
approximately $625,000 in net income for the second quarter of 1996 compared to
$311,000 for the second quarter of 1995. Net income for the second quarter of
1996 increased $900,000 from 1995 notwithstanding the fact that there were no
sales of servicing rights during the second quarter of 1996 while in the second
quarter of 1995 gain on sale of servicing rights contributed approximately $3.6
million in revenues.
Revenues from mortgage loan sales and origination fees increased to $6.5
million for the quarter ended June 30, 1996 from $1.2 million for the
comparable period of 1995. This increase was primarily attributable to hedging
gains, the effect of SFAS No. 122 as discussed in Note h to the Consolidated
Financial Statements and higher gains on loan sales and fees from the increased
volume of loan originations. The total volume of loans originated and
purchased was $224 million for the quarter ended June 30, 1996 compared to $145
million for the quarter ended June 30, 1995. The total volume of loans
purchased was approximately $24 million for each of the quarters ended June 30,
1996 and 1995. The increase in loan originations was the result of increased
demand for refinancing loans.
Net interest income increased by $387,000 for the quarter ended June 30, 1996
versus the comparable period of 1995, notwithstanding approximately $500,000
of interest expense attributable to additional financing costs not directly
related to interest earning assets. Doral Federal contributed approximately
$1,600,000 and $900,000 to the consolidated net interest income of the Company
for the quarters ended June 30, 1996 and 1995, respectively.
The weighted average interest rate spread was 279 basis points during the
second quarter of 1996 compared to 289 basis points for the comparable period
of 1995.
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 to $2.9 million for
the quarter ended June 30, 1996 compared to $2.7 million for the same period in
1995. Amortization of excess servicing fee receivable for the quarters ended
June 30, 1996 and 1995 was approximately $325,000 and $224,000, respectively.
The amortization of excess servicing fee receivable is recorded as a reduction
of servicing income. The Company's servicing portfolio totaled $2.9 billion at
June 30, 1996 compared to $2.5 billion at the same date a year ago. The
Company's servicing portfolio at June 30, 1996 increased $230 million over the
December 31, 1995 level.
At June 30, 1996, the unamortized balance of mortgage servicing rights
approximates their fair value. The amortization of mortgage servicing rights
for the quarters ended June 30, 1996 and 1995 was $243,000 and $46,000,
respectively, and is recorded in the accompanying Consolidated Statement of
Income and Retained Earnings under "Other Expenses." The Company capitalized
approximately $420,000 in mortgage servicing rights related to loans purchased
and approximately $2.6 million of originated servicing rights in the second
quarter of 1996.
<PAGE> 12
12
Aggregate expenses for the quarter ended June 30, 1996, increased by
approximately $2.7 million compared to the second quarter of 1995, primarily
because of higher interest expense associated with the financing of the
Company's mortgage loans and mortgage-backed securities portfolios and
additonal interest expense of $500,000 attributable to financing costs not
directly related to interest earning assets. Loan origination, general and
administrative expenses for the second quarter of 1996 increased approximately
$2.3 million due to additional expenses related to increased volume of loan
originations.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
The Company's net income for the six months ended June 30, 1996 increased to
$13.4 million, compared to $9.6 million for the corresponding period in 1995.
For the six-month period ended June 30, 1996, Doral Federal contributed
approximately $1.2 million in net income compared to $574,000 for the six
months ended June 30, 1995. Results for the first six months of 1996 reflect
the adoption by the Company as of April 1, 1995 of SFAS No. 122. Additional
net income of approximately $2.8 million was realized for the six months ended
June 30, 1996, compared to $320,000 for the six-month period ended June 30,
1995, from the adoption of SFAS No. 122. During the first six months of 1996
the Company did not sell any mortgage servicing rights while in the comparable
period of 1995 the Company had gains on sales of servicing rights of
approximately $3.6 million.
Revenues from mortgage loan sales and fees increased 262% to $13.4 million from
$3.7 million a year ago. This increase was due to a higher volume of loan
originations and higher loan sales and fees. The increase also reflected
hedging gains of approximately $4.4 million for the first six months of 1996
compared to hedging losses of $3.3 million for the first six months of 1995.
Hedging gains reflect the increase in interest rates experienced during the
period. The total volume of loans originated and purchased was approximately
$424 million for the six-month period ended June 30, 1996 compared to
approximately $289 million for the six-month period ended June 30, 1995. The
increase of 47% in loan originations and purchases was the result of increased
demand for refinancing loans. Refinancing loans comprised 48% of production in
the first six months of 1996 compared with 37% for the same period in 1995.
Mortgage loan sales and fees also reflect approximately $4.6 million of
additional gains on sale of mortgage loans as the result of the adoption of
SFAS No. 122.
Net interest income increased by approximately $48,000 for the six-month
period ended June 30, 1996 versus the comparable period of 1995. The
weighted average interest rate spread was 266 basis points during the six
months ended June 30, 1996 compared to 302 basis points for the comparable
period of 1995. Doral Federal contributed approximately $3.2 million and $1.8
million to the consolidated net interest income of the Company for the six
month periods ended June 30, 1996 and 1995, respectively.
Loan servicing income increased 5% to $5.7 million for the six-month period
ended June 30, 1996 compared to $5.4 million for the same period in 1995.
Amortization of excess servicing fee receivable for each of the six-month
periods ended June 30, 1996 and 1995 was approximately $629,000 and $441,000,
respectively. The amortization of excess servicing fee receivable is recorded
as a reduction of servicing income. For the six-month periods ended June 30,
1996 and 1995, amortization of mortgage servicing rights was $467,000 and
$274,000, respectively. Amortization of servicing rights is recorded as a
component of "Other Expenses."
Aggregate expenses for the six-month period ended June 30, 1996 increased by
$4.5 million compared to the same period for 1995, primarily because of higher
interest expense associated with the financing of the Company's mortgage loans
and mortgage-backed securities portfolios and additional interest expense of $1
million attributable to financing costs not directly related to interest
earning assets. Loan origination, general and administrative expenses
increased by $2.8 million compared to the same period for 1995, due to
investments in increasing loan origination capacity.
