<PAGE> 1
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 SEPTEMBER 30, 1998.
[ ] 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
DORAL FINANCIAL 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, (787) 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 NOVEMBER 13, 1998 - 40,428,920
<PAGE> 2
DORAL FINANCIAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets as of September 30, 1998 (Unaudited) and December 31, 1997.........................4
Consolidated Statements of Income and Retained Earnings (Unaudited) -
Quarters ended September 30, 1998 and September 30, 1997 and nine
months ended September 30, 1998 and September 30, 1997.........................................................5
Consolidated Statement of Cash Flows (Unaudited) - Nine-month period ended September 30, 1998
and September 30, 1997.........................................................................................6
Consolidated Statement of Comprehensive Income - Quarters ended September 30, 1998 and September 30, 1997
and nine months ended September 30, 1998 and September 30, 1997................................................7
Notes to Consolidated Financial Statements.....................................................................8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.........................13
Item 3 - Quantitative and Qualitative Disclosures About Market Risk....................................................23
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.............................................................................................23
Item 2 - Changes in Securities.........................................................................................23
Item 3 - Defaults Upon Senior Securities...............................................................................23
Item 4 - Submission of Matters to a Vote of Security Holders...........................................................23
Item 5 - Other Information.............................................................................................24
Item 6 - Exhibits and Reports on Form 8-K..............................................................................24
SIGNATURES...............................................................................................................25
</TABLE>
2
<PAGE> 3
FORWARD LOOKING STATEMENTS
When used in this form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project" or similar expressions are
intended to identify "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
to advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities, competitive and regulatory
factors and legislative changes, could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
3
<PAGE> 4
DORAL FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
(unaudited) (audited)
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 11,711 $ 17,390
Money market investments 148,935 157,404
Mortgage loans held for sale, net 670,194 406,297
Securities held for trading, net 692,405 620,288
Securities held to maturity 130,764 143,534
Securities available for sale 490,641 240,876
Loans receivable, net 200,327 133,055
Accounts receivable and mortgage servicing advances, net 247,576 42,890
Accrued interest receivable 22,352 13,537
Servicing asset 62,243 46,416
Property, leasehold improvements and equipment, net 15,772 10,848
Cost in excess of fair value of net assets acquired 5,657 6,203
Federal Home Loan Bank (FHLB) stock 5,792 4,692
Real estate held for sale, net 2,840 3,025
Prepaid and other assets 8,330 11,334
----------- -----------
Total assets $ 2,715,539 $ 1,857,789
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Loans payable $ 416,150 $ 265,306
Securities sold under agreements to repurchase 1,130,352 838,142
Deposit accounts 410,772 300,494
Notes payable 192,839 164,934
Advances from Federal Home Loan Bank 32,000 32,000
Accounts payable and other liabilities 263,327 57,201
Income tax payable 1,262 2,883
Deferred tax liability 9,455 9,874
----------- -----------
Total liabilities 2,456,157 1,670,834
----------- -----------
Stockholders' equity:
Serial Preferred Stock, $1 par value, 2,000,000 shares authorized;
20,000 shares of 8% Convertible Cumulative Preferred Stock, $1 par value
(liquidation preference $1,000 per share), designated and
8,460 shares issued and outstanding 8 8
Common Stock, $1 par value, 50,000,000 shares authorized; 40,484,920 shares issued,
40,428,920 shares outstanding 40,485 36,850
Paid-in capital 70,252 33,295
Legal surplus 1,704 1,704
Retained earnings 144,851 114,253
Accumulated other comprehensive income 2,138 901
Treasury stock at par value, 56,000 shares (56) (56)
----------- -----------
Total stockholders' equity 259,382 186,955
----------- -----------
Total liabilities and stockholders' equity $ 2,715,539 $ 1,857,789
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
DORAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(In thousands of dollars, except for per share data)
Unaudited
<TABLE>
<CAPTION>
Quarter Ended Nine-Month Period Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 10,129 $ 8,155 $ 30,985 $ 23,796
Mortgage-backed securities 14,161 12,080 41,110 33,920
Investment securities 10,299 1,035 25,734 2,500
Other interest-earning assets 3,968 1,756 6,734 3,883
-------- --------- --------- --------
Total interest income 38,557 23,026 104,563 64,099
Interest expense:
Loans payable 6,108 4,364 18,366 12,193
Securities sold under agreements to repurchase 15,972 6,377 40,114 19,947
Deposits 4,536 2,695 12,032 6,880
Other borrowed funds 4,309 1,663 9,856 4,194
-------- --------- --------- --------
Total interest expense: 30,925 15,099 80,368 43,214
Net interest income 7,632 7,927 24,195 20,885
Provision for loan losses 163 244 474 609
-------- --------- --------- --------
Net interest income after provision for loan losses 7,469 7,683 23,721 20,276
Non-interest income:
Mortgage loans sales and fees 16,654 7,166 39,709 18,223
Servicing income 5,469 3,815 15,673 10,863
Gain on sale of servicing assets 0 0 1,829 0
Other income 847 398 1,998 1,128
-------- --------- --------- --------
Total non-interest income 22,970 11,379 59,209 30,214
-------- --------- --------- --------
Non-interest expenses:
Compensation and benefits, net (See Note f) 5,962 3,174 13,378 6,308
Taxes, other than payroll 465 375 1,266 1,019
Maintenance 438 253 1,038 701
Advertising 1,420 791 4,234 2,520
Professional services 1,088 831 2,964 2,395
Telephone 709 544 1,974 1,531
Rent 865 648 2,374 1,844
Other, (See Note f) 4,378 2,866 12,901 7,351
-------- --------- --------- --------
Total non-interest expense 15,325 9,482 40,129 23,669
-------- --------- --------- --------
Income before income taxes 15,114 9,580 42,801 26,821
Income taxes:
Current (1,204) 1,038 5,905 2,397
Deferred 2,441 (50) (1,082) 793
-------- --------- --------- --------
Total income taxes 1,237 988 4,823 3,190
-------- --------- --------- --------
Net Income 13,877 8,592 37,978 23,631
Retained earnings at beginning of period 133,568 114,575 114,253 102,925
Less cash dividends paid:
8% Convertible Cumulative Preferred stock 169 -- 507 --
Common stock 2,425 1,840 6,873 5,229
-------- --------- --------- --------
Retained earnings at the end of period $144,851 $ 121,327 $ 144,851 $121,327
======== ========= ========= ========
Earnings per share (1):
Basic $ 0.34 $ 0.24 $ 0.94 $ 0.65
======== ========= ========= ========
Diluted $ 0.33 $ 0.225 $ 0.91 $ 0.62
======== ========= ========= ========
</TABLE>
(1) Adjusted to reflect two-for-one stock split effected on May 20, 1998.
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
DORAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine-Month Period Ended
September 30,
-------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................................ $ 37,978 $ 23,631
----------- ---------
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Amortization of interest-only strip receivable .............................. 2,535 2,791
Amortization of cost in excess of fair value of net assets acquired .......... 546 280
Amortization of servicing assets ............................................. 4,748 1,932
Depreciation and amortization ................................................ 2,110 1,656
Gain on sale of servicing rights ............................................. (1,829) 0
Allowances for losses ........................................................ 474 609
Origination and purchases of mortgage loans held for sale .................... (1,415,235) (599,372)
Principal repayment and sales of loans held for sale ......................... 472,821 271,455
Purchases of securities held for trading ..................................... (866,177) (214,679)
Principal repayments and sales of securities held for trading ................ 1,179,872 306,634
Net increase in interest-only strip receivable ............................... (5,172) (6,644)
Increase in accounts receivable and mortgage servicing advances .............. (204,830) (4,952)
Increase in servicing asset .................................................. (20,575) (11,587)
Increase in interest receivable .............................................. (8,815) (2,302)
Increase in loans payable .................................................... 150,844 22,027
Increase in interest payable ................................................. 5,472 2,282
Increase in securities sold under agreements to repurchase ................... 292,210 300,173
Increase in payables and accrued liabilities ................................. 200,654 3,661
Increase (decrease) in income tax payable .................................... (1,622) 1,439
Deferred tax (benefit) provision ............................................. (1,208) 793
Amortization of unearned compensation under employment contracts ............. 0 72
----------- ---------
Total adjustments ......................................................... (213,177) 76,268
----------- ---------
Net cash (used in) provided by operating activities .......................... (175,199) 99,899
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities held to maturity ........................................ 0 (104,274)
Principal repayments of securities held to maturity ............................. 12,770 22,510
Origination of loans receivable ................................................. (82,304) (117,055)
Principal repayments of loans receivable ........................................ 14,852 80,119
Purchase of securities available for sale ....................................... (404,724) (75,003)
Principal repayments and sales of securities available for sale ................ 452,178 15,462
Purchase of property, leasehold improvements and equipment ...................... (7,034) (3,158)
Additions to cost in excess of fair value of net assets acquired ................ 0 (18)
Decrease (increase) in real estate held for sale ................................ 185 (702)
Proceeds from the sale of servicing assets ...................................... 1,829 0
Decrease (increase) in other assets ............................................. 3,004 (1,235)
----------- ---------
Net cash used in investing activities ........................................ (9,244) (183,354)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock .......................................... 40,592 0
Increase in Federal Home Loan Bank Stock ........................................ (1,100) 0
Increase (decrease) in notes payable ............................................ 27,905 (1,986)
Increase in deposits ............................................................ 110,278 92,043
Dividends declared and paid ..................................................... (7,380) (5,229)
----------- ---------
Net cash provided by financing activities ...................................... 170,295 84,828
----------- ---------
Net (decrease) increase in cash and cash equivalents ........................... (14,148) 1,373
Cash and cash equivalents at beginning of period ............................... 174,794 81,213
----------- ---------
Cash and cash equivalents at the end of period ................................. $ 160,646 $ 82,586
=========== =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Noncash investing activities-conversion of subordinated debentures .............. $ 0 $ 1,540
=========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash used to pay interest ....................................................... $ 74,828 $ 41,547
=========== =========
Cash used to pay income taxes ................................................... $ 7,526 $ 958
=========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
DORAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Quarter Ended Nine-Month Period Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net income: $ 13,877 $ 8,592 $ 37,978 $23,631
Other comprehensive income, net of tax
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period 1,989 106 2,335 1,074
Less: reclassification adjustment for (gains) losses
included in net income (loss) (124) (52) (1,098) (937)
-------- -------- -------- -------
Other comprehensive income (loss)(1) 1,865 54 1,237 137
-------- -------- -------- -------
Comprehensive income, net of taxes $ 15,742 $ 8,646 $ 39,215 $23,768
======== ======== ======== =======
</TABLE>
- -------------
(1) Income tax expenses related to items of other comprehensive income were
$1,192,000 and $35,000 for the quarters ended September 30, 1998 and 1997,
respectively, and $791,000 and $88,000 for the nine-month periods ended
September 30, 1998 and 1997, respectively.
7
<PAGE> 8
DORAL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
a. The Consolidated Financial Statements (unaudited) include the accounts of
Doral Financial Corporation ("Doral" or the "Company"), Doral Mortgage
Corporation ("Doral Mortgage"), Centro Hipotecario, Inc., Doral Securities,
Inc. ("Doral Securities"), Doral Bank and Doral Money, Inc., a subsidiary of
Doral Bank. References herein to "Doral" or the "Company" shall be deemed to
refer to the Company and its consolidated subsidiaries, unless otherwise
provided. 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, 1997,
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 nine-month period ended
September 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
c. Cash dividends per share paid for the quarter and nine-month period ended
September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine-Month Period Ended
September 30, September 30,
-------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
8% Convertible Cumulative Preferred Stock $ 20.00 $ -- $ 60.00 $ --
Common Stock $ 0.06 $ 0.05 $ 0.17 $ 0.14
</TABLE>
d. At September 30, 1998, escrow funds include approximately $69.7 million
deposited with Doral Bank. These funds are included as deposits in the
Company's financial statements. Escrow funds also include approximately $20.6
million deposited with other banks which are excluded from the Company's
assets and liabilities.
e. The following table reconciles the number of shares used in the computations
of basic and diluted income per share for the third quarter and year to date
periods ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
For the quarter ended September 30, 1998 Nine-month period ended September 30, 1998
---------------------------------------- -----------------------------------------
Income Shares Per share Income Shares Per share
(numerator) (denominator) amount (numerator) (denominator) amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item $13,877 $37,978
Less: Convertible preferred stock dividend (169) (507)
----------- -----------
Basic EPS:
Income available to common shareholders 13,708 40,428,920 $0.34 37,471 39,776,664 $0.94
=========== ============= ========= ============ ============== =========
Effect of dilutive securities:
Convertible Subordinated Debentures - - - -
Convertible Preferred Stock 169 1,933,714 507 1,933,714
Assumed common shares issued on
exercise of stock options - 54,179 - 32,673
----------- ------------- ------------ --------------
Diluted EPS:
Income available to common shareholders
plus assumed conversions $13,877 42,416,813 $0.33 $37,978 41,743,051 $0.91
=========== ============= ========= ============ ============== =========
</TABLE>
<TABLE>
<CAPTION>
For the quarter ended September 30, 1997 Nine-month period ended September 30, 1997
----------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item $8,592 $23,631
Less: Convertible preferred stock dividend - -
----------- -----------
Basic EPS:
Income available to common shareholders 8,592 36,794,920 $0.234 23,631 39,776,664 $0.59
============ ============== ========= =========== ============= =========
Effect of dilutive securities:
Convertible Subordinated Debentures 106 1,933,712 303 1,966,387
Convertible Preferred Stock - - - -
Assumed common shares issued on
exercise of stock options - - - -
------------ -------------- ----------- -------------
Diluted EPS:
Income available to common shareholders
plus assumed conversions $8,698 38,728,632 $0.225 $23,934 41,743,051 $0.57
============ ============== ========= =========== ============= =========
</TABLE>
f. Employee costs and other expenses are shown in the Consolidated Statement of
Income and Retained Earnings net of direct loan origination costs which,
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.
8
<PAGE> 9
Set forth below is a reconciliation of the application of SFAS No. 91 to
employee costs and other expenses:
<TABLE>
<CAPTION>
Quarter Ended Nine-Month Period Ended
September 30, September 30,
-------------------- -----------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Employee Costs, gross $14,344 $9,579 $37,850 $26,840
Deferred costs pursuant to SFAS No. 91 8,382 6,405 24,472 20,532
------- ------ ------- -------
Employee cost, net $ 5,962 $3,174 $ 13,378 $ 6,308
======= ====== ======== =======
Other expenses, gross $ 6,275 $3,826 $17,778 $10,527
Deferred costs pursuant to SFAS No. 91 1,897 960 4,877 3,176
------- ------ ------- -------
Other expenses, net $ 4,378 $2,866 $ 12,901 $ 7,351
======= ====== ======== =======
</TABLE>
g. On April 23, 1998, the Board of Directors declared a two-for-one stock split
of the Company's Common Stock, $1.00 par value (the "Common Stock"). The
stock split was effected in the form of a stock dividend of one additional
share of Common Stock issued on May 20, 1998 for each share of Common Stock
held of record on May 8, 1998. Prior to the declaration of the stock split,
the Company had 20,214,460 shares outstanding. Following distribution of the
additional shares, the Company had 40,428,920 shares outstanding. The stock
split did not dilute shareholders' voting rights or their proportionate
interest in the Company.
All amounts in the financial statements and the accompanying notes have been
adjusted to reflect the stock split.
h. Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130- "Reporting Comprehensive Income." This
Statement establishes standards for reporting and displaying comprehensive
income and its components in general-purpose financial statements.
Comprehensive income is intended to report all changes in the equity of a
business enterprise during a period from transactions and other events or
circumstances, except those resulting from investments by or distribution to
owners. The only item of comprehensive income reported by the Company is the
unrealized gains on securities available for sale which, at September 30,
1998, amounted to $2.1 million net of $1.4 million in taxes.
i. The fair values of the Company's trading securities and the fair values and
carrying values of its securities classified as available for sale and held
to maturity are shown below by category. The fair values of investment
securities are based on quoted market prices and dealers quotes, except for
investment in FHLB-NY stock which is valued at its redemption value. Expected
maturities may differ from contractual maturities because of prepayment and
other market factors.