New Accounting Standards.
In June, 1996, the Financial Accounting Standards Board issued the
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extingu- ishments of Liabilities" ("SFAS
No. 125").
SFAS No. 125 establishes accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
the consistent application of the financial components approach. This approach
requires the recognition of financial assets and servicing assets that are
controlled by the reporting entity, the derecognition of financial assets when
control is surrendered, and the derecognition of liabilities when they are
extinguished. Specific criteria are established for determining when control
has been surrendered in the transfer of financial assets.
Liabilities and derivatives incurred or obtained by transferors in
conjunction with the transfer of financial assets are required to be measured
at fair value, if practicable. Servicing assets and other retained interests
in transferred assets are required to be measured by allocating the previous
carrying amount between the assets sold, if any, and the interest that is
retained, if any, based on the relative fair values of the assets at the date
of the transfer. Servicing assets retained are subsequently subject to
amortization and assessment for impairment.
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996. It
is to be applied prospectively; earlier or retroactive application is not
permitted.
Management has not yet estimated the effect, if any, of the adoption of
SFAS No. 125 in the Company's financial statements.
Prospective Trends
Market Trends. Demand for mortgage loans and prices for mortgage loans
and mortgage-backed securities are sensitive to changes in interest rates.
During the second quarter of 1996 interest rates generally increased. To the
extent interest rates were to continue to increase during 1996, demand and
prices for mortgage loans and mortgage-backed securities could be adversely
affected thereby adversely impacting mortgage loan originations and gain on
sale of mortgage loans. An increase in prevailing interest rates could also
adversely impact the Company's net interest income.
<PAGE> 13
13
Interest rates, however, decreased during the early part of the third quarter
of 1996 which should have a favorable impact on the volume of mortgage loan
originations and prices for mortgage loans and mortgage-backed securities should
this trend continue.
In order to further diversify its available loan products, during the
latter part of 1995 and the first half of 1996, the Company began to offer
home equity and personal loans secured by mortgages. These loans, which are
secured by first or second mortgage liens, generally have lower balances
(between $10,000 and $40,000), shorter maturities (between five to ten years)
and bear higher interest rates. The Company intends to sell these loans, other
than such loans funded and retained by Doral Federal, to local financial
institutions, or to package them into collateralized mortgage obligations. When
the Company sells these loans, it normally retains the right to receive as a
servicing fee interest payable on the loan above a specified rate. The present
value of the servicing fee income to be received over the life of the loan over
and above the typical servicing fee payable on conforming conventional loans is
recognized on the Company's income statement as a component of sale of the
mortgage loan and is reflected as an asset on the Company's balance sheet as
excess servicing fees receivable. As the volume of originations of this type
of loan product increases, the amount of excess servicing fees receivable
reflected on the financial statements of the Company will increase.
The deregulation of mortgage interest rates on non-government guaranteed
mortgage loans in Puerto Rico effective April 1996, should help the Company to
increase loan originations by expanding the market of potential borrowers. The
deregulation of interest rates in Puerto Rico should also have a positive
impact on the Company's net interest income by allowing the Company to
originate higher yielding mortgage loans.
New Broker-Dealer Subsidiary. During the second quarter of 1996, the
Company organized a new securities broker-dealer subsidiary, which is expected
to be operational by the fourth quarter of 1996. The new broker-dealer
subsidiary will commence operations from a single branch in the San Juan
metropolitan area and is expected to employ ten persons by the end of 1996.
While the new subsidiary will provide a full range of brokerage services, it
is expected to concentrate on the sale of mortgage-backed securities, with
particular emphasis on GNMA securities.
Repeal of Section 936. On August 2, 1996, the United States Congress
approved the Small Business Job Protection Act of 1996 (the "Small Business
Act"). The Small Business Act provides for the elimination of the tax benefits
available to U.S. corporations operating and investing in Puerto Rico under
Section 936 of the Internal Revenue Code ("Section 936"). Section 936 provides
incentives for United States corporations to invest in Puerto Rico by granting
a credit against a portion of the U.S. income tax payable from the active
conduct of a trade or business in Puerto Rico and 100% of certain qualifying
investment income derived in Puerto Rico. The Act repeals Section 936 subject
to a ten-year grandfather rule for corporations electing the
<PAGE> 14
14
benefits of Section 936 ("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 the corporation's taxable year which
includes such date. During the grandfather period, the amount of income that
will benefit from the credit available under Section 936 derived from the
active conduct of a trade or business will be subject to varying caps. The
credit available for investment income will not be subject to the grandfather
rule and will be eliminated effective July 1, 1996. It is expected that the
President will sign the Small Business Act into law.
While the final impact of a repeal of Section 936 cannot be determined at this
time, the repeal of Section 936 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 investment income, could also lead to a
decrease in the amount of funds invested in the Puerto Rico financial market by
936 Corporations ("936 Funds"), thereby increasing funding costs and decreasing
liquidity for Puerto Rico mortgage products. The magnitude of the impact of
the repeal of Section 936 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 such as the Euro-dollar market have decreased, thereby reducing the
adverse effect that the loss of such funding could have on the profitability of
the Company.
<PAGE> 15
15
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
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 Meeting of Shareholders of the Company was held on April 17,
1996. The proposals submitted to the shareholders together with the
results of the voting thereon were previously disclosed under Item 4 on
the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, and are incorporated herein by reference.
ITEM 5 - OTHER INFORMATION
On May 10, 1996, the Company redeemed all of the outstanding shares of
Series A Preferred Stock that had not been converted prior to that date.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.68 - Third Amendment dated June 28, 1996 to Credit
Agreement, dated as of June 30, 1995, between FFCC, Doral Mortgage
Corporation, the lenders party thereto and Bankers Trust Company, as
Agent.
Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None.
<PAGE> 16
16
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 13, 1996 /s/ Salomon Levis
---------------------------------------
Salomon Levis
Chairman of the Board
and Chief Executive Officer
Date: August 13, 1996 /s/ Richard F. Bonini
---------------------------------------
Richard F. Bonini
Senior Executive Vice President
and Chief Financial Officer
Date: August 13, 1996 /s/ Ricardo Melendez
---------------------------------------
Ricardo Melendez
Vice President, Controller and
Principal Accounting Officer
<PAGE> 1
EXHIBIT 10.68
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as
of June 28, 1996, is entered into among the Lenders party hereto, BANKERS TRUST
COMPANY, a New York banking corporation, as agent for the Lenders (the
"Agent"), FIRST FINANCIAL CARIBBEAN CORPORATION, a corporation organized under
the laws of the Commonwealth of Puerto Rico ("FFCC"), and DORAL MORTGAGE
CORPORATION, a corporation organized under the laws of the Commonwealth of
Puerto Rico and a wholly-owned subsidiary of FFCC ("DMC", and together with
FFCC, each a "Borrower" and collectively, the "Borrowers"), with reference to
the Credit Agreement, dated as of June 30, 1995 (the "Original Credit
Agreement"), between the Lenders, the Agent and the Borrowers (as amended by
the First Amendment to Credit Agreement dated as of December 29, 1995 and the
Second Amendment to Credit Agreement dated as of May 1, 1996, and as further
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"). All capitalized terms used but not otherwise defined herein shall
have the meanings given such terms in the Credit Agreement.
The Lenders, the Agent and the Borrowers wish to amend the
Credit Agreement as set forth herein.
ACCORDINGLY, the parties hereto agree as follows:
Section 1. Amendments. Effective as of the Amendment Effective
Date (as defined in Section 3 of this Amendment), the Loan Documents are
amended as follows:
(a) The following definitions from the Credit
Agreement are hereby amended and restated as follows:
"Agency Servicing Portfolio" shall mean the
FNMA/FLHMC Servicing Portfolio and the GNMA Servicing Portfolio.
"Collateral Value of the Facility 3 Borrowing
Base" shall mean, at the time of determination thereof, the sum of
(a) with respect to the Agency Servicing Portfolio, an amount equal
to the lesser of (i) sixty-five percent (65%) of the fair market
value of the servicing rights relating to the mortgage loans included
in the Agency Servicing Portfolio and (ii) 0.95% of the unpaid
principal balance of the mortgage loans included in the Agency
Servicing Portfolio (in each case as reflected on the most recent
Pledged Servicing Valuation Report delivered to the Agent or if such
report is not delivered as required, as determined by the Agent in
its sole discretion), and (b) with respect to the Private Investor
Servicing Portfolio, an amount equal to the lesser of (i) fifty-five
percent (55%) of the fair market value of the servicing rights
relating to the mortgage loans included in the Private Investor
Servicing Portfolio and (ii) .85% of the unpaid principal balance of
the mortgage loans included in the Private Investor Servicing
Portfolio (in each case as reflected on the most recent Pledged
Servicing Valuation Report delivered to the Agent or if such report
is not delivered as required, as determined by the
1
<PAGE> 2
Agent in its sole discretion). Notwithstanding the foregoing, in no
event shall the total amount of outstanding Facility 3 Loans and
Facility 3 Acceptance Obligations which are secured by a pledge of
the portion of FNMA/FHLMC Servicing Portfolio consisting of servicing
rights relating to FNMA loans and FNMA Mortgaged-Backed Securities,
as determined by the Agent, exceed $2,500,000. Further, to the
extent that the value of the Private Investor Servicing Portfolio, as
determined in accordance with clause (b) above, exceeds 15% of the
Collateral Value of the Facility 3 Borrowing Base, such excess shall
be disregarded for the purposes of calculating the Collateral Value
of the Facility 3 Borrowing Base.
"Facility 3 Acceptance" shall have the meaning given
such term in section 2.1 (f) and shall mean either a Facility 3
Tranche A Acceptance or a Facility 3 Tranche B Acceptance, as the
context shall require.
"Facility 3 Commitment" shall mean either a Facility
3 Tranche A Commitment or a Facility 3 Tranche B Commitment, as the
context shall require.
"Facility 3 Loans" shall mean Facility 3 Tranche A
Loans and Facility 3 Tranche B Loans, as the context shall require.
"Facility 3 Maximum Amount" shall mean the Facility 3
Tranche A Maximum Amount, or the Facility 3 Tranche B Maximum Amount,
as applicable.
"Permitted Subordinated Indebtedness" shall mean the
$10,000,000 8.25% Convertible Subordinated Debentures due January 1,
2006, of FFCC, issued under that certain Debenture Purchase
Agreement, dated as of September 25, 1995, as amended and restated as
of December 15, 1995, between FFCC and BanPonce Corporation and any
other Indebtedness incurred by each Borrower (other than the
Obligations) that is subordinated to the Obligations in accordance
with the criteria set forth on Exhibit R attached hereto.
"Pledged Servicing Portfolio" shall mean the
FNMA/FLHMC Servicing Portfolio, the GNMA Servicing Portfolio and the
Private Investor Servicing Portfolio.
"Pledged Servicing Valuation Report" shall mean a
report prepared by a nationally recognized mortgage servicing broker
acceptable to the Agent and the Borrowers, and otherwise in form and
substance reasonably satisfactory to the Agent, setting forth the
fair market value of the servicing rights relating to the mortgage
loans included in the Pledged Servicing Portfolio as of such date
(with the FNMA/FHLMC Servicing Portfolio, the GNMA Servicing
Portfolio and the Private Investor Servicing Portfolio each listed
and valued separately (and, with respect to the FNMA/FHLMC Servicing
Portfolio, with the portfolio serviced for FNMA listed separately
from the portfolio serviced for FHLMC)), with such value determined
on the basis of the net present value of the expected stream of
2
<PAGE> 3
annual cash flow generated thereby using assumptions reasonably
acceptable to the Agent.
"Revolving Loan Maturity Date" shall mean June 27,
1997; provided that upon the written request of the Borrowers to the
Agent, the Facility 1 Lenders and the Facility 2 Lenders may elect to
extend the Revolving Loan Maturity Date on terms as they may deem
appropriate in their sole discretion."