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1998 1997
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Securities Held for trading:
Mortgage-backed securities:
GNMA................................................... $487,740 $420,365
CMO certificates....................................... 150,403 157,236
FHLMC.................................................. 17,499 4,954
FNMA................................................... 3,435 3,569
Interest-only strips.................................... 31,911 29,093
US Treasury Bonds....................................... -- --
US Treasury Notes....................................... -- --
US Treasury Bills....................................... -- --
Other................................................... 1,417 5,071
-------- --------
$692,405 $620,288
======== ========
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------------------------------------
1998 1997
---------------------- ------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage-backed Securities Available for Sale:
FNMA Mortgage-backed Securities
Due within one year.................................. -- -- $ -- $ --
Due from one-five years.............................. -- -- -- --
Due from five-ten years.............................. -- -- -- --
Due over ten years................................... -- -- 2,008 1,959
FHLMC Mortgage-backed Securities
Due within one year.................................. -- -- -- --
Due from one-five years.............................. -- -- -- --
Due from five-ten years.............................. -- -- -- --
Due over ten years................................... -- -- 2,155 2,087
GNMA Mortgage-backed Securities
Due within one year.................................. -- -- -- --
Due from one-five years.............................. -- -- -- --
Due from five-ten years.............................. -- -- -- --
Due over ten years................................... 26,978 27,747 43,375 44,537
Debt Securities Available for Sale:
U.S. Treasury Securities
Due within one year.................................. -- -- -- --
Due from one-five years.............................. -- -- -- --
Due from five-ten years.............................. -- -- -- --
Due over ten years................................... 58,369 59,311 25,661 25,580
Federal Home Loan Banks and Farm
Credit Notes
Due within one year.................................. -- -- -- --
Due from one-five years.............................. 35,000 35,130 -- --
Due from five-ten years.............................. 65,000 65,315 -- --
Due over ten years................................... 301,790 303,138 166,200 166,713
-------- -------- -------- --------
Total Securities Available
For Sale............................................. $487,137 $490,641 $239,399 $240,876
======== ======== ======== ========
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-----------------------------------------------------------
1998 1997
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage-backed Securities Held to Maturity:
GNMA
Due within one year ........... $ -- $ -- $ -- $ --
Due from one-five years ....... -- -- -- --
Due from five-ten years ....... -- -- -- --
Due over ten years ............ 32,796 33,919 5,053 5,077
CMO Certificates
Due within one year ........... $ -- $ -- 4,895 5,013
Due from one-five years ....... 9,220 9,267 5,871 5,868
Due from five-ten years ....... 7,232 7,420 12,483 12,720
Due over ten years ............ 25,455 26,225 27,227 27,888
Debt Securities Held to Maturity:
Federal Home Loan Bank and
Farm Credit Notes
Due within one year ........... $ -- $ -- $ -- $ --
Due from one-five years ....... -- -- -- --
Due from five to ten years ... 40,000 40,100 45,000 45,113
Due over ten years ............ 10,000 10,014 30,000 30,125
P.R. Housing Bank Notes
Due within one year ........... $ 5,000 $ 5,063 $ 5,000 $ 4,990
Due from one to five years .... -- -- -- --
Due from five to ten years .... -- -- -- --
Due over ten years ............ -- -- -- --
U.S. Treasury Securities
Due within one year ...... $ 1,061 $ 1,070 $ 8,005 $ 7,990
Due from one to five years -- -- -- --
Due from five to ten years -- -- -- --
Due from over ten years .. -- -- -- --
Total Securities Held To Maturity: .. $130,764 $133,078 $143,534 $144,784
======== ======== ======== ========
</TABLE>
11
<PAGE> 12
j. Loans Receivable
The following table sets forth certain information regarding the Company's
loans receivable as of the dates indicated:
<TABLE>
<CAPTION>
September 30, Percent December 31, Percent
1998 of Total 1997 of Total
------------ ------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Construction loans .................. $ 27,826 14% $ 9,927 7%
Residential mortgage loans .......... 80,953 40 87,037 65
Commercial real estate .............. 73,428 36 19,036 14
Consumer-- Secured by mortgage ...... 5,808 3 7,828 6
Consumer-- other .................... 4,597 2 2,328 2
Commercial (non-real estate) ........ 3,666 2 3,461 2
Loans on Saving Deposits ............ 3,616 2 3,513 3
Land secured ........................ 2,046 1 1,488 1
--------- --------- --------- ------
Gross loans(1)(2) ................. 201,940 100% 134,618 100%
--------- --------- --------- ------
Less:
Unearned interest and deferred loan
fees ............................. (256) (322)
Allowance for loan losses ......... (1,357) (1,241)
--------- ---------
(1,613) (1,563)
--------- ----------
Loans receivable, Net (3) ......... $ 200,327 $ 133,055
========= =========
</TABLE>
- -----------------------
(1) Sum of the columns may not add up to the totals due to rounding.
(2) Excludes mortgage loans held for sale.
(3) Net of deferred loan fees resulting from the sale of servicing rights to
affiliates which are eliminated in the preparation of the Company's
Consolidated Financial Statements.
k. The following table summarizes certain information regarding the Company's
allowance for loan losses related to loans receivable.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(DOLLARS IN THOUSANDS)
ALLOWANCE FOR LOAN RECEIVABLES(1):
<S> <C> <C>
Balance at beginning of period............... $1,241 $ 719
Provision for loan losses(2)................. 180 600
Charge - Offs................................ 29 (124)
Recoveries................................... (93) 46
------ ------
BALANCE AT END OF PERIOD..................... $1,357 $1,241
====== ======
</TABLE>
- -------------------
(1) Excludes reserves related to mortgage loans held for sale by the Company's
mortgage banking units.
(2) This provision for loan losses does not include $294,000 related to mortgage
loans classified as held for sale which are past due.
l. Certain amounts reflected in the 1997 Consolidated Financial Statements have
been reclassified to conform to the presentation for 1998.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This report and the consolidated financial statements of the Company contain
information regarding the Company's operations and performance for the quarters
and nine-month periods ended September 30, 1998 and 1997. Doral has been engaged
in the mortgage banking business since 1972. During the nine months of 1998,
Doral continued to maintain its leadership position in the origination of
mortgage loans in Puerto Rico. The volume of loans originated and purchased by
Doral was approximately $567 million for the quarter ended September 30, 1998,
as compared to $282 million for the same period a year ago. For the first nine
months of 1998, loans originated and purchased amounted to $1.5 billion, versus
$716 million for the comparable period of 1997.
Doral also continues to be the leading institution in Puerto Rico in terms
of the size of its mortgage servicing portfolio. The Company's mortgage
servicing portfolio increased approximately $1.9 billion from September 30, 1997
to September 30, 1998, from $3.6 billion to $ 5.5 billion. While the Company's
traditional strategy to increase the size of its mortgage servicing portfolio
has been to rely principally on internal loan originations, it also intends to
purchase loans and mortgage servicing rights from third parties to the extent it
can identify attractive opportunities. The Company may also engage, from time to
time, in the sale of mortgage servicing rights whenever market conditions appear
favorable. During the third quarter of 1998, Doral purchased mortgage servicing
rights to $18.2 million aggregate principal amount of mortgage loans. For the
first nine months of 1998, the Company purchased mortgage servicing rights to
$187.9 million aggregate principal amount of mortgage loans and sold servicing
rights to approximately $103 million aggregate principal amount of mortgage
loans to a local financial institution. The sale resulted in a gain to the
Company of $1.8 million. There were no such sales during 1997. During the
third quarter of 1997, Doral purchased servicing rights to approximately $170.7
million aggregate principal amount of mortgage loans from a local financial
institution.
The Company entered the banking business in 1993 through the acquisition of
a federal savings bank, Doral Bank (formerly Doral Federal Savings Bank). In
October 1997, Doral Bank converted its charter to that of a Puerto Rico
commercial bank and currently operates through eight branches in the San Juan,
Puerto Rico metropolitan area. For the quarters ended September 30, 1998 and
1997, Doral Bank contributed approximately $2.1 million and $1.3 million,
respectively, to the Company's consolidated net income. For the nine-month
periods ended September 30, 1998 and 1997, Doral Bank's contribution to the
Company's consolidated net income was approximately $5.7 million and $3.1
million, respectively. The increase in the contribution of Doral Bank to the
Company's consolidated results reflects a substantial increase in Doral Bank's
interest earning assets and increased gains on the sale of mortgage loans by
Doral Bank. Doral Bank increased its assets from $352 million as of September
30, 1997, to $628.4 million as of September 30, 1998. This growth was funded
largely through increases in certificates of deposit accounts and the use of
repurchase agreements.
In addition to its mortgage banking and banking operations, the Company is
also engaged in the securities business through Doral Securities, a
broker-dealer subsidiary that operates from a single branch office located in
San Juan, Puerto Rico.
Unless otherwise indicated herein, the information in this report gives
effect to and has been adjusted for the two-for one stock split of the Company's
Common Stock effected on May 20, 1998.
RESULTS OF OPERATIONS FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997
Doral's operations are primarily influenced by: (i) the direction of
interest rates; (ii) the level of demand for mortgage credit, which is affected
by such external factors as the level of interest rates and the strength of the
economy in Puerto Rico; and (iii) the relationship between interest rates on its
interest-earning assets and the cost of funds with respect to its interest
bearing liabilities.
The components of Doral's revenues are: (i) net interest income; (ii)
mortgage loans sales and fees; (iii) servicing income; (iv) gain on sale of
servicing rights; and (v) other income.
Net Income. The Company's net income for the three month period ended
September 30, 1998 increased to $13.9 million, compared to $8.6 million for the
same period a year ago, an increase of 62%. Net income per diluted share was
$0.33 and $0.225 for such respective periods. For the first nine months of
1998 and 1997, Doral recorded net income in the amount of $38.0 million and
$23.6
13
<PAGE> 14
million, respectively, for an increase of 61% during the period. Net income per
diluted share was $0.91 and $0.62, for the nine months ended September 30, 1998
and 1997, respectively.
Net Interest Income. Net interest income is the difference between the
interest earned by Doral on its interest earning assets and the interest paid by
Doral on its interest bearing liabilities. Doral's net interest income decreased
to $7.6 million from $7.9 million for the three month period ended September 30,
1998 compared to the three month period ended September 30, 1997. The decrease
in net interest income is primarily the result of the flattening of the yield
curve, which means a reduction in the difference between long-term interest
rates and short- term interest rates. The flattening of the yield curve normally
results in a decrease in the amount of interest spread the Company earns on its
portfolio of mortgage loans, mortgage-backed securities and other
interest-earning assets, primarily long-term obligations, and the short-term
borrowings used to finance the Company's portfolio of interest earning assets.
For the first nine months of 1998, net interest income was $24.2 million,
compared to $20.9 million for the corresponding period of 1997, an increase of
16%. This increase in net interest income for the nine month period ended
September 30, 1998 is primarily due to an increase in Doral's interest earning
assets, which can be attributed to increased loan originations and purchases of
mortgage-backed securities and U.S. agency securities. Doral Bank contributed
approximately $3.8 million, or 50%, of the consolidated net interest income of
the Company for the quarter ended September 30, 1998, versus $2.6 million or 33%
for the comparable 1997 period. During the nine-month period ended September 30,
1998, Doral Bank's contribution to the Company's net interest income was
approximately $9.9 million, or 41%, compared to $7.3 million, or 35%, for the
first nine months of 1997.
Interest Income. Doral's total interest income increased from approximately
$23.0 million for the third quarter of 1997 to $38.6 million for the comparable
period of 1998. For the first nine months of 1998, interest income increased by
approximately $40.5 million, to $104.6 million from $64.1 million for the
first nine months of 1997. The increases in interest income during both periods
is primarily related to the increase in the Company's interest earning assets
from $1.4 billion at September 30, 1997, to $2.3 billion at September 30, 1998.
Interest income on loans increased by $2.0 million, or 24%, during the third
quarter of 1998, as compared to the same period a year ago. For the first nine
months of 1998, interest income on loans increased 30%, from $23.8 million for
the nine months ended September 30, 1997, to $31.0 million for the nine months
ended September 30, 1998. The increase during 1998 reflects the increased loan
production for the nine months of 1998, as compared to the nine months of 1997.
Interest income on mortgage-backed securities was approximately $14.2
million for the quarter ended September 30, 1998, as compared to $12.1 million
for the corresponding 1997 period, an increase of 17%. During the first nine
months of 1998, income on mortgage-backed securities was $41.1 million, an
increase of 21% from the $33.9 million amount for the comparable period a year
ago. This increase for both periods is the result of the growth in the Company's
portfolio of such securities, which increased from $679.1 million at September
30, 1997, to $759.8 million at September 30, 1998.
Interest income with respect to investment securities increased by $9.3
million during the third quarter of 1998, as compared to the same period of
1997, from $1.0 to $10.3 million. Interest income on investment securities was
$25.7 million for the nine months ended September 30, 1998, as compared to $2.5
million for the same period a year ago. The increase in interest income from
investment securities reflects the strategy of Doral to increase its tax exempt
interest income by investing in U.S. Treasury and agency securities, the
interest on which is tax exempt under Puerto Rico law and, in the case of Doral,
is not subject to U.S. income taxation because of its status as a foreign
corporation for U.S. income tax purposes. Doral's investment securities were
approximately $516.2 million as of September 30, 1998, compared to approximately
$156.2 million as of September 30, 1997.
Interest income on other interest-earning assets was approximately $4.0
million for the third quarter of 1998, as compared to approximately $1.7 million
for the same period of 1997, representing an increase of 126%. For the
nine-month period ended September 30, 1998, income with respect to other
interest-earning assets increased by 73%, from $3.9 million during the first
nine months of 1997 to $6.7 million for the first nine months of 1998. Other
interest-earning assets consist primarily of overnight deposits, term deposits
and reverse repurchase agreements. The increase in this category of interest
income is due mainly to higher liquidity in the banking and broker-dealer
subsidiaries of the Company and the investment of such funds in reverse
repurchase agreements and overnight deposits. This positive trend is the result
of Doral's strategy to diversify its sources of revenue.
14
<PAGE> 15
Interest Expense. Doral's total interest expense increased to $30.9 million
during the quarter ended September 30, 1998, from $15.1 million for the
comparable period of 1997, an increase of 105%. Total interest expense for the
first nine months of 1998 was $80.4 million, as compared to $43.2 million for
the same period of 1997, an increase of 86%. The increases in interest expense
for both periods was due primarily to the increase in the amount of Doral's
interest-bearing liabilities used to fund the increase in the Company's
interest-earning assets and loan production. Interest-bearing liabilities
increased to $2.2 billion at an average cost of 5.51% for the nine months period
ended September 30, 1998, compared to $1.3 billion at an average cost of 5.25%
for the same period a year ago.
Interest expense related to loans payable increased by $1.7 million, or 40%,
for the third quarter of 1998, when compared to the corresponding 1997 period.
For the first nine months of 1998, interest expense associated to loans payable
was $18.4 million, an increase of 51% from $12.2 million for the nine months
ended September 30, 1997. The increases reflect increased borrowings required to
fund the increase in loan originations and holding of the Company's mortgage
loans. The weighted-average interest rate for borrowings under the Company's
warehouse lines of credit was 7.18% for the first nine months of 1998, as
compared to 6.77% for the same period a year ago.
Interest expense related to securities sold under agreements to repurchase
for the quarters ended September 30, 1998 and 1997, amounted to approximately
$16.0 million and $6.4 million, respectively, an increase of 150%. During the
first nine months of 1998, interest expense related to securities sold under
agreements to repurchase was $40.1 million, versus $19.9 million for the
corresponding 1997 period, an increase of 101%. The increases during these
periods reflect increased borrowings to finance the acquisition of U.S. treasury
and agency securities classified as available for sale and of mortgage-backed
securities related to the Company's securitization activities. The
weighted-average interest rate of Doral's borrowings under repurchase agreements
was 5.12% for the nine-month period ended September 30, 1998 and 5.78% for the
corresponding period of 1997.
Interest expense on deposits increased by $1.8 million to approximately $4.5
million for the second quarter of 1998, from $2.7 million for the comparable
period of 1997, an increase of 68%. For the nine-month periods ended September
30, 1998 and 1997, interest expense on deposits amounted to $12.0 million and
$6.9 million, respectively, an increase of 75%. The increase in interest expense
on deposits reflects the increase of such funds held at Doral Bank, which grew
from $250.9 million as of September 30, 1997, to $410.8 million as of September
30, 1998. This rise in deposits is the result of the opening of additional
branches by Doral Bank, which now provides services through eight branches, and
the offering of competitive rates. Doral Bank intends to continue its branch
expansion program during 1998. The average interest cost on deposits was 4.40%
for the first nine months of 1998, compared to 4.30% for the same period a year
ago. As of September 30, 1998, approximately $89.3 million, or 21% of total
deposits ($11.3 million of such deposits are not reflected in the Company's
Consolidated Financial Statements because of inter-company eliminations) held at
Doral Bank consisted of non-interest bearing accounts comprised primarily of
servicing custodial accounts and corporate deposit accounts maintained by Doral
and its subsidiaries.
Interest expense on other borrowed funds was $4.3 million for the quarter
ended September 30, 1998, as compared to $1.7 million for the same period a year
ago, an increase of approximately 159.6%. Interest expense on other borrowed
funds for the first nine months of 1998 and 1997 was $9.8 million and $4.2
million, respectively, which represents an increase of approximately 133% for
such comparable periods. Interest expense on other borrowed funds includes
various term notes issued by Doral Bank, the Company's $75 million senior notes
due 2006, and Doral Bank's advances from the Federal Home Loan Bank of New York,
as well as various other borrowings.