(b) The following definitions are hereby added to the
Credit Agreement in the appropriate alphabetical order:
"Acceptance Agent" shall mean an entity acceptable to
the Agent and Borrowers who will provide the services previously
provided by Bankers Trust Caribe Capital Markets, Inc. under the
Funding Agreement. Wherever "BTCCM" is used in the Credit Agreement
it shall be deemed deleted and replaced with Acceptance Agent.
"Amendment Effective Date" shall have the meaning
given such term in Section 3 of the Third Amendment.
"Facility 3 Tranche A Acceptance" shall mean a
Facility 3 Acceptance relating to the Facility 3 Tranche A
Commitment.
"Facility 3 Tranche B Acceptance" shall mean a
Facility 3 Acceptance relating to relating to the Facility 3 Tranche
B Commitment.
"Facility 3 Tranche A Acceptance Obligations" shall
mean the Acceptance Obligations relating to Facility 3 Tranche A
Acceptances.
"Facility 3 Tranche B Acceptance Obligations" shall
mean the Acceptance Obligations relating to Facility 3 Tranche B
Acceptances.
"Facility 3 Tranche A Commitment" shall mean, with
respect to each Lender, the Facility 3 Commitment, if any, of such
Lender under the Original Credit Agreement.
"Facility 3 Tranche B Commitment" shall mean, with
respect to each Lender, the Commitment, if any, of such Lender to
make Facility 3 Tranche B Loans or to become an Acceptance
Participant with respect to Facility 3 Tranche B Acceptances
hereunder as set forth in Section 2.1(d) and 2.1(f), as such
Commitments may be reduced pursuant to Section 8.6(c).
"Facility 3 Tranche A Loan" shall mean a loan made by
a Facility 3 Lender pursuant to Section 2.1(d)(i) for the purposes
set forth in the third sentence of Section 4.9.
3
<PAGE> 4
"Facility 3 Tranche B Loan" shall mean a loan made by
a Facility 3 Lender pursuant to Section 2.1(d)(ii) for the purposes
set forth in the third sentence of Section 4.9.
"Facility 3 Tranche A Maximum Amount" shall have the
meaning set forth in Section 2.1(d)(i).
"Facility 3 Tranche B Maximum Amount" shall have the
meaning set forth in Section 2.1(d)(ii).
"Minimum ATNW" shall have the meaning assigned
thereto in Section 5.3(b).
"Minimum BNW" shall have the meaning assigned thereto
in Section 5.3(c).
"Original Credit Agreement" shall have the meaning
assigned thereto in the recitals of the Third Amendment.
"Prior Year Minimum ATNW" shall have the meaning
assigned thereto in Section 5.3(b).
"Prior Year Minimum BNW" shall have the meaning
assigned thereto in Section 5.3(c).
"Private Investor Servicing Portfolio" shall mean the
portfolio of outstanding residential mortgage loans specified on
Attachment 1-A to the Servicing Security Agreement, as such
attachment is amended, modified or supplemented from time to time,
that are owned by any Person (other than an Agency) or included in
pools of mortgage loans with respect to which such Person (other than
an Agency) has issued a mortgage-backed security and with respect to
which either Borrower holds direct servicing rights, and that are
covered by an effective Acknowledgment Agreement.
"Third Amendment" means the Third Amendment to Credit
Agreement dated as of June 28, 1996 by and among the parties to the
Original Credit Agreement.
"Tranche A Term Loan Maturity Date" shall mean June
30, 2000.
"Tranche B Term Loan Maturity Date" shall mean June
30, 2001."
(c) All references to "ninety-six percent (96%) in the
definition of "Collateral Value of the Facility 1 Borrowing Base" are deemed
deleted and replaced with "ninety-eight percent (98%)." With reference to the
Facility 1 Borrowing Base Certificate attached as Exhibit H-I to the Credit
Agreement:
4
<PAGE> 5
(i) the reference to "96% of UPB" under the heading
"Eligible Conforming Loans" shall be amended to
"98% of UPB";
(ii) the phrase "@96% of UPB" under the heading
"Eligible MBS's" shall be amended to "@98% of
UPB".
(d) The reference to "seventy percent (70%)" in the definition of
"Collateral Value of the Facility 2 Tranche A Borrowing Base" shall be deemed
deleted and replaced with "eighty percent (80%)." The reference to "70%" in
the Facility 2 Tranche A Borrowing Base Certificate attached as Exhibit H-2 is
deleted and replaced with "80%."
(e) The phrase "that are covered by an effective Acknowledgment
Agreement, when and if one is available" in the last clause of the definition
of "GNMA Servicing Portfolio" is deleted and replaced with "that are covered
by an effective Acknowledgment Agreement if requested by the Agent and the
Lenders."
(f) The date "December 31, 1994" in the definition of
"Book Net Worth," and in Sections 3.1(b)(iv), 4.4(a), 4.4(d) and Section 5.3(a)
is deleted and replaced with "December 31, 1995."
(g) The date "March 31, 1995" in Section 4.4(b) is deleted
and replaced with "March 31, 1996."
(h) Section 2.1 (d) is hereby deleted and replaced with
the following:
"(d) Facility 3 Loans. (i) Facility 3 Tranche A
Loans. The parties acknowledge that the Facility 3 Tranche A
Commitments have been terminated. The (aa) aggregate principal
amount of Facility 3 Tranche A Loans plus the aggregate face amount
of Facility 3 Tranche A Acceptances outstanding at any time shall
not exceed (bb) the then current Collateral Value of the Facility 3
Borrowing Base less the aggregate amount of Facility 3 Tranche B
Loans and the aggregate face amount of Facility 3 Tranche B
Acceptances outstanding (the amount determined in accordance with
clause (bb) is referred to herein as the "Facility 3 Tranche A
Maximum Amount"). Subject to Section 2.12, each Facility 3 Tranche
A Loan shall be a Eurodollar Loan or a Prime Loan. Once prepaid or
repaid, Facility 3 Tranche A Loans may not be reborrowed. Prior to
the Tranche A Term Loan Maturity Date and subject to the conditions
precedent to the creation of an Acceptance set forth in Section 2.1
(f)(iii), nothing contained in this Section 2.1 (d) shall prevent
the Borrowers from converting Facility 3 Loans or exchanging Facility
3 Acceptances in accordance with Section 2.3 after the expiration of
the Facility 3 Commitments provided that no additional sums are
borrowed or increased Acceptance Obligations are created.