Provision For Loan Losses. The provision for loan losses is charged to
earnings during the period it is accounted for in order to bring the total
allowance for loan losses to a level considered appropriate by management, based
on the Company's loss experience, current delinquency rates, known and inherent
risk in the loan portfolio, the estimated value of any underlying collateral and
an assessment of current economic conditions. While management believes that the
current provision for loan losses is sufficient, future additions to the
allowance could be necessary if economic conditions change substantially from
the assumptions used by the Company in determining such allowance. The Company
made provisions to its allowance for loan losses for the quarters ended
September 30, 1998 and 1997, of approximately $163,000 and $244,000,
respectively. Charges to the provision for the nine-month periods ended
September 30, 1998 and 1997, were $474,000 and $609,000, respectively. The
decrease in the charges to the provision during 1998 as compared to 1997 is due,
in part, to a steady improvement in delinquency ratios in loans receivable held
by Doral Bank and to management's consideration of the appropriateness of the
allowance.
15
<PAGE> 16
Revenues From Mortgage Loans Sales and Fees. Revenues from mortgage loans
sales and fees consist of the following: (i) gains on sales of loans and
origination fees (net of direct loan origination costs), (ii) net gains or
losses on hedging instruments and (iii) unrealized gains or losses on securities
held for trading.
Revenues from mortgage loan sales and fees increased by 132% for the quarter
ended September 30, 1998, as compared to the same period a year ago, from
approximately $7.2 million for the third quarter 1997 to $16.7 million for the
third quarter 1998. For the nine-month periods ended September 30, 1998 and
1997, mortgage loans sales and fees were $39.7 million and $18.2 million,
respectively, an increase of 118%. The increases experienced during 1998 is
mainly the result of increased loan originations and increased profitability on
sales of various loan products, including the creation and sale of Interest Only
strips ("IOs") in connection with bulk sales of mortgage loans to corporate
investors.
The Company creates IOs (previously classified as excess servicing fees
receivable) as the result of the sale of loans in bulk or securitization
transactions. IOs are created on the sale of loans by computing the present
value of the excess of the weighted-average coupon on the loans sold over the
sum of: (i) the pass-through interest paid to the investor and (ii) a basic
servicing fee, based on the servicing fee permitted by FNMA and FHLMC, and
adjusting such amount for expected losses and prepayments. The amount of the IO
is recognized at the time of the sale of the loans as an adjustment to the
resulting gain or loss on the sale of loans and is recorded at such time as a
component of "Mortgage Loans Sales and Fees" on the Company's Consolidated
Statement of Income, even though the cash is received over the life of the loans
sold. While the Company traditionally retains the IOs it creates as a result of
loans sales, Doral may, from time to time, sell such instruments whenever market
conditions are favorable and benefits can be readily measured. During the first
nine months of 1998 and 1997, IO's (net of sales of IOs) increased by
approximately $5.2 million an $6.6 million, respectively.
Beginning with the second quarter of 1995, following the implementation by
the Company of SFAS No. 122 (later superseded by SFAS 125), whenever Doral
originates a mortgage loan it assigns a fair value to the related mortgage
servicing right (the "servicing asset") associated with such mortgage loan. The
servicing asset represents the discounted present value of the servicing fees
expected to be received on the loan over the expected term of the loan. The
amount of the servicing asset is recognized at the time of sale of the related
loan as an adjustment to the resulting gain or loss on the sale of the loan and
is recorded as a component of "Mortgage Loans Sales and Fees" on the Company's
Consolidated Statement of Income. During the third quarter of 1998, the Company
capitalized approximately $5.3 million in servicing assets arising from internal
loan originations, as compared to $3.4 million for the same period of 1997. For
the nine months ended September 30, 1998, Doral capitalized approximately $14.9
million in servicing assets arising from internal loan originations, compared to
$8.7 million for the corresponding 1997 period. The increases reflect increased
loan originations during such periods. During the third quarter and first nine
months of 1998, the Company also recorded $1.3 million and $5.7 million,
respectively, in servicing assets related to purchases of loans and servicing
rights, compared to $2.6 million and $2.8 million, respectively for the
corresponding 1997 periods. The increase in purchased mortgage servicing rights
during 1998 is due to increased wholesale loan purchases by the Company and to
the continuous purchase of mortgage servicing rights under an agreement with a
commercial bank pursuant to which the Company has agreed to purchase the
mortgage servicing rights related to the mortgage loan production of such bank.
The unamortized balance of the servicing asset is reflected on the Consolidated
Balance Sheet of the Company. See "Amortization of IOs and servicing assets".
Pursuant to SFAS 115, the Company includes in earnings, as a component of
"Mortgage Loans Sales and Fees", any unrealized gains or losses in the market
value of its securities held for trading. For the quarters ended September 30,
1998 and 1997, revenues from mortgage loans sales and fees included $2.1 million
and $2.7 million, respectively, of unrealized gains on the value of its
securities held for trading. The component of earnings attributed to unrealized
gains or losses in trading securities for the first nine months of 1998 amounted
to $4.7 million compared to $6.2 million for the comparable period of 1997.
Servicing Income. Servicing income represents revenues earned by Doral for
administering mortgage loans. Doral's loan servicing fees depend on the type of
mortgage loan being serviced and range from 0.25% to 0.50% of the declining
outstanding principal amount of such loan. The size of Doral's loan servicing
portfolio and the amount of its servicing fees have increased substantially
since Doral's inception mainly as a result of increases in loan originations and
the purchase of both mortgage loans and mortgage servicing rights from third
parties. The Company purchased rights to service mortgage loans aggregating
approximately $18.2 million and $187.9 million during the third quarter and
first nine months of 1998, respectively. During the third quarter of 1997, Doral
purchased $170.7 million of servicing rights from a local financial institution.
16
<PAGE> 17
Servicing fees for the three month period ended September 30, 1998, were
approximately $5.5 million, compared to $3.8 million for the 1997 period, for an
increase of 43% for the quarter. For the first nine months of 1998, servicing
income increased to $15.7 million from $10.9 million for the first nine months
of 1997, an increase of 44%. The increase in the amount of loan servicing fees
for the third quarter and first nine months of 1998 was principally due to an
increase in the principal amount of loans serviced as compared to prior periods.
The mortgage servicing portfolio was approximately $5.5 billion as of September
30, 1998, compared to $3.6 billion as of September 30, 1997. At September 30,
1998, less than 2% of the Company's servicing portfolio was associated with
mortgages originated outside Puerto Rico.
The amount of principal prepayments on mortgage loans serviced by the
Company for the nine months ended September 30, 1998 and 1997, was $440.2
million and $194.4 million, respectively. This represents approximately 8.70%
and 5.81% of the aggregate principal amount of mortgage loans serviced during
such periods, and the average size of the loans prepaid was approximately
$49,079 and $37.400, respectively. The increase in prepayments was mostly due to
a decrease in prevailing mortgage interest rates. The primary means used by the
Company to reduce the sensitivity of its servicing income to increases in
prepayment rates is the maintenance of a strong retail origination network that
has allowed it to maintain or increase the size of its servicing portfolio, even
during periods of high prepayments.
Amortization of IOs and servicing assets. IOs are amortized over the
expected life of the asset and such amortization is recorded as a reduction of
interest income. The amortization of IOs is based on the amount and timing of
estimated future cash flows to be received with respect to the IOs. Amortization
of such IOs for the quarters ended September 30, 1998 and 1997, was
approximately $848,000 and $943,000, respectively. For the first nine months of
1998, amortization of IOs was approximately $2.5 million, as compared to $2.8
million for the comparable 1997 period.
The Company's servicing assets are amortized in proportion to, and over the
period of, estimated servicing income. Amortization of servicing assets is
included as a component of other non-interest expenses in the Company's
Consolidated Financial Statements. During the third quarter of 1998, total
amortization of servicing assets amounted to $1.8 million, versus $688,000 for
the comparable 1997 period. Amortization of servicing assets for the nine-month
periods ended September 30, 1998 and 1997, was approximately $4.7 million and
$1.9 million, respectively.
Increases in prepayments rates or credit loss rates over anticipated levels
used in calculating the value of IOs and servicing assets can adversely affect
the Company's revenues and liquidity by increasing the amortization rates for
servicing assets and IOs as well as requiring the Company to recognize an
impairment against income over and above scheduled amortization. The portion of
the Company's mortgage servicing portfolio consisting of MSRs that were
originated by the Company prior to the adoption of SFAS No. 122 is not reflected
as an asset on the Company's Consolidated Financial Statements, and is not
subject to amortization or impairment.
Gain on Sale of Servicing Assets. The Company may also, from time to time,
participate in the sale of mortgage servicing rights if conditions exist that
make such a transaction favorable to the Company. During the first nine months
of 1998, Doral sold servicing rights to approximately $103 million aggregate
principal amount of mortgage loans, which resulted in a gain to the Company of
$1.8 million. The Company had no such sales during the first nine months of
1997.
Non-Interest Income. Total non-interest income increased 102% during the
third quarter of 1998, as compared to the same period of 1997, from $11.4 to
$23.0 . For the first nine months of 1998, total non-interest income was $59.2
million, as compared to $30.2 million for the corresponding 1997 period, an
increase of approximately 96%. The increases during both periods were due
principally to increases in mortgage loan sales and fees and servicing income as
discussed above, as well as the gain on sale of servicing rights recorded during
the first half of 1998.
Non-Interest Expense. Total non-interest expense increased $5.8 million for
the quarter ended September 30, 1998, as compared to the same period of 1997,
from $9.5 million to $15.3 million, an increase of 62%. For the first nine
months of 1998 and 1997, total non-interest expense amounted to approximately
$40.1 million and $23.7 million, respectively, an increase of 70%. The increases
for both the quarter and nine month periods reflect additional costs associated
with expanding the Company's customer base, its loan origination and mortgage
servicing capacity and its commercial banking operations.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
The Company has an ongoing need for capital to finance its lending and
investment activities. The Company's cash requirements arise mainly from loan
originations and purchases, repayments of debt upon maturity, payments of
operating and interest expenses and servicing advances and loan repurchases. The
Company's primary sources of liquidity are sales in the secondary mortgage
market of the loans and mortgage-backed securities 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,
payments received on its loans and other interest-earning assets and revenues
from operations. In the past, the Company has also relied on privately-placed
and publicly-offered debt financings and public offerings of preferred and
common stock. Doral Bank, the Company's commercial banking subsidiary, mainly
relies on deposits, borrowings from the Federal Home Loan Bank of New York as
well as term notes backed by letters of credit of the FHLB-NY.
The Company is dependent upon its ability to access warehouse, gestation and
repurchase facilities in addition to its capability to continue to pool and sell
mortgage loans in the secondary market. Doral borrows money under warehousing
lines of credit to fund its mortgage loan originations and repays the borrowings
as the mortgages are sold or pooled. The warehousing lines of credit then become
available for additional borrowings. Included among Doral's warehousing lines of
credit facilities are gestation or pre-sale 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. Doral's
warehousing lines of credit are generally subject to termination at the
discretion of the lender. The Company had several warehousing and gestation
facilities totaling $860 million as of September 30, 1998.
The Company also had available repurchase agreements lines of credit
(excluding the gestation lines of credit referred to above) of approximately
$2.3 billion at September 30, 1998. Under these agreements, Doral 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. Doral uses the proceeds of such sales to repay borrowings under its
warehousing lines of credit and to finance the cost of carrying its
mortgage-backed securities and other investment securities. The effective costs
of funds under repurchase agreements is typically lower than the cost of funds
borrowed under Doral's warehousing lines of credit. Doral'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. Doral's repurchase lines of credit are generally
subject to termination at the discretion of the counterparty.
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 Doral to advance funds to make scheduled
payments of principal, interest, taxes and insurance, if such payments have not
been received from the borrowers. Doral generally recovers funds advanced
pursuant to these agreements within 30 days. During the nine-month period ended
September 30, 1998, the monthly average amount of funds advanced by the Company
under such servicing agreements was approximately $6.1 million.
Doral Bank 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. As of September 30, 1998, Doral Bank held
approximately $410.8 million in deposits (excluding $11.3 million in deposits
from affiliates that are eliminated in the preparation of the Company's
Consolidated Financial Statements) at a weighted average interest rate of 4.40%.
Doral Bank, 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 equal to 110% of the advances or
reimbursement obligations. At September 30, 1998, Doral Bank had $32.0 million
in outstanding advances from the FHLB-NY at a weighted average interest rate
cost of 6.33%. In addition, as of September 30, 1998, Doral Bank had $53.1
million outstanding in term notes secured by FHLB-NY letters of credit at an
average interest rate cost of 6.61%.
As of September 30, 1998, the Company and Doral Bank were in compliance with
all the regulatory capital requirements that were applicable to them as a bank
holding company and state non-member bank, respectively (i.e. Total capital and
Tier 1 capital to risk weighted assets of at least 8% and 4%, respectively, and
Tier 1 capital to average assets of at least 4%). Set forth below are the
Company's and Doral Bank's regulatory capital ratios as of September 30, 1998,
based on existing Federal Reserve and FDIC guidelines:
18
<PAGE> 19
<TABLE>
<CAPTION>
The Company Doral Bank
----------- ----------
<S> <C> <C>
Tier 1 Capital Ratio (Tier 1 Capital to
risk weighted assets) 17.2% 13.8%
Total Capital (total capital to risk
weighted assets) 17.0% 13.6%
Leverage Ratio (Tier 1 Capital to
average assets) 9.5% 7.9%
</TABLE>
As of September 30, 1998, Doral Bank was considered a well capitalized
bank for purposes of the prompt corrective action regulations adopted by the
FDIC pursuant to the Federal Deposit Insurance Corporation Act of 1991. To be
considered a well capitalized institution under the FDIC's regulations, an
institution must maintain a Leverage Ratio of at least 5%, Tier 1 Capital Ratio
of at least 6% and a Total Capital Ratio of at least 10% and not be subject to
any written agreement or directive to meet a specific capital ratio.
On October 30, 1998, the Company filed a registration statement with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended, to register for sale shares of a new issue of
nonconvertible noncumulative preferred stock with an aggregate offering price of
up to $74,750,000. As noted above, a registration statement relating to these
securities has been filed with the Commission but has not yet become effective.
The Company may not proceed with the sale of such securities until the
registration statement becomes effective.
Doral expects that it will continue to have adequate liquidity
financing arrangements and capital resources to finance its operations. The
Company will continue to explore alternative and supplementary methods of
financing its operations, including both debt and equity financing. There can be
no assurance, however, that the Company will be successful in consummating any
such transactions.
ASSETS AND LIABILITIES
At September 30, 1998, the Company's total assets were $2.72 billion,
compared to $1.86 billion at December 31, 1997. This increase was due primarily
to net increases of $249.8 million, $263.9 million and $204.7 million in
securities available for sale, mortgage loans held for sale and accounts
receivable, respectively. Total liabilities were $2.46 billion at September 30,
1998, compared to $1.67 billion at December 31, 1997. The increase in total
liabilities was largely the result of an increase in securities sold under
agreements to repurchase, loans payable, accounts payable at the broker-dealer
operation and deposit accounts held at Doral Bank. The additional leverage was
used to finance the increase in the Company's interest-earning assets. At
September 30, 1998, deposit accounts totaled $410.8 million, compared to $300.5
million at December 31, 1997. Deposit accounts include $69.7 million in
non-interest bearing deposits representing escrow funds from the servicing
operations of the Company's mortgage banking units. As of September 30, 1998,
Doral Bank had $628.4 million in assets, compared to $428.1 million as of
December 31, 1997.
MARKET RISK AND INTEREST RATE MANAGEMENT
General. Market risk is the risk of economic loss arising from adverse
changes in market rates and prices, such as interest rates, foreign currency
exchange rates, commodity prices, and other relevant market factors. The
principal market risk to which the Company is exposed is interest rate
volatility. Changes in interest rates can have a variety of effects on the
Company's business. In particular, changes in interest rates affect the volume
of mortgage loan originations, the interest rate spread on the Company's
portfolio of loans, mortgage-backed securities and investment securities,
the amount of gain on sale of loans and the value of the Company's loan
servicing assets and of its loan and securities holdings.