(ii) Facility 3 Tranche B Loans. Subject to and upon
the terms and conditions herein set forth, each Facility 3 Lender
agrees, severally and not jointly, at any time and from time to time
from the Effective Date up to but excluding the date upon which the
Facility 3 Commitments are terminated, to make Facility 3 Tranche
B Loans to
5
<PAGE> 6
the Borrowers in an aggregate principal amount at any time
outstanding not to exceed the Facility 3 Tranche B Commitment set
forth opposite such Facility 3 Lender's name on the signature pages
to the Third Amendment, as such commitment may be reduced from time
to time pursuant to Section 8.6(c); provided that (aa) the aggregate
principal amount of Facility 3 Tranche B Loans plus the aggregate
face amount of Facility 3 Tranche B Acceptances outstanding at any
time shall not exceed (bb) the then current Collateral Value of the
Facility 3 Borrowing Base less the aggregate amount of Facility 3
Tranche A Loans and the aggregate face amount of the Facility 3
Tranche A Acceptances outstanding (the amount determined in
accordance with clause (bb) is referred to herein as the "Facility 3
Tranche B Maximum Amount"). Subject to Section 2.12, each Facility 3
Tranche B Loan shall be a Eurodollar Loan or a Prime Loan. Once
prepaid or repaid, Facility 3 Tranche B Loans may not be reborrowed.
Prior to the Tranche B Term Loan Maturity Date and subject to the
conditions precedent to the creation of an Acceptance set forth in
Section 2.1(f)(iii), nothing contained in this Section 2.1(d) shall
prevent the Borrowers from converting Facility 3 Loans or exchanging
Facility 3 Acceptances in accordance with Section 2.3 after the
expiration of the Facility 3 Commitments provided that no additional
sums are borrowed or increased Acceptance Obligations are
created."
(i) The amount of "$10,000,000" in Section 2.1(e) is
deleted and replaced with "$15,000,000."
(j) The phrase "Term Loan Maturity Date" in clauses
(ii) and (iii) of Section 2.1(f) is deleted and replaced with "Tranche A Term
Loan Maturity Date or Tranche B Term Loan Maturity Date, as applicable."
(k) In clause (i) of Section 2.6(b) "one-percent
(1.0%)" is hereby deleted and replaced with ".95%."
(1) In clause (i) of Section 2.6(c) "one and one-
eighth percent (1.125%)" is hereby deleted and replaced with "1.07%."
(m) The first sentence of Section 2.7(a) is amended
and restated as follows: "The Facility 1 Commitments shall automatically
terminate on the Revolving Loan Maturity Date."
(n) The first sentence of Section 2.7(b) is amended
and restated as follows: "The Facility 2 Commitments shall automatically
terminate on the Revolving Loan Maturity Date."
(o) Section 2.7(c) is deleted and replaced with the
following:
"(c) The Facility 3 Tranche A Commitments
have terminated. The Facility 3 Tranche B Commitments shall
automatically terminate on the earlier of (i) the date on which the
Facility 3 Tranche B Commitments have been drawn down in their
entirety, and (ii) June 27, 1997.
6
<PAGE> 7
(p) The first sentence of Section 2.8(a) is amended
and restated as follows: "The Borrowers shall repay all outstanding Facility 1
Loans and Acceptance Obligations relating to Facility 1 Acceptances (whether
matured or unmatured) on the Revolving Loan Maturity Date."
(q) The first sentence of Section 2.8(b) is amended
and restated as follows: "The Borrowers shall repay all outstanding Facility 2
Loans on the Revolving Loan Maturity Date."
(r) Sections (ii) and (iii) of Section 2.8(d), and
Section 2.8(e) are hereby deleted and replaced with the following:
"(ii) The Borrowers shall repay the aggregate
principal amount of the outstanding Facility 3 Tranche A Loans plus
the aggregate face amount of Facility 3 Tranche A Acceptances in
sixteen (16) equal quarterly installments, each equal to one-
sixteenth (1/16th) of the principal amount of the Facility 3 Tranche
A Loans outstanding on June 30, 1996, such payments to be made on the
last Business Day of September, December, March and June of each year
commencing with September 30, 1996; provided that on the Tranche A
Term Loan Maturity Date the Borrowers shall also repay any additional
amount required to pay in full any outstanding portion of the
principal amount of Facility 3 Tranche A Loans and Facility 3 Tranche
A Acceptance Obligations. Such payments shall be applied first to
the principal amount of Facility 3 Tranche A Loans then outstanding,
and the remaining amount, if any, shall be applied to outstanding
Facility 3 Tranche A Acceptance Obligations relating to unmatured
Acceptances in accordance with Section 2.11(d). The Borrowers shall
repay the aggregate principal amount of the outstanding Facility 3
Tranche B Loans plus the aggregate face amount of Facility 3 Tranche
B Acceptances in sixteen (16) equal quarterly installments, each
equal to one-sixteenth (1/16th) of the principal amount of the
Facility 3 Tranche B Loans outstanding on June 30, 1997, such
payments to be made on the last Business Day of September, December,
March and June of each year commencing with September 30, 1997;
provided that on the Tranche B Term Loan Maturity Date the Borrowers
shall also repay any additional amount required to pay in full any
outstanding portion of the principal amount of Facility 3 Tranche B
Loans and Facility 3 Tranche B Acceptance Obligations. Such payments
shall be applied first to the principal amount of Facility 3 Tranche
B Loans then outstanding, and the remaining amount, if any, shall be
applied to outstanding Facility 3 Tranche B Acceptance Obligations
relating to unmatured Acceptances in accordance with Section 2.11(d).