Mortgage Banking Operations. Changes in prevailing long-term market
interest rates between the time the Company commits to or establishes an
interest rate on a mortgage loan and the time commitments to purchase the
mortgage loan are obtained or the loan is sold affect Doral's gain or loss on
the sale of such mortgage loan. The Company does not generally hedge
conventional loans in the pipeline or in the process of origination because the
Company does not generally permit customers to lock-in an interest rate prior to
closing. Instead, the interest rates on loans are generally fixed at closing
based on a certain spread over a prevailing rate that adjusts weekly based on
the FHLMC auction for residential mortgages. For FNMA and FHLMC conforming loans
and FNMA and FHLMC mortgage-backed securities, the Company seeks to sell or to
obtain commitments for the purchase of such loans or mortgage-backed securities
as soon as practicable following the funding of such loans. Conforming loans are
normally sold to institutional investors or to FNMA and FHLMC. To the extent the
Company does engage in offering of mortgage products which lock-in the interest
rate until the closing date, it attempts to obtain forward commitments to
purchase such loans at the time it fixes the rates for the loans. Non-conforming
conventional
19
<PAGE> 20
loans are normally sold in bulk to local financial institutions or to the FHLMC
under a negotiated arrangement or packaged into collateralized mortgage
obligations. The sale of non-conforming conventional loans normally takes longer
than the sale of conforming mortgage loans. The Company also attempts to obtain
forward commitments for the sale of non-conforming loans. The Company attempts
to manage interest rate risk that is not covered by forward commitments through
the purchase of listed options on futures contracts for U.S. Treasury
securities.
In the case of Puerto Rico tax exempt 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 tax exempt GNMA
securities in Puerto Rico tend to be more stable than for U.S. taxable GNMA
securities because the tax exempt status of interest paid on these securities
under Puerto Rico law makes them more attractive to retail investors. 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. Options are contracts that grant
the purchaser the right to buy or sell the underlying asset by a certain date
for a specified price. Interest rate futures are commitments to either purchase
or sell designated instruments (such as U.S. Treasury Note contracts or
Eurodollar certificates of deposit) at a future date for a specified price.
Future contracts are generally traded on an exchange, are marked to market daily
and are subject to initial and maintenance margin requirements.
With respect to GNMA securities that are originated by the Company and
do not qualify for Puerto Rico tax exemption, the Company seeks to manage the
interest rate risk by obtaining forward commitments.
Declines in interest rates can adversely affect the Company's revenues
by increasing prepayment rates and causing an increase of the amortization of
servicing assets and IOs or causing an impairment to be recognized with respect
to such assets. Moreover, increased prepayment rates can reduce the Company's
servicing income by decreasing the size of the Company's servicing portfolio. To
date, the Company has not used synthetic hedge devices to protect its servicing
income or the value of its servicing assets or IOs from the risks of future
interest rate fluctuations. The primary means used by the Company to reduce the
sensitivity of the Company's servicing income and the value of its servicing
asset due to possible reduction of its servicing portfolio has been the
development of a strong retail origination network that has allowed the Company
to increase or maintain the size of its servicing portfolio even during periods
of high prepayments, such as those experienced during 1993.
The net interest income of the Company is also subject to interest rate
risk because its interest earning assets and interest-bearing liabilities
reprice at different times and varying amounts. Most of the Company's interest
earning assets, including its mortgage-backed securities held for trading, 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 borrowing used to finance these positions normally reprice on a
periodic basis (e.g., daily, monthly or quarterly). In order to hedge the
interest rate risk associated with the Company's portfolio of securities held
for trading and available for sale, the Company may use a variety of hedging
instruments including listed put and call options on futures contracts on
financial instruments (primarily Eurodollar certificates of deposit and U.S.
Treasury note contracts).
The Company maintains a substantial portfolio of mortgage-backed
securities (primarily fixed-rate GNMA certificates) and other investment
securities. Generally, the value of fixed rate securities declines when interest
rates rise, and conversely, increase when interest rates fall. At September 30,
1998, the Company held $692.4 million of mortgage-backed and other securities
(all of which carried fixed interest rates) which were classified as held for
trading and reported at fair value, with unrealized gains and losses included in
earnings. In addition, at September 30, 1998, the Company held $490.6 million of
mortgage-backed securities and other investment securities (all of which carried
fixed interest rates) which were classified as available for sale and reported
at fair value, with unrealized losses deducted from stockholders equity.
Accordingly, declines in the value of the Company's securities held for trading
and available for sale could have a negative impact on the Company's earnings or
financial condition.
20
<PAGE> 21
Banking Operations. Doral Bank has attempted to limit its exposure to
interest rate risk through the use of both the internal management of the
composition of its assets and liabilities and through the use of a hedging
instruments. Internal asset/liability management techniques involve the
attraction of longer term funds through the use of, among other things, brokered
certificates of deposits, five year term notes and FHLB-NY advances.
In addition to the use of the internal asset liability management
techniques discussed above, Doral Bank has used interest rate swap agreements to
effectively fix the cost of short-term funding sources which are used to finance
the funding and holding of interest-earnings assets with longer maturities. An
interest rate swap is an agreement where one party (in this case, Doral Bank)
agrees to pay a fixed-rate of interest on a notional principal amount to a
second party (generally a securities broker-dealer) in exchange for receiving
from the second party a variable rate of interest on the same notional amount
for a pre-determined period of time. No actual assets are exchanged in a swap of
this type and interest payments are generally netted. As of September 30, 1998,
the Bank had interest rate swap agreements in place with an aggregate notional
amount of $105 million, all of which required the Bank to pay a fixed rate in
return for a floating rate. Set forth below is information regarding the term of
the interest rate swaps in place as of September 30, 1998.
MATURITY SCHEDULE OF
INTEREST RATE SWAPS
<TABLE>
<CAPTION>
Within
One Two Three Four Five Years
Year Years Years Years and Over
---- ----- ----- ----- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest rate swaps:
Pay fixed/receive floating:
Notional amount............................. $-- $-- $5,000 $-- $100,000
Weighted average fixed rates paid........... -- -- 4.92% -- 5.81%
Weighted Rates Received..................... -- -- 4.83% -- 5.69%
</TABLE>
The Company may in the future use alternative hedging techniques and
other hedge instruments 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.
YEAR 2000 ISSUES
The Year 2000 problem is caused by the situation whereby existing
computer software programs use only the last two digits to identify the year.
Those programs could read "00" as the year 1900, and thus, may not recognize
dates after December 31, 1999. This misinterpretation of data could cause
significant problems with banking and mortgage banking entities, such as the
Company, as the use of date calculations is extensive in daily operations for
matters such as interest accruals, maturity dates, delinquency status, and
customer statements. Year 2000 problems go beyond computer systems and affect
anything that uses an internal microchip such as telephone, fax machines,
security and alarm systems, vaults, elevators, heating and air conditioning.
The Company does not own any proprietary software systems or
applications and relies on those provided by third party vendors. The Company
has completed the assessment of its computer hardware, software programs and
data processing applications, including those provided by third party vendors.
The Company has received revised programs from its third party vendors that have
been modified to address the Year 2000 problem for the principal applications
used in its mortgage banking, banking and securities businesses. The Company
began testing these revised programs and applications during the first week of
October 1998 and the testing is scheduled to be completed by December 31, 1998.
If the tests reveal that such programs and applications do not adequately deal
with the Year 2000 problems, the Company will seek to obtain replacement
programs and applications. The Company is using outside consultants to assist it
in verifying the test results. The Company's mainframe computer, used
principally in its banking operations, is Year 2000 compliant, meaning that it
can properly process and calculate date-related information after January 1,
2000. The Company is in the process of replacing other equipment, primarily desk
top computers that are not Year 2000 compliant.
21
<PAGE> 22
The Company does not anticipate that the Year 2000 problem will have a
material adverse effect on its financial condition or results of operations.
However, Year 2000 problems suffered by third party providers of basic services,
such as telephone, water, sewer and electricity, could have an adverse impact on
the daily operations of the Company. The Company does not have a specific
contingency plan to address disruption of such basic services caused by the Year
2000 problem. The Company would attempt to deal with any such disruptions under
its existing business interruption contingency plans.
The Company estimates that the costs of addressing Year 2000 issues
will be approximately $800,000, of which $500,000 has already been spent. Most
of such costs is directly related to the costs of replacing existing equipment,
primarily desktop computers, which have been fully depreciated on the Company's
financial statements. Such costs will be funded through the Company's operating
cash flows.
As a bank holding company, the Company could be subject to enforcement
action by federal banking authorities if it fails to adequately address Year
2000 problem.
RECENT DEVELOPMENTS
New Accounting Standards. In October 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 134, Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans held for sale by
a Mortgage Banking Enterprise, an amendment of FASB Statement No. 65. On the
date this Statement is initially applied, an enterprise may reclassify
mortgage-backed securities and other beneficial interests retained after the
securitization of mortgage loans held for sale from the trading category, except
for those with sales commitments in place. Those securities and other interests
shall be classified based on the entity's ability and intent, on the date this
Statement is initially applied, to hold those investments. Transfers from the
trading category that result from implementing this Statement shall be accounted
for in accordance with FASB 115.
This Statement is effective for the first fiscal quarters beginning
after December 15, 1998. Early application is encouraged and it is permitted as
of the issuance date of this Statement.
Management believes that the adoption of this Statement will not have a
material effect on the Company's financial position or results of operations.
Impact of Hurricane Georges. On September 21, 1998, Puerto Rico
suffered the direct impact of Hurricane Georges, a category 3 hurricane on the
Saffir/Simpson scale. The passage of Hurricane Georges caused extensive property
damage in Puerto Rico and disrupted many sectors of the economy. In general, the
Company's mortgage banking, commercial banking and securities operations were
fully operational within two days. While the disruption caused by Hurricane
Georges may result in some short-term increases in delinquency rates, the
Company does not anticipate that the effects of the hurricane will have a
material adverse effect on the financial condition or results of operations of
the Company. The structures securing the Company's mortgage loans are almost all
constructed of concrete and the Company requires that borrowers obtain property
insurance as a condition of lending.
It is too early to determine the long-term effect of the passage of
Hurricane Georges on the economy of Puerto Rico. The Government of Puerto Rico
has estimated that assistance payments from the Federal Emergency Management
Agency and other governmental programs together with payments from private
insurers will inject more than $2.0 billion into the economy.
22
<PAGE> 23
Expansion in Mainland United States. During the second quarter of 1998,
the Company commenced a multi-family and commercial lending unit in the New York
City metropolitan area through Doral Money, Inc., a wholly-owned subsidiary of
Doral Bank. This unit originates loans secured by first mortgages on
multi-family apartment buildings and, to a lesser extent, other commercial
properties. This unit closed $53.4 million in loans for the quarter ended
September 30, 1998. The Company intends to sell most of these loans to third
parties and to retain the related servicing rights.
During the third quarter of 1998, the Company also commenced a
wholesale mortgage operation in the Chicago metropolitan area also through Doral
Money, Inc. This operation, which employs 12 persons and operates through two
offices, is primarily dedicated to the purchase of residential mortgage loans
that conform to requirements of the Federal Home Loan Mortgage Corporation
("FHLMC"), the packaging of such loans into FHLMC mortgage-backed securities and
the sale of such mortgage-backed securities to third parties while retaining the
servicing rights to the underlying loans. Purchases of loans by the wholesale
operation for the quarter ended September 30, 1998, amounted to $12.2 million.
The Company is also in the process of organizing a new federal
savings association in the New York City metropolitan area which it anticipates
will open for business during the first quarter of 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management does not believe that there has been a material change in the
market risk to which the Company is exposed since December 31, 1997. For
information regarding market risk to which the Company is exposed, see the
information contained under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Market Risk and Interest Rate
Management".
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
The Company entered into a Supplement Indenture, dated as of October 19,
1998, amending various provisions of the Indenture pursuant to which the
Company's 7.84% Senior Notes due 2006 were issued. The amendments modify certain
covenants and other provisions of the Indenture to (i) eliminate the limitations
on the incurrence of additional indebtedness by the Company or any of its
subsidiaries, (ii) eliminate the covenant restricting the creation of liens on
property, shares of capital stock or indebtedness of the Company or of any of
its subsidiaries, (iii) modify the covenant limiting the issuance of securities
by subsidiaries, (iv) eliminate certain definitions or portions of definitions
that are no longer required as a result of the foregoing modifications, (v)
modify the covenant restricting mergers and similar transactions to eliminate
the reference to compliance with the additional indebtedness test that is being
eliminated, (vi) add an additional covenant that would require the Company to
maintain a minimum consolidated net worth of $185 million, and (vii) modify the
definition of the term "Company" to reflect the change in the Company's name
from First Financial Caribbean Corporation to Doral Financial Corporation.
The Company also authorized certain amendments to its by-laws at a regularly
scheduled Board of Directors meeting held on October 19, 1998. The principal
change to the by-laws was the addition of a provision to set the number of
directors of the Company at not less than five nor more than ten directors, as
determined by the Board of Directors of the Company. The actual number of
directors, which is eight, was not changed.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
23
<PAGE> 24
Not Applicable.
ITEM 5 - OTHER INFORMATION
Not Applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.2 By laws, as amended as of October 19, 1998(1)
Exhibit 10.79 - First Supplemental Indenture, dated as of October 19, 1998,
between the Company and Bankers Trust Company(1)
Exhibit 10.80 - Fifth Amendment to First Amended and Restated Credit
Agreement, dated as of June 26, 1998 among the Company, Doral Mortgage
Corporation, Bankers Trust Company and the other lenders party thereto.
Exhibit 10.81 - First Amended and Restated Credit Agreement, dated as of
June 26, 1998, between the Company, Doral Mortgage Corporation, Bankers
Trust Company, as agent and lender, and the other lenders party thereto.
Exhibit 27 - Financial Data Schedule (for SEC use only).
- ------------------------
(1)Incorporated by reference to the same exhibit number of the Company's
Current Report on Form 8-K, dated October 19, 1998.
(b) Reports on Form 8-K
(i) Current Report on Form 8-K, dated October 7, 1998, reporting
under Item 5 "Other Events" the Company's unaudited results for the quarter
and nine months ended September 30, 1998;
(ii) Current Report on Form 8-K, dated October 19, 1998, reporting
under Item 5 "Other Events" the execution of a supplemental indenture
amending the indenture pursuant to which the Company's 7.84% Senior Notes
due 2006 were issued and the amendment of the Company's By-laws.
24
<PAGE> 25
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.
DORAL FINANCIAL CORPORATION
(Registrant)
Date: November 13, 1998 /s/ Salomon Levis
----------------------------------------
Salomon Levis
Chairman of the Board
and Chief Executive Officer
Date: November 13, 1998 /s/ Richard F. Bonini
----------------------------------------
Richard F. Bonini
Senior Executive Vice President
and Chief Financial Officer
Date: November 13, 1998 /s/ Ricardo Melendez
----------------------------------------
Ricardo Melendez
Vice President and
Principal Accounting Officer
25
<PAGE> 1
EXHIBIT 10.80
FIFTH AMENDMENT TO
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO FIRST AMENDED AND RESTATED CREDIT
AGREEMENT (the "Amendment"), dated as of June 26, 1998, is entered into between
the Lenders party hereto, BANKERS TRUST COMPANY, a New York banking corporation,
as agent for the Lenders (the "Agent"), DORAL FINANCIAL CORPORATION (formerly
known as First Financial Caribbean Corporation), a corporation organized under
the laws of the Commonwealth of Puerto Rico ("DFC"), and DORAL MORTGAGE
CORPORATION, a corporation organized under the laws of the Commonwealth of
Puerto Rico and a wholly-owned subsidiary of DFC ("DMC", and together with DFC,
each a "Borrower" and collectively, the "Borrowers"), with reference to the
First Amended and Restated Credit Agreement, dated as of September 25, 1996,
between the Borrowers, the Agent and the lenders party thereto (as amended by
the First Amendment to First Amended and Restated Credit Agreement and Certain
Other Loan Documents dated as of January 8, 1997, the Second Amendment to First
Amended and Restated Credit Agreement dated as of March 28, 1997, the Third
Amendment to First Amended and Restated Credit Agreement dated as of June 27,
1997, and the Fourth Amendment to First Amended and Restated Credit Agreement
dated as of November 5, 1997, 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 to Credit Agreement.
(a) The Facility 1 Commitment and Facility 2 Commitment of each Lender
shall be amended as set forth opposite such Lender's name on the signature pages
hereto, as each such Commitment may be reduced from time to time pursuant to
Section 8.6(c) of the Credit Agreement.
(b) The following new definitions shall be added to Section 1.1 of the
Credit Agreement in appropriate alphabetical order:
"RECOURSE SERVICING PORTFOLIO REPORT" shall mean a report prepared
by the Borrowers in substantially the form set forth in Exhibit T-2,
including the following information: the recourse Mortgage Loan or
Mortgage-Backed Security investor; the type of recourse (i.e.
limited or full); delinquency and foreclosure rates on the
Borrowers' recourse servicing portfolio; the amount of risk weighted
capital required to support DFC's consolidated recourse exposure;
and consolidated total capital to risk weighted assets in both
amount and ratio terms.
<PAGE> 2
"SERVICING COMMITMENTS" shall mean the "Commitments" as such term is
defined in the Servicing Credit Agreement.
"SERVICING EVENT OF DEFAULT" shall mean an "Event of Default" as
such term is defined in the Servicing Credit Agreement.
"SERVICING OBLIGATIONS" shall mean the "Obligations" as such term is
defined in the Servicing Credit Agreement.
"YEAR 2000 ISSUE" shall mean the failure of computer software,
hardware and firmware systems and equipment containing embedded
computer chips to properly receive, transmit, process, manipulate,
store, retrieve, re-transmit or in any other way utilize data and
information due to the occurrence of the year 2000 or the inclusion
of dates on or after January 1, 2000.
(c) The following definitions in Section 1.1 of the Credit Agreement shall
be amended to read as follows:
"COLLATERAL VALUE OF THE PLEDGED SERVICING PORTFOLIO" shall mean, at
the time of determination thereof, an amount equal to the lesser of
(i) 70% of the fair market value of the servicing rights relating to
the mortgage loans included in the Pledged Servicing Portfolio and
(ii) 1.10% of the unpaid principal balance of the mortgage loans
included in the Pledged Servicing Portfolio (in each case as
reflected on the most recent Pledged Servicing Valuation Report
delivered to the Agent).
"EURODOLLAR INTEREST PERIOD" shall mean, with respect to any
Eurodollar Loan, the period commencing on the Borrowing Date or a
Conversion/Continuation Date for such Eurodollar Loan, as the case
may be, and ending one, two or three months thereafter as the
Borrowers may elect in the applicable Notice of Borrowing or Notice
of Conversion/Continuation; provided that (a) any Eurodollar
Interest Period that would otherwise end on a day that is not a
Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day, unless such Eurodollar Business Day falls
in another calendar month, in which case such Eurodollar Interest
Period shall end on the next preceding Eurodollar Business Day; (b)
any Eurodollar Interest Period that begins on the last Eurodollar
Business Day of a calendar month or any Eurodollar Interest Period
that begins on a day for which there is no numerically corresponding
day in the calendar month at the end of such Eurodollar Interest
Period shall end on the last Eurodollar Business Day of such
calendar month at the end of such Eurodollar Interest Period; and
(c) no Eurodollar Interest Period shall end after the Maturity Date.
2
<PAGE> 3
"MATURITY DATE" shall mean June 25, 1999; provided that upon the
written request of the Borrowers to the Agent, the Lenders may elect
to extend the Maturity Date on terms as they may deem appropriate in
their sole discretion.
"OBLIGATIONS" shall mean, collectively, (i) the unpaid principal of
and interest on the Loans and any Notes and all other obligations
and liabilities of each of the Borrowers to the Agent, the
Collateral Agents and the other Secured Parties (including, without
limitation, interest accruing at the then applicable rate provided
in this Agreement after the maturity of the Loans and interest
accruing at the then applicable rate provided in this Agreement
after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding, relating to
either Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), whether
direct or indirect, absolute or contingent, due or to become due,
voluntary or involuntary, whether or not jointly owed with others,
liquidated or unliquidated, or now existing or hereafter incurred,
and whether or not from time to time decreased or extinguished and
later increased, created or incurred, which may arise under, out of,
or in connection with, this Agreement, the Loans, any Notes, the
Security Agreements, the other Loan Documents or any other document
made, delivered or given in connection therewith, in each case
whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of
counsel to any of the Agent, the Collateral Agents or any of the
other Secured Parties that are required to be paid by the Borrowers
pursuant to the terms of this Agreement, the Security Agreements or
any other Loan Document), and (ii) the Servicing Obligations;
provided that any reference in the Loan Documents to acceleration of
the Obligations shall be deemed to refer only to the acceleration of
the obligations referred to in clause (i) above.
"PLEDGED SERVICING PORTFOLIO REPORT" shall mean a report prepared by
the Borrowers in the format prescribed by the Mortgage Bankers'
Association of America listing the FNMA/GNMA /FHLMC statistics and
the other information shown on Exhibit T-1.
"SERVICING CREDIT AGREEMENT" shall mean the First Amended and
Restated Credit Agreement, dated as of June 26, 1998, between the
Borrowers, Bankers Trust Company, as Agent thereunder, and the
lenders party thereto from time to time, as amended, supplemented or
otherwise modified from time to time.
"SERVICING SECURITY AGREEMENT" shall mean the First Amended and
Restated Security Agreement dated as of June 26, 1998, between the
Servicing Collateral Agent and the Borrowers, as amended,
supplemented or otherwise modified from time to time.
3
<PAGE> 4
(d) The definition of "BOOK NET WORTH" set forth in Section 1.1 of the
Credit Agreement and Sections 3.1(b)(iv), 4.4(a) and 4.4(d) of the Credit
Agreement shall be amended by replacing "December 31, 1995" with "December 31,
1997".
(e) The definition of "ELIGIBLE MORTGAGE LOAN" set forth in Section 1.1 of
the Credit Agreement shall be amended by (i) deleting the "and" at the end of
clause (o) thereof, (ii) changing "." at the end of clause (p) thereof to ";
and", and (iii) adding the following new clause (q) immediately following clause
(p) thereof:
"(q) such Mortgage Loan is not a "B or C mortgage loan" (as such
term is customarily used in the mortgage banking industry), provided
that any Mortgage Loan that is rated "B" or higher and that
qualifies for insurance by a nationally recognized mortgage
insurance company shall not be excluded as an Eligible Mortgage Loan
as a result of this clause (q) unless the collateral value of such
Mortgage Loan, when added to the collateral value of all other
Mortgage Loans then included as Eligible Mortgage Loans under this
clause (q), exceeds fifteen percent (15%) of the aggregate Facility
1 Commitments."
(f) Section 2.1(d) of the Credit Agreement shall be amended by replacing
"$3,000,000" in clause (ii) thereof with "$5,000,000".
(g) Section 4.4(b) of the Credit Agreement shall be amended by replacing
(i) "June 30, 1996" with "April 30, 1998", and (ii) "six months" with "four
months".
(h) The following new Section 4.15 shall be added to the Credit Agreement
immediately following Section 4.14 thereof:
"SECTION 4.15 YEAR 2000 ISSUE
Each Borrower and its Subsidiaries have reviewed the effect of the
Year 2000 Issue on the computer software, hardware and firmware systems and
equipment containing embedded microchips owned or operated by or for such
Borrower and its Subsidiaries or used or relied upon in the conduct of their
business (including systems and equipment supplied by others or with which such
computer systems of such Borrower and its Subsidiaries interface). The costs to
such Borrower and its Subsidiaries of any reprogramming required as a result of
the Year 2000 Issue to permit the proper functioning of such systems and
equipment and the proper processing of data, and the testing of such
reprogramming, and of the reasonably foreseeable consequences of the Year 2000
Issue to such Borrower or any of its Subsidiaries (including reprogramming
errors and the failure of systems or equipment supplied by others) are not
reasonably expected to result in a Potential Default or Event of Default or to
have a material adverse effect on the business, assets, operations, prospects or
condition (financial or otherwise) of such Borrower or any of its Subsidiaries."
4
<PAGE> 5
(i) Section 5.1(a)(x)(C) of the Credit Agreement shall be amended to read
as follows:
"(C) As soon as available and in any event no later than thirty (30)
days after the end of each six-month period ended June 30 and
December 31 of each year, commencing with the six-month period
ending June 30, 1998, a Pledged Servicing Portfolio Report dated as
of the last day of such six-month period;"
(j) Section 5.1(a)(x) of the Credit Agreement shall be further amended by
(i) deleting the word "and" from the end of clause (E) thereof, (ii) changing
"." at the end of clause (F) thereof to "; and", and (iii) adding the following
new clause (G) immediately following clause (F) thereof:
"(G) As soon as available and in any event no later than thirty (30)
days after the end of each quarterly period ended March 31, June 30,
September 30 and December 31 of each year, commencing with the
quarterly period ending June 30, 1998, a Recourse Servicing
Portfolio Report dated as of the last day of such quarterly period."
(k) Section 5.1(i) of the Credit Agreement shall be amended to read as
follows:
"(i) Year 2000 Issue. Take, and shall cause each of its Subsidiaries
to take, all necessary action to complete in all materials respects
by June 30, 1999, the reprogramming of computer software, hardware
and firmware systems and equipment containing embedded microchips
owned or operated by or for such Borrower and its Subsidiaries or
used or relied upon in the conduct of their business (including
systems and equipment supplied by others or with which such systems
of such Borrower or any of its Subsidiaries interface) required as a
result of the Year 2000 Issue to permit the proper functioning of
such computer systems and other equipment and the testing of such
systems and equipment, as so reprogrammed. At the request of the
Agent, such Borrower shall provide, and shall cause each of its
Subsidiaries to provide, to the Agent reasonable assurance of its
compliance with the preceding sentence."
(l) Section 5.2(o) of the Credit Agreement shall be amended to read as
follows:
"(o) Negative Pledges. Unless (i) the Facility 2 Commitments and the
Servicing Commitments have been terminated by the Borrowers, (ii)
all Facility 2 Loans and related Obligations and Servicing Loans and
Servicing Obligations have been repaid or paid, respectively, by the
Borrowers, (iii) no Potential Default or Event of Default has
occurred and is continuing, and (iv) the Borrowers and the Lenders
have agreed
5
<PAGE> 6
upon the terms and conditions upon which this Agreement and the
Facility 1 Commitments shall remain in effect (as contemplated in
Section 2.7(b)), agree with any Person or Persons (other than with
the Lenders pursuant to this Agreement and the Servicing Lenders
pursuant to the Servicing Credit Agreement) not to create, incur,
assume or suffer to exist, or permit any Subsidiary to create,
incur, assume or suffer to exist, any Lien upon the Servicing
Portfolio or any rights relating thereto, including, without
limitation, any rights to receive payments in connection with the
Servicing Portfolio (including, without limitation, any
reimbursement of principal and interest advances, taxes and
insurance advances and any other servicing advances)."
(m) The following new Section 5.2(p) shall be added to the Credit
Agreement immediately following Section 5.2(o) thereof:
"(p) Recourse Obligations. In the case of DFC, without the prior
written consent of the Agent, acting at the direction of the
Required Lenders, enter into any transaction whereby (i) DFC sells
Mortgage-Backed Securities or Mortgage Loans and remains obligated
to repurchase (whether conditionally or unconditionally) such
Mortgage-Backed Securities or Mortgage Loans or has retained other
recourse obligations with respect thereto, or (ii) DFC assumes or
otherwise incurs recourse obligations with respect to
Mortgage-Backed Securities or Mortgage Loans included in its
Servicing Portfolio, if, in either case, in the reasonable judgment
of the management of DFC, the aggregate obligations of DFC in
connection with such transaction and all previous transactions of
the type described in clauses (i) and (ii) above for which DFC is
then obligated could, if DFC is required to perform such
obligations, result in a decrease in DFC's Book Net Worth by a
Material Amount."
(n) Section 5.3(a) of the Credit Agreement shall be amended to read as
follows:
"(a) Total Liabilities. Permit DFC 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) to incur Total Liabilities in excess of the sum of (i) one
hundred percent (100%) of "Cash" or "Cash equivalents";
(ii) ninety-five percent (95%) of the sum of (A) "Mortgage Loans
held for sale", (B) "Mortgage-backed securities held for trading"
(but excluding "interest only securities" included therein), and (C)
"U.S. Treasury & Other AAA Rated Investments that are held to
maturity or available for sale"; (iii) ninety percent (90%) of
"Accrued interest receivable"; (iv) eighty percent (80%) of the sum
of (A) "Mortgage-backed securities held to maturity", (B) "Accounts
receivable and mortgage servicing advances", and (C)
"Mortgage-backed securities available for sale"; (v) eighty percent
(80%) of "prepaid and other assets" (excluding investment in
Subsidiaries); (vi) fifty percent (50%) of the sum of (A) "Property,
leasehold
6
<PAGE> 7
improvements and equipment" and (B) "Real estate held for sale";
(vii) sixty-five percent (65%) of "interest only securities"; and
(viii) one percent (1.0%) of the principal amount of Mortgage Loans
owned by Persons not affiliated with DFC or DMC or any of their
Affiliates (unless covered by a Permitted Affiliate Servicing
Agreement) for which DFC or DMC owns the direct servicing rights.
All quoted terms used in the preceding sentence shall have the same
meanings, and shall continue to be calculated and classified in the
same manner, as the terms used in the balance sheet of DFC and its
consolidated Subsidiaries referred to in Section 4.4(a)."
(o) Section 5.3(b) of the Credit Agreement shall be amended to read as
follows:
"(b) Adjusted Tangible Net Worth. Permit Adjusted Tangible Net
Worth at anytime to be less than $108,000,000."
(p) Section 5.3(c) of the Credit Agreement shall be amended to read as
follows:
"(c) Book Net Worth. Permit Book Net Worth at any time to be
less than $126,000,000."
(q) Section 5.3(e) of the Credit Agreement shall be amended to read as
follows:
"(e) Servicing Portfolio. Permit DFC on a consolidated basis
(excluding any Subsidiaries that are not primarily engaged in the
business of mortgage banking as reasonably determined by the Agent)
to maintain a Servicing Portfolio of Mortgage Loans with an
aggregate outstanding principal balance of less than $3,500,000,000
or such lesser amount as shall be agreed by the Lenders in their
sole discretion."
(r) Section 6.1 of the Credit Agreement shall be amended by adding the
following new subparagraph (k) immediate following subparagraph (j) thereof and
relettering subparagraphs "(k)" and "(l)" thereof as subparagraphs "(l)" and
"(m)", respectively:
"(k) Servicing Event of Default. A Servicing Event of Default shall
occur;"
(s) The first sentence of Section 8.6(c) of the Credit Agreement shall be
amended to read as follows:
"Subject to the limitations set forth below, no Lender may assign
its rights or delegate its obligations under this Agreement and the
other Loan Documents to any other financial institution without the
prior consent of the Agent and the Borrowers (such consent not to be
unreasonably withheld); provided that (i) no Lender may make an
assignment hereunder to a Person (other than an Affiliate of such
Lender or an existing Lender) that is not a financial institution,
(ii) each assignment shall
7
<PAGE> 8
include a corresponding portion of such Lender's Commitments, Loans,
Servicing Commitments and Servicing Loans, it being the intent of
the Lenders that each Lender and each subsequent Lender added
hereunder by way of assignment or otherwise shall have and maintain
the same pro rata interest in all Commitments, Loans, Servicing
Commitments and Servicing Loans, and (iii) an assignment fee in the
amount of $3,500 for each assignment hereunder shall be payable to
the Agent by the applicable assignee."
(t) Exhibit K to the Credit Agreement shall be amended by amending clause
(b)(i) thereof to read as follows:
"(i) No prepayment or amortization of the principal amount of any
subordinate debt (the "SUBORDINATE DEBT") shall be permitted;"
(u) Exhibit N to the Credit Agreement shall be amended by adding Mario S.
Levis as an Authorized Officer of Doral Mortgage Corporation.
(v) Exhibit T to the Credit Agreement shall be re-labelled "Exhibit T-1"
and Exhibit T-2 shall be added to the Credit Agreement in the form of Exhibit
T-2 hereto.
Section 2. Acknowledgement of Obligations under Loan Documents. The
Borrowers hereby acknowledge and agree that any reference to the "Obligations"
in the Loan Documents, including, without limitation, each of the Security
Agreements, shall refer to the "Obligations" as defined in Section 1(c) of this
Amendment.
Section 3. 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 and no Potential
Default or Event of Default has occurred and is continuing.
Section 4. Effectiveness. This Amendment shall become effective as of the
date hereof upon delivery to the Agent of (i) counterparts of this Amendment and
of the Servicing Credit Agreement, duly executed and delivered by the parties
hereto and thereto, together with all related instruments, documents and
agreements required to be delivered hereunder and thereunder, and (ii)
additional Security Agreements in substantially the form of Exhibits C, D and E
to the Credit Agreement, duly executed and delivered by the parties thereto,
provided that the execution and delivery of such Security Agreements shall not
affect any of the Security Agreements in effect as of the date of this
Amendment, which Security Agreements shall remain in full force and effect.
Section 5. Intercreditor Agreement. Each of the Agent, the Servicing
Collateral Agent and the Lenders agrees that the Intercreditor Agreement dated
as of November 5, 1997, between the Agent, the Servicing Collateral Agent, the
Lenders and each of the Servicing Secured Parties (as
8
<PAGE> 9
defined therein), as amended, supplemented or otherwise modified to the date
hereof, shall be terminated as of the effective date of this Amendment without
any further action by any party hereto or thereto.