(iii) The Borrowers shall repay all
outstanding Facility 3 Tranche A Loans and Facility 3 Tranche A
Acceptance Obligations on the Tranche A Term Loan Maturity Date.
The Borrowers shall repay all outstanding Facility 3 Tranche B Loans
and Facility 3 Tranche B Acceptance Obligations on the Tranche B
Term Loan Maturity Date. Until the Facility 3 Loans have been
repaid in full, no repayment of any Facility 3 Loan pursuant to
Section 2.8(e) or any prepayment of any Facility 3 Loan pursuant to
Section 2.9 shall reduce any amount required to be repaid under this
Section 2.8(d) on
7
<PAGE> 8
any of the dates set forth above. Payments received on account of
Acceptance Obligations prior to the maturity date of the Acceptance
relating thereto shall be applied in accordance with Section 2.11
(d).
(e) If on any date the aggregate outstanding principal amount
of the Facility 3 Loans plus the aggregate face amount of Facility 3
Acceptances outstanding exceeds the Collateral Value of the Facility
3 Borrowing Base, then the Borrowers shall repay the aggregate
principal amount of Facility 3 Loans and Acceptance Obligations
relating to Facility 3 Acceptances, or, provided no Potential Default
or Event of Default exists, deliver additional Collateral of the type
required for the Facility 3 Borrowing Base, as shall be necessary so
that the aggregate outstanding principal amount of the Facility 3
Loans and Acceptance Obligations relating to Facility 3 Acceptances
outstanding does not exceed the Collateral Value of the Facility 3
Borrowing Base. Payments received on account of Acceptance
Obligations prior to the maturity date of the Acceptance relating
thereto shall be applied in accordance with Section 2.11(d)."
(s) The following shall be inserted as the new third
sentence of Section 2.8(g): "All repayments of Facility 3 Loans in the order
described in the preceding sentence shall be applied first to Facility 3
Tranche A Loans and then to Facility 3 Tranche B Loans."
(t) In the third sentence of Section 2.9 the clause "fourth, to
Facility 3 Loans then outstanding" is hereby deleted and replaced with:
"fourth, to Facility 3 Tranche A Loans then outstanding and fifth, to
Facility 3 Tranche B Loans then outstanding."
(u) Section 2.10(a) is hereby amended and restated as follows:
"(a) The Borrowers agree to pay to the Agent for the
account of each Facility 1 Lender a facility fee at a rate per annum
equal to 0.16% on the amount of such Lender's Facility 1 Commitment
(whether used or unused). The Borrowers agree to pay to the Agent for
the account of each Facility 2 Lender a facility fee at a rate per annum
equal to 0.20% on the amount of such Lender's Facility 2 Commitment
(whether used or unused). Such fees shall be deemed to be earned in full
upon the Amendment Effective Date and shall be payable in advance
on the Amendment Effective Date and thereafter in quarterly installments
on the last Business Day of each of March, June, September and December
commencing September 29, 1996; provided that if the Facility 1 Commitments
and Facility 2 Commitments are terminated at any time prior to the
Revolving Loan Maturity Date, each remaining unpaid quarterly installment
of such fees shall be paid in full on the date of such termination."
(v) The following is hereby added at the end of Section 2.10(c):
"The Borrowers agree to pay to the Agent on the
Amendment Effective Date for the account of each of the Facility 3
Lenders an upfront commitment fee in an amount equal to one-quarter of
one percent (0.25%) of the amount of each Lender's Facility 3 Tranche B
Commitment (which Commitments
8
<PAGE> 9
total $5,000,000). Such fees shall be deemed earned in full on the
Amendment Effective Date."
(w) The clause following the last semicolon in Section 2.11(h)
is amended and restated as follows:
"also provided, however, that no payments shall be
made under clauses seventh and eighth above unless the Facility
3 Loans and Facility 3 Acceptance Obligations have matured and
payments are being made pursuant to subsection (j) below;
provided further, that if only Facility 3 Tranche A Loans and
Facility 3 Tranche A Obligations have matured and not Facility
3 Tranche B Loans and Facility 3 Tranche B Acceptance
Obligations, then payments shall only be made with respect to
Facility 3 Tranche A Loans and Facility 3 Tranche A Acceptance
Obligations."
(x) The clause following the last semicolon in Section 2.11(i)
is amended and restated as follows:
"also provided, however, that no payments shall be
made under clauses fifth and sixth above unless the Facility 3
Loans and Facility 3 Acceptance Obligations have matured and
payments are being made pursuant to subsection (j) below; provided
further, that if only Facility 3 Tranche A Loans and Facility 3
Tranche A Acceptance Obligations have matured and not Facility
3 Tranche B Loans and Facility 3 Tranche B Acceptance
Obligations, then payments shall only be made with respect to
Facility 3 Tranche A Loans and Facility 3 Tranche A Acceptance
Obligations."
(y) The phrase "Upon the maturity of the Facility 3
Loans and Facility 3 Acceptance Obligations" in the first sentence of
Section 2.11(j) is amended and restated as follows: "Upon the
maturity of the Facility 3 Tranche A Loans and Facility 3 Tranche A
Acceptance Obligations and Facility 3 Tranche B Loans and the
Facility 3 Tranche B Acceptance Obligations, as applicable,"
(z) The following is hereby added as the last clause
of Section 2.11(j):
"provided, however, that if the Facility 3
Tranche B Loans and the Facility 3 Tranche B Acceptance Obligations
have not matured, then no payments shall be made in respect of such
loans or obligations."