Section 6. 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 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
Section 8. Miscellaneous. 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.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
DORAL FINANCIAL CORPORATION,
as a Borrower
By: /s/ MARIO S. LEVIS
-----------------------------------------
Name: Mario S. Levis
Title: Executive Vice President and Treasurer
DORAL MORTGAGE CORPORATION,
as a Borrower
By: /s/ MARIO S. LEVIS
-----------------------------------------
Name: Mario S. Levis
Title: Executive Vice President and Treasurer
Facility 1 Commitment: BANKERS TRUST COMPANY,
$25,000,000 as Agent and as a Lender
Facility 2 Commitment: By: /s/ KEVIN M. MCCANN
$2,000,000 -----------------------------------------
Name: Kevin M. McCann
Title:Principal
Facility 1 Commitment: FIRST UNION NATIONAL BANK,
$25,000,000 as a Lender
Facility 2 Commitment:
$2,000,000 By: /s/ R. STEVEN HALL
-----------------------------------------
Name: R. STEVEN HALL
-----------------------------------------
Title:Vice President
-----------------------------------------
10
<PAGE> 11
Facility 1 Commitment: BANKBOSTON, N.A. (formerly known as
$25,000,000 The Bank of Boston),
as a Lender
Facility 2 Commitment:
$2,000,000 By: /s/ PAUL CHMIELINSKI
-------------------------------------
Name: PAUL CHMIELINSKI
-------------------------------------
Title:Vice President
-------------------------------------
Facility 1 Commitment: THE BANK OF NEW YORK,
$25,000,000 as a Lender
Facility 2 Commitment: By: /s/ ROBERT A. TWEED
-------------------------------------
$2,000,000 Name: ROBERT A. TWEED
-------------------------------------
Title:Vice President
-------------------------------------
Facility 1 Commitment: NATIONAL CITY BANK OF KENTUCKY,
$25,000,000 as a Lender
Facility 2 Commitment: By: /s/ ROBERT J. OGBURN
-------------------------------------
$2,000,000 Name: ROBERT J. OGBURN
-------------------------------------
Title:Vice President
-------------------------------------
11
<PAGE> 12
EXHIBIT L-2
FORM OF RECOURSE SERVICING PORTFOLIO REPORT
12
<PAGE> 1
EXHIBIT 10.81
FIRST AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of June 26, 1998
Between
DORAL FINANCIAL CORPORATION,
DORAL MORTGAGE CORPORATION,
THE LENDERS PARTY HERETO
And
BANKERS TRUST COMPANY,
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C>
ARTICLE 1
DEFINITIONS................................................................. 1
Section 1.1 Defined Terms............................................ 1
Section 1.2 Terms Generally.......................................... 13
ARTICLE 2
AMOUNTS AND TERMS OF LOANS.................................................. 14
Section 2.1 Commitments.............................................. 14
Section 2.2 Method of Borrowing and of Conversions/Continuations..... 14
Section 2.3 Conversions/Continuations of Loans....................... 15
Section 2.4 Disbursement of Funds.................................... 15
Section 2.5 Notes.................................................... 16
Section 2.6 Interest................................................. 17
Section 2.7 Termination or Reduction of Commitments.................. 17
Section 2.8 Mandatory Repayments..................................... 17
Section 2.9 Optional Prepayments..................................... 18
Section 2.10 Fees..................................................... 18
Section 2.11 Payments, Etc,........................................... 18
Section 2.12 Eurodollar Rate Not Determinable; Illegality or
Impropriety.............................................. 20
Section 2.13 Reserve Requirements; Change in Circumstances............ 21
Section 2.14 Indemnity................................................ 22
Section 2.15 Taxes.................................................... 23
Section 2.16 Sharing of Setoffs....................................... 24
ARTICLE 3
CONDITIONS TO LOANS......................................................... 24
Section 3.1 Conditions to Loans...................................... 24
ARTICLE 4
REPRESENTATIONS AND WARRANTIES..................................... ........ 27
Section 4.1 Corporate Existence; Compliance with Law and
Contractual Obligations.................................. 27
Section 4.2 Corporate Power; Authorization; Enforceable Obligations.. 27
Section 4.3 No Legal or Contractual Bar.............................. 28
Section 4.4 Financial Information.................................... 28
Section 4.5 No Material Litigation................................... 29
Section 4.6 Taxes.................................................... 29
Section 4.7 Investment Company Act................................... 29
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 4.8 Subsidiaries............................................. 29
Section 4.9 Use of Proceeds.......................................... 30
Section 4.10 ERISA.................................................... 30
Section 4.11 Security Interests....................................... 30
Section 4.12 Agency Approvals......................................... 30
Section 4.13 Solvency................................................. 30
Section 4.14 Pledged Servicing Portfolio.............................. 31
Section 4.15 Year 2000 Issue.......................................... 31
ARTICLE 5
COVENANTS................................................................... 31
Section 5.1 Affirmative Covenants.................................... 31
Section 5.2 Negative Covenants of Each Borrower...................... 37
Section 5.3 Additional Negative Covenants............................ 40
ARTICLE 6
EVENTS OF DEFAULT........................................................... 41
Section 6.1 Events of Default........................................ 41
ARTICLE 7
THE AGENT................................................................... 44
Section 7.1 Appointment of Agent..................................... 44
Section 7.2 Nature of Duties of Agent................................ 44
Section 7.3 Lack of Reliance on Agent................................ 44
Section 7.4 Certain Rights of Agent.................................. 45
Section 7.5 Reliance by Agent........................................ 45
Section 7.6 Indemnification of Agent................................. 46
Section 7.7 Agent in its Individual Capacity......................... 46
Section 7.8 Holders of Notes......................................... 46
Section 7.9 Successor Agent.......................................... 46
ARTICLE 8
MISCELLANEOUS PROVISIONS.................................................... 47
Section 8.1 Notices.................................................. 47
Section 8.2 Amendments, Etc.......................................... 48
Section 8.3 No Waiver; Remedies Cumulative........................... 48
Section 8.4 Payment of Expenses, Etc................................. 49
Section 8.5 Right of Setoff.......................................... 50
Section 8.6 Benefit of Agreement..................................... 50
Section 8.7 GOVERNING LAW; SUBMISSION TO JURISDICTION................ 51
Section 8.8 Counterparts............................................. 53
Section 8.9 Headings Descriptive..................................... 53
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 8.10 Survival of Representations and Indemnities.............. 53
Section 8.11 Severability............................................. 53
Section 8.12 Indemnification of Collateral Agent...................... 53
Section 8.13 Joint and Several Nature of the Obligations.............. 54
Section 8.14 Certain Waivers.......................................... 54
Section 8.15 Subrogation, Etc......................................... 55
Section 8.16 Confidentiality.......................................... 55
Section 8.17 Integration.............................................. 56
Section 8.18 Effectiveness; Intercreditor Agreement................... 56
Section 8.19 Ratification; No Novation................................ 58
Section 8.20 Waiver of Jury Trial..................................... 58
EXHIBITS
Exhibit A Form of Note
Exhibit B First Amended and Restated Security and Collateral Agency Agreement
Exhibit C Form of Opinion of Borrowers' Counsel
Exhibit D-1 Officer's Certificate (DFC)
Exhibit D-2 Officer's Certificate (DMC)
Exhibit E Notice of Borrowing
Exhibit F Notice of Conversion/Continuation
Exhibit G Form of Power of Attorney
Exhibit H Addresses for Notices
Exhibit I Material Litigation
Exhibit J Form of Confidentiality Agreement
Exhibit K Permitted Subordinated Indebtedness
Exhibit L-1 Form of Pledged Servicing Portfolio Report
Exhibit L-2 Form of Recourse Servicing Portfolio Report
Exhibit M Authorized Officers
Exhibit N Form of Assignment and Acceptance
</TABLE>
iii
<PAGE> 5
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and dated as of June 26, 1998, by and
between the Lenders party hereto from time to time, BANKERS TRUST COMPANY, a New
York banking corporation, as agent for the Lenders, DORAL FINANCIAL CORPORATION,
a corporation organized under the laws of the Commonwealth of Puerto Rico
("DFC"), and DORAL MORTGAGE CORPORATION, a corporation organized under the laws
of the Commonwealth of Puerto Rico, and a wholly-owned subsidiary of DFC
("DMC"), and together with DFC, each a "BORROWER" and collectively, the
"BORROWERS"), with reference to the Credit Agreement, dated as of November 5,
1997, between the Borrowers, the Banker Trust Company, as agent thereunder, and
the lenders party thereto (the "ORIGINAL CREDIT AGREEMENT"). Capitalized terms
not otherwise defined herein are defined in Article I.
The Lenders, the Agent and the Borrowers wish to amend and restate the
Original Credit Agreement in its entirety.
ACCORDINGLY, the parties hereto agree that the Original Credit Agreement
is amended and restated in its entirety as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINED TERMS.
For purposes of this Agreement, the terms set forth below shall have
the following meanings:
"ACCUMULATED FUNDING DEFICIENCY" shall mean a funding deficiency
described in Section 302 of ERISA.
"ACKNOWLEDGMENT AGREEMENT" shall mean an acknowledgment agreement in
form and substance satisfactory to the Agent pursuant to which FNMA,
FHLMC, GNMA or any other Person which owns Mortgage Loans or has issued
mortgaged-backed securities for which either Borrower holds direct
servicing rights, acknowledges and recognizes the security interest in
such rights granted to the Secured Parties.
"ADJUSTED TANGIBLE NET WORTH" shall mean, as of any date, (a) the
sum of: (i) Book Net Worth as of such date, (ii) one percent (1.0%) of the
outstanding principal balance of Mortgage Loans with respect to which the
Borrowers have direct servicing rights on such date, and (iii) the
aggregate principal amount of Permitted Subordinated Indebtedness
outstanding as of such date, less (b)(i) thirty-five percent (35%) of the
amount of "interest only strip securities", (ii) all purchased loan
administration contracts and (iii) all other assets that would be
classified as intangible assets under GAAP, including purchased
<PAGE> 6
and capitalized value of servicing rights, goodwill (whether representing
the excess cost over book value of assets acquired or otherwise), patents,
trademarks, trade names, copyrights, franchises, deferred charges
(including unamortized debt discount and expense, organization and
acquisition costs and research and product development costs), and in
accordance with FASB 65, as amended by FASB 122, by the Financial
Accounting Standards Board, any originated mortgage servicing rights.
"AFFILIATE" shall mean, as to any Person, any other Person directly
or indirectly Controlling, Controlled by or under direct or indirect
common Control with, such Person, whether through the ownership of voting
securities, by contract or otherwise. "Control" as used herein (and all
forms of the word) means the power to direct the management and policies
of a Person.
"AGENCY" shall mean FHA, FHLMC, FNMA, GNMA or VA.
"AGENT" shall mean Bankers Trust Company, in its capacity as agent
for the Lenders hereunder, and any successor agent appointed pursuant to
Section 7.9.
"AGREEMENT" shall mean this Agreement, as amended, modified or
supplemented from time to time.
"AMENDMENT EFFECTIVE DATE" shall have the meaning set forth in
Section 8.18.
"AUTHORIZED OFFICERS" shall mean those officers identified on
Exhibit N attached hereto; provided that DFC or DMC, as the case may be,
may, with respect to its Authorized Officers, by notice to the Agent in
accordance with Section 8.1, add or delete any person from the list of
Authorized Officers set forth above.
"BASE EURODOLLAR RATE" shall mean, with respect to any Eurodollar
Loan, a rate per annum equal to the offered rate for U.S. Dollar deposits,
in an amount equal to amount of the Eurodollar Loan proposed to be subject
to such rate and with maturities comparable to such Eurodollar Interest
Period, that appears on Telerate Page 3750 as of approximately 11:00 a.m.,
London time, two (2) Eurodollar Business Days prior to the commencement of
such Eurodollar Interest Period; provided that if such rate does not
appear on Telerate Page 3750, the "Base Eurodollar Rate" applicable to a
particular Eurodollar Interest Period shall mean a rate per annum equal to
the rate at which U.S. Dollar deposits, in an amount equal to the
principal amount of the Eurodollar Loans proposed to be subject to such
rate and with maturities comparable to such Eurodollar Interest Period,
are offered in immediately available funds in the London Interbank Market
to the London office of the Agent by leading banks in the London Interbank
Market as of approximately 11:00 a.m., London time, two (2) Eurodollar
Business Days prior to the commencement of the Eurodollar Interest Period
to which such Base Eurodollar Rate is applicable.
2
<PAGE> 7
"BOARD" shall mean the Board of Governors of the Federal Reserve
System of the United States and any successor thereto.
"BOOK NET WORTH" shall mean (a) the sum of (i) the net worth,
determined in accordance with GAAP consistently applied, of (A) DFC on a
non-consolidated basis, (B) DMC, (C) Centro Hipotecario de Puerto Rico,
Inc. and (D) other Subsidiaries of DFC engaged primarily in the business
of mortgage banking (as reasonably determined by the Agent, but excluding
Doral Bank and Doral Securities) and (ii) the amount of intercompany
payables between DFC and DMC, less (b) the sum of (i) the amount of
intercompany receivables between DFC and DMC and (ii) investments by DFC
and/or DMC in any Subsidiaries, which investments are listed under the
account titled "Other Assets" (as such term is used in the consolidated
balance sheet of DFC dated as of December 31, 1997) or which are listed
under other accounts. Notwithstanding the foregoing, if at any time any of
the entities listed in clauses (B), (C) or (D) above become businesses
engaged primarily in activities other than mortgage banking (as reasonably
determined by the Agent), then the net worth of such entity shall not be
included in clause (i) for the purposes of calculating Book Net Worth.
"BORROWER" and "BORROWERS" shall have the meaning given such terms
in the introductory paragraph of this Agreement.
"BORROWING" shall mean a borrowing pursuant to a Notice of Borrowing
consisting of Loans made concurrently by all of the Lenders.
"BUSINESS DAY" shall mean any day other than (i) a Saturday, Sunday
and any other day on which banks in New York City are required or
authorized to close or (ii) any public or bank holiday in the Commonwealth
of Puerto Rico.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations issues thereunder as from time
to time in effect.
"COLLATERAL" shall have the meaning given such term in Section 1 of
the Security Agreement.
"COLLATERAL AGENT" shall mean initially Bankers Trust Company, in
its capacity as "Collateral Agent" under the Security Agreement, and any
successor collateral agent thereto acceptable to the Required Lenders and
the Borrowers and designated as the "Collateral Agent" under the Security
Agreement.
"COLLATERAL VALUE OF THE PLEDGED SERVICING PORTFOLIO" shall mean, at
the time of determination thereof, an amount equal to the lesser of (i)
70% of the fair market value of the servicing rights relating to the
Mortgage Loans included in the Pledged Servicing Portfolio and (ii) 1.10%
of the unpaid principal balance of the Mortgage Loans included in
3
<PAGE> 8
the Pledged Servicing Portfolio (in each case as reflected on the most
recent Pledged Servicing Valuation Report delivered to the Agent, provided
that no collateral value shall be attributed to the FNMA servicing rights
or the FHLMC servicing rights relating to the FNMA/FHLMC Servicing
Portfolio until a duly executed Acknowledgment Agreement from FNMA or
FHLMC, respectively, has been received by the Collateral Agent, and
provided further, that if no Pledged Servicing Valuation Report has been
delivered to the Agent in accordance with Section 5.1(a)(ix)(B) or
5.1(a)(ix)(C), then the Collateral Value of the Pledged Servicing
Portfolio shall be an amount determined by the Agent in its sole
discretion).
"COMMITMENT" shall mean, with respect to each Lender, the commitment
of such Lender to make Loans hereunder as set forth in Section 2.1, as
such commitment may be reduced pursuant to Section 8.6(c).
"CONTRACTUAL OBLIGATION" shall mean, as to any Person, any provision
of any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"CONVERSION/CONTINUATION DATE" shall mean (a) any date on which the
Lenders, pursuant to Sections 2.2 and 2.3, convert Loans to Loans bearing
interest at a different interest rate, or continue outstanding Eurodollar
Loans for an additional Eurodollar Interest Period (which date shall be a
Eurodollar Business Day in the case of a conversion of Prime Loans into
Eurodollar Loans or the continuation of a Eurodollar Loan) and (b) the
last day of each Eurodollar Interest Period in the case of a Eurodollar
Loan.
"DEFAULT RATE" shall have the meaning given such term in Section
2.6(c).
"DEFAULTING LENDER" shall have the meaning given such term in
Section 2.4(b).
"DFC" shall have the meaning given such term in the introductory
paragraph of this Agreement.
"DMC" shall have the meaning given such term in the introductory
paragraph of this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may from time to time be supplemented or amended, and
the rules and regulations issued thereunder as from time to time in
effect.
"ERISA AFFILIATE" shall mean each trade or business, including the
Borrowers, whether or not incorporated, that together with the Borrowers
would be treated as a single employer under section 4001 of ERISA.
4
<PAGE> 9
"EURODOLLAR BUSINESS DAY" shall mean any Business Day on which
commercial banks are open for international business (including dealings
in dollar deposits) in London, England.
"EURODOLLAR INTEREST PERIOD" shall mean, with respect to any
Eurodollar Loan, the period commencing on the Borrowing Date or a
Conversion/Continuation Date for such Eurodollar Loan, as the case may be,
and ending one, two or three months thereafter as the Borrowers may elect
in the applicable Notice of Borrowing or Notice of
Conversion/Continuation; provided that (a) any Eurodollar Interest Period
that would otherwise end on a day that is not a Eurodollar Business Day
shall be extended to the next succeeding Eurodollar Business Day, unless
such Eurodollar Business Day falls in another calendar month, in which
case such Eurodollar Interest Period shall end on the next preceding
Eurodollar Business Day; (b) any Eurodollar Interest Period that begins on
the last Eurodollar Business Day of a calendar month or any Eurodollar
Interest Period that begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such Eurodollar
Interest Period shall end on the last Eurodollar Business Day of such
calendar month at the end of such Eurodollar Interest Period; and (c) no
Eurodollar Interest Period shall end after the Maturity Date.