(aa) Section 5.1(a)(x)(D) is hereby deleted in its entirety and
replaced with the following:
"(D) As soon as available and in any event no later than
fifteen (15) days after the end of each fiscal six-month period
commencing with the period ending June 30, 1996, a Pledged Servicing
Portfolio Report, dated as of the last day of each such six-month
period;"
9
<PAGE> 10
(bb) Sections 5.3(b), (c) and (d) are hereby deleted
in their entirety and replaced with the following:
"(b) Adjusted Tangible Net Worth. Permit
Adjusted Tangible Net Worth at any time to be less than the greater
of (such greater number, the "Minimum ATNW") (i) Prior Year Minimum
ATNW and (ii) eighty-five percent (85%) of Adjusted Tangible Net
Worth as of the end of the immediately preceding fiscal year. As
used herein "Prior Year Minimum ATNW" shall mean Minimum ATNW as of
the end of the penultimate preceding fiscal year. For example, for
fiscal year 1996, Prior Year Minimum ATNW is determined as of the end
of fiscal year 1994. The parties acknowledge that Minimum ATNW
determined as of the end of fiscal year 1994 is $87,700,000 and that
85% of Adjusted Tangible Net Worth as of the end of fiscal year 1995
is $97,680,619. Accordingly, Minimum ATNW at any time during fiscal
year 1996 is $97,680,619.
(c) Book Net Worth. Permit Book Net
Worth at any time to be less than the greater of (such greater
number, the "Minimum BNW") (I) Prior Year Minimum BNW and (ii)
eighty-five percent (85%) of the Book Net Worth as of the end of the
immediately preceding fiscal year. As used herein "Prior Year
Minimum BNW" shall mean Minimum BNW as of the end of the penultimate
preceding fiscal year. For example, for fiscal year 1996, Prior Year
Minimum BNW is determined as of the end of fiscal year 1994. The
parties acknowledge that Minimum BNW determined as of the end of
fiscal year 1994 is $84,100,000 and that 85% of Book Net Worth as of
the end of fiscal year 1995 is $95,711,904. Accordingly, Minimum
BNW at any time during fiscal year 1996 is $95,711,904.
(d) Debt Service Coverage. Permit the ratio
measured at the end of each fiscal quarter of FFCC on a consolidated
basis (excluding any Subsidiaries that are not primarily engaged
primarily in the business of mortgage banking as reasonably
determined by the Agent) of (I) the arithmetic quarterly average of
the sum of (A) the aggregate net income of FFCC for the preceding
four (4) fiscal quarters (including the quarter then ended) less any
non-cash income of FFCC (including, "excess servicing fees" and
originated mortgage servicing rights (which rights are net of
deferred taxes)), if applicable, plus (B) the aggregate depreciation,
amortization and other non-cash charges for such quarters to (II)
the sum of (A) payments of principal on amortizing, funded
indebtedness which are scheduled to be made by FFCC during the next
succeeding fiscal quarter plus (B) such aggregate dividend payments
to be paid by FFCC during the next succeeding fiscal quarter, to be
less than 1.25:1.0; provided that dividend payments by DMC to FFCC
shall be excluded from the foregoing calculation. For purposes of
the foregoing ratio, "other non-cash income" refers to one time
account adjustments reflected on the applicable financial statement.
An example of the foregoing calculation is set forth on Exhibit A to
the Third Amendment."
10
<PAGE> 11
(cc) The parties hereto acknowledge that the Funding
Agreement has been terminated and that no Acceptances will be made
available unless and until (i) the Borrowers enter into an agreement
with an Acceptance Agent substantially in the form of the Funding
Agreement and otherwise in form and substance satisfactory to the
Agent, and (ii) any necessary or desirable modifications or
amendments are made to the Loan Documents (which modifications or
amendments relate to such new Funding Agreement and/or the creation
of Acceptances), as determined by the Agent in the exercise of its
sole discretion.
(dd) The parties hereto acknowledge that the Loan
Documents incorrectly stated the name of National City Bank of
Kentucky as "National City Bank." The Loan Documents are hereby
amended to replace the name "National City Bank" with "National City
Bank of Kentucky" wherever it appears in the Loan Documents. On the
Amendment Effective Date, the Borrowers shall deliver replacement
Notes (the "Replacement Notes") to National City Bank of Kentucky
correcting such Lender's name.
Section 2. Representations and Warranties. The Borrowers
represent and warrant that, on and as of the date hereof, all of the
representations and warranties made by them in the Credit Agreement
and the other Loan Documents are true and correct as if made on and
as of the date hereof (as modified by Sections 1(f) and (g) above)
and no Potential Default or Event of Default has occurred and is
continuing.
Section 3. Effectiveness. This Amendment shall become effective
as of the date (the "Amendment Effective Date"), on which each of the
following conditions have been satisfied to the satisfaction of
Agent:
(a) The Borrowers shall have delivered to the Agent, in form
and substance and in quantities reasonably satisfactory to the Agent
and its counsel, each of the following:
(i) this Amendment and the Replacement Notes, duly
executed and delivered by the parties hereto;
(ii) a certified copy of resolutions of the Board of
Directors of each of the Borrowers approving the
execution, delivery and performance of all
documents required to be delivered by such
parties hereunder and the transactions
contemplated therein;
(iii) an opinion of Puerto Rico counsel for the
Borrowers in form and substance satisfactory to
Agent and covering such matters as the Agent may
reasonably request, in each case dated the
Amendment Effective Date;
(iv) the Borrowers shall have paid all Fees
required to have been paid under this
Amendment and the Loan Documents prior
to or on the Amendment Effective Date;
11
<PAGE> 12
(v) a Pledged Servicing Valuation Report dated as of
a date which is no more than thirty (30) days
prior to the Amendment Effective Date; and
(vi) such other documents, instruments and
agreements, duly executed, deemed necessary or
appropriate by the Agent.
(b) All acts and conditions (including the obtaining of
any necessary regulatory approvals and the making of any required
filings, recordings or registrations) required to be done and
performed and to have happened prior to the execution, delivery and
performance of this Amendment and for the same to constitute the
legal, valid and binding obligations, enforceable in accordance with
its terms, shall have been done and performed and shall have happened
in due and strict compliance with all applicable laws or if any of
such have not been done, performed or happened, such has been
expressly disclosed to the Agent and waived by all of the Lenders in
writing.
Section 4. Counterparts. This Amendment may be executed in any
number of counterparts, all of which taken together shall constitute
one agreement, and any party hereto may execute this Amendment by
signing any such counterpart.
Section 5. Ratification. Except as set forth herein, all Loan
Documents are hereby ratified and confirmed in all respects. The
term Loan Documents, as used in the Loan Documents, shall mean the
Loan Documents as amended hereby.
Section 6. MISCELLANEOUS. THIS AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
EXCEPT AS EXPRESSLY AMENDED HEREBY, THE CREDIT AGREEMENT AND THE
OTHER LOAN DOCUMENTS SHALL REMAIN IN FULL FORCE AND EFFECT. NOTHING
CONTAINED HEREIN SHALL OPERATE AS A WAIVER OF ANY RIGHT, POWER OR
REMEDY OF THE AGENT OR THE LENDERS UNDER THE CREDIT AGREEMENT OR ANY
OTHER LOAN DOCUMENT, NOR CONSTITUTE A WAIVER OF ANY PROVISION OF THE
CREDIT AGREEMENT OR ANY OTHER LOAN DOCUMENT. THE PARTIES HERETO
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION RELATED TO THE SUBJECT
MATTER OF THIS AMENDMENT.
12
<PAGE> 13
IN WITNESS WBEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
FIRST FINANCIAL CARIBBEAN CORPORATION, as a
Borrower
By: /s/ Mario S. Levis
-------------------------------------
Name: Mario S. Levis
-------------------------------------
Title:
-------------------------------------
By: /s/ Luis Alvarado
-------------------------------------
Name: Luis Alvarado
-------------------------------------
Title:
-------------------------------------
DORAL MORTGAGE CORPORATION,
as a Borrower
By: /s/ Mario S. Levis
-------------------------------------
Name: Mario S. Levis
-------------------------------------
Title:
-------------------------------------
Facility 3 Tranche B BANKERS TRUST COMPANY,
Commitment: $833,333.33 as Agent and as a Lender
By: /s/ Kevin M. McCann
-------------------------------------
Name: Kevin M. McCann
-------------------------------------
Title: Vice President
-------------------------------------
Bankers Trust Company
S-1
<PAGE> 14
Facility 3 Tranche B FIRST UNION NATIONAL BANK
Commitment: $833,333.33 OF NORTH CAROLINA, as a Lender
By: /s/ R. Steven Hall
------------------------------------
Name: R. Steven Hall
------------------------------------
Title: Vice President
------------------------------------
Facility 3 Tranche B THE BANK OF BOSTON,
Commitment: $833,333.33
By: /s/ Paul Chmielinski
------------------------------------
Name: Paul Chmielinski
------------------------------------
Title: Vice President
------------------------------------
Facility 3 Tranche B BANK ONE, TEXAS N.A.,
Commitment: $833,333.33 as a Lender
By: /s/ Brian J. Hilberth
------------------------------------
Name: Brian J. Hilberth
------------------------------------
Title: Assistant Vice President
------------------------------------
Facility 3 Tranche B THE BANK OF NEW YORK,
Commitment: $833,333.33 as a Lender
By: /s/ Robert A. Tweed
------------------------------------
Name: Robert A. Tweed
------------------------------------
Title: Vice President
------------------------------------
S-2
<PAGE> 15
Facility 3 Tranche B NATIONAL CITY BANK OF KENTUCKY,
Commitment: $833,333.33 as a Lender
By: /s/ Robert J. Ogburn
-------------------------------
Name: ROBERT J. OGBURN
-------------------------------
Title: VICE PRESIDENT
-------------------------------
S-3
<PAGE> 16
Third Amendment to the Credit Agreement
EXHIBIT A
First Financial Caribbean Corporation (FFCC)
Pro forma Cash Flow Coverage Test
Source: 12/31/95 Consolidated Financial Statements
($M)
(ffcccov6)
<TABLE>
<CAPTION>
1995
Quarterly
12/31/95 Average
-------- -------
<S> <C> <C>
Total Consolidated Net Income 19,560 4,890
Doral Federal Net Income 1,547 387
------
Net Income w/o Doral Federal 18,013 4,503
+ Depreciation 1,765 441
- Depreciation of Doral Federal (203) (51)
+ Amortization of Goodwill 376 94
- Amortization of Goodwill of Doral Federal (28) (7)
+ Amortization of PMSR 562 141
+ Amortization of Excess Servicing Fees 988 247
+Allowance for losses 300 75
-Excess Servicing fees (2,638) (660)
-OMSR Net of Deferred Taxes (1,586) (397)
-Other non-cash income* - -
CASH FLOW 17,549 4,387
Schedule of amortizing principal pmts. to
be paid during the next quarter. 4,000 1,000
Dividend payments to be paid during the
next quarter. 5,900 1,475
Stock repurchases (if applicable)
CASH FLOW OBLIGATIONS 9,900 2,475
CASH FLOW COVERAGE 1.77 1.77
CASH FLOW COVERAGE COVENANT 1.25 1.25
COVENANT SATISFIED YES YES
</TABLE>
Note: For the covenant test, the consolidating financial statements of HF
Mortgage and Doral Mortgage will be applied with the quarterly
average based upon the preceding four fiscal quarters.
*Other non-cash income refers to one time accounting adjustments as
reflected on the financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST FINANCIAL CARIBBEAN CORPORATION FOR THE QUARTER
ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 49,341
<SECURITIES> 509,211
<RECEIVABLES> 21,871
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,316
<DEPRECIATION> 5,768
<TOTAL-ASSETS> 989,164
<CURRENT-LIABILITIES> 0
<BONDS> 10,000
0
0
<COMMON> 9,125
<OTHER-SE> 139,706
<TOTAL-LIABILITY-AND-EQUITY> 989,164
<SALES> 0
<TOTAL-REVENUES> 52,019
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,526
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,818
<INCOME-PRETAX> 14,675
<INCOME-TAX> 1,288
<INCOME-CONTINUING> 13,387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,387
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.41
</TABLE>