"EURODOLLAR LOAN" shall mean any Loan bearing interest at the rate
set forth in Section 2.6(a).
"EURODOLLAR RATE" shall mean, with respect to any Eurodollar
Interest Period, a rate per annum equal to the quotient obtained by
dividing (a) the Base Eurodollar Rate applicable to such Eurodollar
Interest Period by (b) one minus the Reserve Requirement (expressed as a
decimal) applicable to such Eurodollar Interest Period. The Eurodollar
Rate shall be rounded, if necessary, to the next higher one-sixteenth of
one percent (1/16 of 1%).
"EVENT OF DEFAULT" shall have the meaning given such term in Article
VI.
"FEDERAL FUNDS RATE" shall mean, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers,
as published for such day (or, if such day is not a Business Day, for the
preceding Business Day) by the Federal Reserve Bank of New York or, if
such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by
the Agent from three (3) Federal funds brokers of recognized standing
selected by it.
"FEES" shall mean all fees payable by the Borrowers to the Agent
and/or the Lenders pursuant to Section 2.10 or otherwise.
"FHA" shall mean the Federal Housing Administration and any
successor thereto.
5
<PAGE> 10
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation and
any successor thereto.
"FNMA" shall mean the Federal National Mortgage Association and any
successor thereto.
"FNMA/FHLMC SERVICING PORTFOLIO" shall mean the portfolio of
outstanding Mortgage Loans (other than Mortgage Loans owned by either
Borrower or its Affiliates that are not covered by a Permitted Affiliate
Servicing Agreement) that are owned by FNMA or FHLMC or included in pools
of Mortgage Loans with respect to which FNMA or FHLMC 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.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"GNMA" shall mean the Government National Mortgage Association and
any successor thereto.
"GNMA SERVICING PORTFOLIO" shall mean the portfolio of outstanding
Mortgage Loans (other than Mortgage Loans owned by either Borrower or its
Affiliates that are not covered by a Permitted Affiliate Servicing
Agreement) that are guaranteed by GNMA or included in pools of Mortgage
Loans with respect to which GNMA 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 if requested
by the Agent and the Lenders.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any
state, commonwealth or other political subdivision thereof, and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"HUD" shall mean the Department of Housing and Urban Development and
any successor thereto.
"INDEBTEDNESS" shall mean, with respect to any Person, all items of
indebtedness that, in accordance with GAAP, would be included in
determining liabilities as shown on the liability side of a statement of
financial condition of such Person as of the date as of which indebtedness
is to be determined, including all obligations for money borrowed, the
deferred purchase price of property or services and capitalized lease
obligations, and shall also include all indebtedness and liabilities of
others assumed or guaranteed by such Person, or secured by any Lien upon
property owned by such Person, whether or not such indebtedness is
assumed, or in respect of which such Person is secondarily or contingently
liable (other than by endorsement of instruments in the course of
collection), including contingent
6
<PAGE> 11
reimbursement obligations of such Person under undrawn letters of credit,
whether by reason of any agreement to acquire such indebtedness or to
supply or advance sums or otherwise (but excluding any obligations
(whether recourse or nonrecourse) to advance principal and interest
payments and taxes and insurance payments on Mortgage Loans in advance of
receipt of such payments from the underlying Obligor under servicing
agreements entered into by either Borrower which agreements exist on the
date hereof and any similar agreements entered into after the date
hereof).
"INTERCREDITOR AGREEMENT" shall mean the Intercreditor Agreement
dated as of November 5, 1997, between the Agent, the Lenders, and each of
the Warehouse Secured Parties, as amended, supplemented or otherwise
modified from time to time.
"LENDERS" shall mean the banks and other financial institutions
party hereto from time to time.
"LIEN" shall mean any security interest, mortgage, pledge, lien,
claim on property, charge or encumbrance (including any conditional sale
or other title retention agreement), any lease in the nature thereof, and
the filing of or agreement to give any financing statement under the
Uniform Commercial Code of any jurisdiction.
"LOAN" shall mean a loan made by a Lender pursuant to Section 2.1
for the purposes set forth in Section 4.9.
"LOAN DOCUMENTS" shall mean this Agreement, the Security Agreement,
the Notes, the Acknowledgment Agreements and any other document,
instrument or agreement executed by the Borrowers in connection herewith
or therewith, as any of the same may be amended, modified or supplemented
from time to time.
"MARGIN STOCK" shall have the meaning given such term in Regulation
U of the Board.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect with
respect to (a) the business, operations or financial condition of a
Borrower, (b) the ability of any Borrower to pay and perform its
Obligations, (c) the validity or enforceability of this Agreement, any of
the other Loan Documents, or the rights and remedies of the Secured
Parties hereunder or thereunder or (d) the value of the Collateral.
"MATERIAL AMOUNT" shall mean, at any time, ten percent (10%) of Book
Net Worth, as set forth in the most recent annual or quarterly financial
statement of DFC delivered to the Lenders and used in DFC's Securities and
Exchange Commission 10-K or Securities and Exchange Commission 10-Q
filing, as applicable, absent manifest error in such statement.
7
<PAGE> 12
"MATURITY DATE" shall mean June 25, 1999; provided that upon the
written request of the Borrowers to the Agent, the Lenders may elect to
extend the Maturity Date on terms as they may deem appropriate in their
sole discretion.
"MORTGAGE LOAN" shall mean a one- to four-family residential real
estate-secured loan.
"MORTGAGE-BACKED SECURITY" shall mean any security (including a
participation certificate) issued by FHLMC, FNMA or any other Person, or
guaranteed by GNMA, that represents an interest in a pool of Mortgage
Loans.
"MULTIEMPLOYER PLAN" shall mean a plan described in section
4001(a)(3) of ERISA to which the Borrowers or any ERISA Affiliate is
required to contribute on behalf of any of its employees.
"NOTE" shall have the meaning given such term in Section 2.5.
"NOTICE OF BORROWING" shall have the meaning given such term in
Section 2.2.
"NOTICE OF CONVERSION/CONTINUATION" shall have the meaning given
such term in Section 2.2.
"OBLIGATIONS" shall mean, collectively, (i) the unpaid principal of
and interest on the Loans and any Notes and all other obligations and
liabilities of each of the Borrowers to the Agent, the Collateral Agent
and the other Secured Parties (including, without limitation, interest
accruing at the then applicable rate provided in this Agreement after the
maturity of the Loans and interest accruing at the then applicable rate
provided in this Agreement after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to either Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), whether direct or
indirect, absolute or contingent, due or to become due, voluntary or
involuntary, whether or not jointly owed with others, liquidated or
unliquidated, or now existing or hereafter incurred, and whether or not
from time to time decreased or extinguished and later increased, created
or incurred, which may arise under, out of, or in connection with, this
Agreement, the Loans, any Notes, the Security Agreement, the other Loan
Documents or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to
any of the Agent, the Collateral Agent or any of the other Secured Parties
that are required to be paid by the Borrowers pursuant to the terms of
this Agreement, the Security Agreement or any other Loan Document), and
(ii) the Warehouse Obligations; provided that any reference in the Loan
Documents to acceleration of the Obligations shall be deemed to refer only
to the acceleration of the obligations referred to in clause (i) above.
8
<PAGE> 13
"ORIGINAL CREDIT AGREEMENT" shall mean the Credit Agreement, dated
as of November 5, 1997, between the Borrowers, the Agent and the lenders
party thereto.
"PAYMENT OFFICE" shall mean the Agent's office located at One
Bankers Trust Plaza, New York, New York 10015, or such other office as the
Agent shall specify by notice to the Borrowers and the Lenders.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any successor
thereto.
"PERMITTED AFFILIATE SERVICING AGREEMENT" shall mean an agreement
between either Borrower and an Affiliate thereof pursuant to which such
Borrower has direct servicing rights to service Mortgage Loans owned by
such Affiliate on terms and at rates no less favorable than would be
obtained from a non-Affiliate.
"PERMITTED SUBORDINATED INDEBTEDNESS" shall mean any Indebtedness
incurred by each Borrower (other than the Obligations) that is
subordinated to the Obligations in accordance with the criteria set forth
on Exhibit K attached hereto.
"PERSON" shall mean any corporation, natural person, firm, joint
venture, partnership, trust, unincorporated organization, government or
any political subdivision, department, agency or instrumentality of any
government.
"PLAN" shall mean any plan (other than a Multiemployer Plan) subject
to Title IV of ERISA maintained for employees of the Borrowers or any
ERISA Affiliate (and any such plan no longer maintained by the Borrowers
or any of its ERISA Affiliates to which the Borrowers or any of its ERISA
Affiliates has made or was required to make any contributions during the
five years preceding the date on which such plan ceased to be maintained).
"PLEDGED SERVICING PORTFOLIO" shall mean the FNMA/FHLMC Servicing
Portfolio and the GNMA Servicing Portfolio, in each case with respect to
which the Secured Parties have a valid and perfected first priority
security interest in the related direct servicing rights owned by either
Borrower.
"PLEDGED SERVICING PORTFOLIO REPORT" shall mean a report prepared by
the Borrowers in the format prescribed by the Mortgage Bankers'
Association of America listing the FNMA/GNMA /FHLMC statistics and the
other information shown on Exhibit L-1.
"PLEDGED SERVICING VALUATION REPORT" shall mean a report prepared by
a nationally recognized mortgage servicing broker acceptable to the Agent
and the Borrowers and 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
9
<PAGE> 14
Portfolio as of such date (with the FNMA/FHLMC Servicing Portfolio and the
GNMA 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 annual cash flow generated thereby using assumptions
reasonably acceptable to the Agent.
"POWER OF ATTORNEY" shall mean a power of attorney granted by the
Borrowers, substantially in the form of Exhibit G attached hereto.
"POTENTIAL DEFAULT" shall mean an event that with the lapse of time
or the giving of notice, or both, would, unless cured or waived,
constitute an Event of Default.
"PRIME LOAN" shall mean any Loan bearing interest at the rate set
forth in Section 2.6(b).
"PRIME RATE" shall mean the rate of interest that is publicly
announced from time to time by Bankers Trust Company in New York City as
its prime lending rate as in effect from time to time, such rate to change
automatically and without notice to the Borrowers when and as such prime
lending rate changes. The Prime Rate is a reference rate and does not
necessarily represent the best or lowest rate actually charged by Bankers
Trust Company to any customer. Bankers Trust Company may make commercial
loans or other loans at rates of interest at, above or below the Prime
Rate.
"PROCESS AGENT" shall have the meaning set forth in Section 8.7.
"PROHIBITED TRANSACTION" shall mean any transaction described in
section 406 of ERISA that is not exempt by reason of section 408 of ERISA
or the transitional rules set forth in section 414(c) of ERISA and any
transaction described in section 4975(c)(1) of the Code that is not exempt
by reason of section 4975(c)(2) or section 4975(d) of the Code, or the
transitional rules of section 2003(c) of ERISA.
"RECOURSE SERVICING PORTFOLIO REPORT" shall mean a report prepared
by the Borrowers in substantially the form set forth in Exhibit L-2,
including the following information: the recourse Mortgage Loan or
Mortgage-Backed Security investor; the type of recourse (i.e. limited or
full); delinquency and foreclosure rates on the Borrowers' recourse
servicing portfolio; the amount of risk weighted capital required to
support DFC's consolidated recourse exposure; and consolidated total
capital to risk weighted assets in both amount and ratio terms.
"REGULATION D" shall mean Regulation D of the Board as from time to
time in effect, and any other regulation hereafter promulgated by the
Board to replace the prior Regulation D and having substantially the same
function.
10
<PAGE> 15
"REPORTABLE EVENT" shall mean any of the events set forth in section
4043(c) of ERISA or the regulations thereunder, a withdrawal from a Plan
described in section 4063 of ERISA, a cessation of operations described in
section 4068(f) of ERISA, an amendment to a Plan necessitating the posting
of security under section 401(a)(29) of the Code, or a failure to make a
payment required by section 412(m) of the Code and section 302(e) of ERISA
when due.
"REQUIRED LENDERS" shall mean, at any time, Lenders holding at least
sixty-six and two-thirds percent (66.66%) of the then aggregate unpaid
principal amount of the Loans or, if no Loans are then outstanding,
Lenders holding at least sixty-six and two-thirds percent (66.66%) of the
Commitments.
"REQUIREMENTS OF LAW" shall mean as to any Person the Articles or
Certificate of Incorporation and Bylaws or other organizational or
governing documents of such Person, and any law, treaty, rule or
regulation, or a final and binding determination of an arbitrator or a
determination of a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"RESERVE REQUIREMENT" shall mean, with respect to any Eurodollar
Interest Period, the daily average during such Eurodollar Interest Period
of the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or other scheduled changes in reserve
requirements during such Eurodollar Interest Period) which is imposed
under Regulation D on any member bank of the Federal Reserve System, in
respect of eurocurrency or eurodollar funding, lending or liabilities.
"SECURED PARTIES" shall have the meaning given such term in the
Security Agreement.
"SECURITY AGREEMENT" shall mean the Security and Collateral Agency
Agreement substantially in the form of Exhibit B, as amended, modified or
supplemented from time to time and any other documents or certificates
creating or evidencing security interests granted to the Secured Parties
in connection with this Agreement and the other Loan Documents.
"SERVICING PORTFOLIO" shall mean, at any time, the portfolio of
outstanding Mortgage Loans (other than Mortgage Loans owned by the
Borrowers and its Affiliates which are not covered by Permitted Affiliate
Servicing Agreements) with respect to which the Borrowers have direct
servicing rights.
"SUBSIDIARY" shall mean with respect to any Person, any corporation,
association or other business entity of which more than fifty percent
(50%) of the securities or other ownership interests having ordinary
voting power is, or with respect to which rights to
11
<PAGE> 16
control management (pursuant to any contract or other agreement or
otherwise) are, at the time as of which any determination is being made,
owned, controlled or held by such Person or one or more subsidiaries of
such Person.
"TAXES" shall have the meaning given such term in Section 2.15.
"TELERATE PAGE 3750" shall mean the display designated as "Page
3750" on the Associated Press-Dow Jones Telerate Service (or such other
page as may replace Page 3750 on the Associated Press-Dow Jones Telerate
Service or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purposes of displaying
British Bankers' Association interest settlement rates for U.S. Dollar
deposits). Any Base Eurodollar Rate determined on the basis of the rate
displayed on Telerate Page 3750 shall be subject to corrections, if any,
made in such rate and displayed by the Associated Press-Dow Jones Telerate
Service within one (1) hour of the time when such rate is first displayed
by such service.
"TOTAL LIABILITIES" shall mean (i) the aggregate amount of all
liabilities of each Borrower and each of its consolidated Subsidiaries
(other than Doral Bank and Doral Securities) determined in accordance with
GAAP, consistently applied, other than Permitted Subordinated Indebtedness
less (ii) the aggregate amount of intercompany payables owing from one
Borrower to the other.
"VA" shall mean the Veterans Administration and any successor
thereto.
"WAREHOUSE COMMITMENTS" shall mean the "Commitments" as such term is
defined in the Warehouse Credit Agreement.
"WAREHOUSE CREDIT AGREEMENT" shall mean the First Amended and
Restated Credit Agreement, dated as of September 25, 1996, between the
Borrowers, Bankers Trust Company, as Agent, and the lenders party thereto
from time to time, as amended, supplemented or otherwise modified from
time to time.
"WAREHOUSE EVENT OF DEFAULT" shall mean an "Event of Default" as
such term is defined in the Warehouse Credit Agreement.
"WAREHOUSE FACILITY 1 COMMITMENTS" shall mean the "Facility 1
Commitments" as such term is defined in the Warehouse Credit Agreement.
"WAREHOUSE FACILITY 2 LOANS" shall mean the "Facility 2 Loans" as
such term is defined in the Warehouse Credit Agreement.
"WAREHOUSE LENDERS" shall mean the "Lenders" as such term is defined
in the Warehouse Credit Agreement.
12
<PAGE> 17
"WAREHOUSE LOANS" shall mean the "Loans" as such term is defined in
the Warehouse Credit Agreement.
"WAREHOUSE OBLIGATIONS" shall mean the "Obligations" as such term is
defined in the Warehouse Credit Agreement.
"WAREHOUSE SECURED PARTIES" shall mean the "Secured Parties" as such
term is defined in the Warehouse Servicing Security Agreement.
"WAREHOUSE SERVICING SECURITY AGREEMENT" shall mean the "Servicing
Security Agreement" as such term is defined in the Warehouse Credit
Agreement.
"YEAR 2000 ISSUE" shall mean the failure of computer software,
hardware and firmware systems and equipment containing embedded computer
chips to properly receive, transmit, process, manipulate, store, retrieve,
re-transmit or in any other way utilize data and information due to the
occurrence of the year 2000 or the inclusion of dates on or after January
1, 2000.
SECTION 1.2 TERMS GENERALLY.
The definitions in Section 1.1 shall apply equally to both the singular
and plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
The words "include," "includes" and "including" shall be deemed to be followed
by the phrase "without limitation." All references herein to Articles, Sections,
Exhibits and Attachments shall be deemed references to Articles and Sections of,
and Exhibits and Attachments to, this Agreement or to an Exhibit to this
Agreement unless the context shall otherwise require. Except as otherwise
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
that, for purposes of determining compliance with any covenant set forth in
Article V, such term shall be construed in accordance with GAAP as in effect on
the date of this Agreement applied on a basis consistent with the financial
statements referred to in Section 4.4(a).
ARTICLE 2
AMOUNTS AND TERMS OF LOANS
SECTION 2.1 COMMITMENTS.
Subject to and upon the terms and conditions herein set forth, each
Lender agrees, severally and not jointly, at any time and from time to time from
the date of this Agreement up to but excluding the date upon which the
Commitments are terminated, to make Loans to the Borrowers in an aggregate
principal amount at any time outstanding not to exceed the Commitment
13
<PAGE> 18
set forth opposite such Lender's name on the signature pages hereto, as such
commitment may be reduced from time to time pursuant to Section 8.6(c); provided
that the aggregate principal amount of Loans plus the aggregate principal amount
of Warehouse Facility 2 Loans outstanding at any time shall not exceed the then
current Collateral Value of the Pledged Servicing Portfolio. Subject to Section
2.12, each Loan shall be a Eurodollar Loan or a Prime Loan. Each Borrowing shall
be made ratably by the Lenders in proportion to their respective Commitments.
Within the foregoing limits and subject to the conditions set forth in Article
III, the Borrowers may borrow and reborrow Loans under Section 2.2 and prepay
Loans under Section 2.9.
SECTION 2.2 METHOD OF BORROWING AND OF CONVERSIONS/CONTINUATIONS.
(a) Whenever the Borrowers desire to make a Borrowing hereunder, to
convert any Loan pursuant to Section 2.3 or to continue any Loan for an
additional Eurodollar Interest Period pursuant to Section 2.3, an Authorized
Officer shall deliver to the Agent written notice of such proposed Borrowing,
conversion or continuation (a "NOTICE OF BORROWING" or "NOTICE OF
CONVERSION/CONTINUATION," as the case may be), each such notice to be given (x)
prior to 12:00 noon (New York City time) on the date of such proposed Borrowing
or conversion, in the case of a Borrowing of Prime Loans or a conversion of
Eurodollar Loans into Prime Loans; and (y) prior to 12:00 noon (New York City
time) on the third Eurodollar Business Day before the date of such proposed
Borrowing, conversion or continuation (which date shall be a Eurodollar Business
Day), in the case of a Borrowing of Eurodollar Loans, a conversion of Prime
Loans into Eurodollar Loans or a continuation of Eurodollar Loans for an
additional Eurodollar Interest Period. Each such notice shall be irrevocable and
shall be in the form of Exhibit E or F, as the case may be. Notwithstanding any
other provision hereof to the contrary, (i) no more than three (3) Eurodollar
Interest Periods for Loans may be in effect hereunder at any time; and (ii) no
Borrowing shall be in an aggregate principal amount of less than $5,000,000.
(b) Without in any way limiting the Borrowers' obligation to deliver to
the Agent a copy of any written Notice of Borrowing or Notice of
Conversion/Continuation, the Agent may act without liability upon the basis of
any telephonic Notice of Borrowing or Notice of Conversion/Continuation believed
by the Agent in good faith to be from an Authorized Officer prior to receipt of
written confirmation. In each such case, the Borrowers hereby waive the right to
dispute the Agent's record of the terms of such telephonic notice. An Authorized
Officer shall promptly confirm in writing any Notice of Borrowing or Notice of
Conversion/Continuation given by telephone.
(c) On the date of receipt of any Notice of Borrowing or Notice of
Conversion/Continuation, the Agent shall promptly give (and in any event by 1:00
p.m. (New York City time)) each Lender telefacsimile notice of each proposed
Borrowing, such Lender's proportionate share thereof, each proposed conversion
or continuation and any other matters covered by the Notice of Borrowing or
Notice of Conversion/Continuation.
14
<PAGE> 19
(d) Unless otherwise specified in a Notice of Borrowing, each Loan to be
made as part of a Borrowing shall be made as a Prime Loan. If a timely notice as
specified in Section 2.2(a) is not received from the Borrowers prior to the
expiration of any Eurodollar Interest Period for any outstanding Eurodollar
Loan, the Borrowers shall be deemed to have irrevocably elected to convert such
Loan into a Prime Loan. The Agent will endeavor to notify the Borrowers prior to
the expiration of any Eurodollar Interest Period but shall have no liability for
failure to provide such notice.
(e) By delivering a Notice of Conversion/Continuation to the Agent
hereunder of the continuation of any Eurodollar Loans for an additional
Eurodollar Interest Period or the conversion of any outstanding Loans to
Eurodollar Loans, the Borrowers shall be deemed to have represented and
warranted that no Potential Default or Event of Default has occurred and is
continuing.
SECTION 2.3 CONVERSIONS/CONTINUATIONS OF LOANS.
(a) Subject to the terms and conditions hereof and in accordance with the
procedures for conversions and continuations and the other provisions set forth
in Section 2.2, each Lender agrees to convert outstanding Loans that are Prime
Loans into Eurodollar Loans and Eurodollar Loans into Prime Loans and to
continue Loans that are Eurodollar Loans for an additional Eurodollar Interest
Period, in each case in an aggregate principal amount not to exceed the
principal amount of the Prime Loans or Eurodollar Loans, as the case may be,
being converted or Eurodollar Loans, as the case may be, being continued;
provided that no Lender shall convert any Loan into a Eurodollar Loan or
continue any Eurodollar Loan for an additional Eurodollar Interest Period if a
Potential Default or an Event of Default has occurred and is continuing.
SECTION 2.4 DISBURSEMENT OF FUNDS.
(a) No later than 2:00 p.m. (New York City time) on the date of each
Borrowing, each Lender will make available to the Agent the full amount of such
Lender's pro rata share of such Borrowing, in immediately available funds, by
wire transfer of such funds to the Agent at the Payment Office. Unless the Agent
determines that any applicable condition in Article III has not been satisfied,
the Agent shall make the funds so received from the Lenders available to the
Borrowers by wire transfer of such funds to such account as the Borrowers
through the Agent may direct in writing for such purpose. If a Borrowing does
not occur on the requested date because any condition precedent herein specified
has not been satisfied, the Agent shall so notify the affected Lenders promptly
and shall return the amounts so received to the respective Lenders.
(b) Unless the Agent has been notified by any Lender before 2:00 p.m. (New
York City time) on the date of a proposed Borrowing that such Lender does not
intend to make available to the Agent on such date such Lender's portion of such
Borrowing, the Agent may assume that such Lender will make such amount available
to the Agent on such date and the Agent may (but shall not be obligated to) make
available to the Borrowers a corresponding amount. If such corresponding amount
is not in fact made available to the Agent by such Lender (a "DEFAULTING
LENDER") on such
15
<PAGE> 20
date, the Agent shall be entitled to recover such corresponding amount on demand
from such Defaulting Lender, together with interest at the overnight Federal
Funds Rate for each day until paid. A Defaulting Lender shall be deemed to have
assigned to the Agent the right to receive any and all payments due to it in
respect of the Obligations until the sum of such payments received by the Agent
is equal to the amount owed to the Agent by such Defaulting Lender pursuant to
the preceding sentence. The foregoing assignment shall be deemed to be a power
coupled with an interest and shall be absolute and irrevocable. Nothing in this
subsection shall be deemed to relieve any Lender from its obligation to fulfill
its obligation to make Loans hereunder or to prejudice any rights that the
Borrowers, the Agent or any Lender may have against any Defaulting Lender
hereunder.
(c) No Lender shall be responsible for any default by any other Lender in
its obligation to make Loans hereunder, and each Lender shall be obligated to
make the Loans on the terms set forth herein, regardless of the failure of any
other Lender to fulfill its obligations hereunder.
SECTION 2.5 NOTES.
(a) Each Borrower's joint and several obligation to pay the principal of
and interest on the Loans made by each Lender shall be evidenced by a promissory
note (each a "NOTE" and collectively the "NOTES") substantially in the form of
Exhibit A, with blanks appropriately completed in conformity therewith and
payable to the order of such Lender. Each Lender shall, and is hereby authorized
by the Borrowers to, endorse on the schedule attached to the applicable Note
delivered to such Lender (or on a continuation of such schedule attached to such
Note and made a part thereof), or otherwise to record in such Lender's internal
records, an appropriate notation evidencing the date and amount of the Loan from
such Lender, each payment and prepayment of principal of any such Loan, each
payment of interest on any such Loan, and applicable interest rates and
Eurodollar Interest Periods and other information with respect thereto, and any
such recordation shall absent manifest error constitute prima facie evidence of
the accuracy of the information so recorded; provided that the failure of any
Lender to make such a notation or any error therein shall not affect the joint
and several Obligations of the Borrowers, including the joint and several
Obligation of the Borrowers to repay the Loans made by such Lender in accordance
with the terms of this Agreement and the applicable Notes.
SECTION 2.6 INTEREST.
(a) The Borrowers agree to pay interest in respect of the unpaid principal
amount of each Eurodollar Loan for each day during the Eurodollar Interest
Period applicable thereto at a rate per annum equal to one and one-quarter
percent (1.25%) per annum plus the Eurodollar Rate for such Eurodollar Interest
Period.
(b) The Borrowers agree to pay interest in respect of the unpaid principal
amount of each Prime Loan for each day such Prime Loan is outstanding at a rate
per annum equal to one-quarter percent (0.25%) per annum plus the Prime Rate.
16
<PAGE> 21
(c) Overdue principal and interest in respect of each Loan and all other
overdue amounts owing hereunder shall bear interest for each day that such
amounts are overdue (after as well as before judgment) at a rate per annum equal
to two and one-quarter percent (2.25%) per annum plus the Prime Rate (the
"DEFAULT RATE").
(d) Interest on each Loan shall accrue from and including the Borrowing
Date thereof to but excluding the date of any repayment thereof and shall be
payable (i) on or before the third (3rd) Business Day after receipt of the
billing statement referred to in clause (e) below, (ii) on any prepayment in
full of all of any Lender's outstanding Loans, (iii) at maturity (whether by
acceleration or otherwise) and (iv) after maturity, on demand.
(e) The Agent shall deliver to the Borrowers one interest billing
statement for each month on or before the third (3rd) Business Day of the next
succeeding month, which interest billing statement shall set forth the interest
accrued on the Loans for such month; provided that any failure or delay in
delivering such interest billing statement or any inaccuracy therein shall not
affect the Obligations.
SECTION 2.7 TERMINATION OR REDUCTION OF COMMITMENTS.
The Commitments shall automatically terminate on the earliest of:
(i) Maturity Date, and (ii) the date on which the Borrowers terminate or fail to
renew the Warehouse Facility 1 Commitments, in each case subject to earlier
termination pursuant to Section 6.1. The Commitments may not be reduced in part
by the Borrowers, but may be terminated in their entirety at any time by the
Borrowers upon at least fifteen (15) days' prior irrevocable written notice to
the Agent.
SECTION 2.8 MANDATORY REPAYMENTS.
(a) The Borrowers shall repay all outstanding Loans on the Maturity Date.
(b) On any date upon which the aggregate principal amount of the
outstanding Loans plus the aggregate principal amount of the outstanding
Warehouse Facility 2 Loans exceeds the Collateral Value of the Pledged Servicing
Portfolio, the Borrowers shall repay on such date the aggregate principal amount
of the Loans as shall be necessary so that the aggregate principal amount of
outstanding Loans plus the aggregate principal amount of the outstanding
Warehouse Facility 2 Loans does not exceed the Collateral Value of the Pledged
Servicing Portfolio.
(c) All repayments of the Loans of any Lender under this Section 2.8 shall
be applied first to such Lender's Loans that are Prime Loans and second, to such
Lender's Loans that are Eurodollar Loans. All repayments of Loans under this
Section 2.8 shall be without premium or penalty, except that any repayment of
Eurodollar Loans shall be subject to the provisions of Section 2.14. Interest
shall be payable in accordance with the provisions of Section 2.6.
17
<PAGE> 22
SECTION 2.9 OPTIONAL PREPAYMENTS.
The Borrowers shall have the right at any time and from time to time
to prepay outstanding Loans, in whole or in part, upon one (1) Business Days'
prior written notice to the Agent, in the case of Eurodollar Loans, and without
prior notice in the case of Prime Loans; provided that each partial prepayment
of any Loan shall be in an aggregate principal amount of $100,000 or any
multiple of $50,000 in excess thereof. All prepayments of the Loans of any
Lender under this Section 2.9 shall be applied first, to such Lender's Loans
that are Prime Loans, and second, to such Lender's Loans that are Eurodollar
Loans. All prepayments of Loans under this Section 2.9 shall be without premium
or penalty, except that any prepayment of Eurodollar Loans shall be subject to
the provisions of Section 2.14. Interest shall be payable upon such prepayment
in accordance with the provisions of Section 2.6.
SECTION 2.10 FEES.
(a) The Borrowers agree to pay to the Agent a facility fee in the amount
and on the date separately agreed to by the Agent and the Borrowers.
(b) The fees set forth in this Section 2.10, once paid, shall not be
refundable under any circumstances.
SECTION 2.11 PAYMENTS, ETC,
(a) Except as otherwise specifically provided herein, all payments by the
Borrowers under this Agreement shall be made without defense, set-off or
counterclaim to the Agent not later than 1:00 p.m. (New York City time) on the
date when due, it being expressly agreed and understood that if a payment is
received after 1:00 p.m. (New York City time) by the Agent, such payment will be
deemed to have been made on the next succeeding Business Day and interest
thereon shall be payable at the then applicable rate during such extension;
provided that if the Agent receives the federal wire confirmation number with
respect to such payment before 1:00 p.m. (New York City time) on the date when
such payment is due, and the payment is actually received and credited for value
to the appropriate account at Bankers Trust Company before the close of business
on such due date, then the payment will be deemed to be made on such due date.
All payments hereunder shall be made in U.S. Dollars in immediately available
funds at the Payment Office. The Agent will promptly after receipt of each such
payment (and in any event by the close of business on the day on which such
funds are received or deemed to have been received) distribute funds in the form
received relating to the payment of (i) principal or interest on Loan to the
Lenders ratably in accordance with the aggregate principal amount of the Loans
of such Lenders, (ii) Fees ratably to the Lenders and (iii) any other amount
payable to any Lender to such Lender.
(b) Whenever any payment to be made hereunder or under any Note shall be
stated to be due on a day that is not a Business Day, the due date thereof shall
be extended to the next
18
<PAGE> 23
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
(c) All computations of interest shall be made on the basis of a year of
three hundred and sixty (360) days for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest is payable. Each determination by the Agent of an interest rate
hereunder shall be conclusive and binding absent manifest error.
(d) Prior to the maturity of the Loans (whether upon acceleration, upon
any date that the Commitments are terminated pursuant to Section 2.7 or
otherwise), or the occurrence and continuance of a Potential Default or an Event
of Default, all amounts received on any day by the Agent hereunder in respect of
principal of the Loans or under the Security Agreement in respect of the
Collateral described therein shall be applied by the Agent as follows: first,
ratably to the Lenders in accordance with the aggregate principal amounts of
their respective outstanding Loans, to repay the aggregate principal amount of
Loans due and payable on such day pursuant to Section 2.8; second, ratably to
the Lenders in accordance with the aggregate principal amounts of their
respective outstanding Loans, to prepay outstanding Loans being prepaid on such
day pursuant to Section 2.9; and third, the balance, if any, shall be released
by the Agent to the Borrowers by transfer to such account as the Borrowers may
direct in writing for such purpose; provided that if a Potential Default or an
Event of Default exists, but the Lenders have not accelerated the Loans
hereunder, then the Agent shall not release any such amounts to the Borrowers
until the earlier of (x) the cure of any Potential Default or Event of Default
or (y) the acceleration of the Loans, and if the event described in clause (x)
occurs first, the amounts shall be released to the Borrowers as described in
this subsection (d), and if the event described in clause (y) occurs first, then
such amounts shall be applied in accordance with Section 2.11(e).
(e) Upon the maturity of the Loans and all other Obligations pursuant to
Section 6.1 or otherwise, all amounts received by the Agent on account of the
Obligations shall be disbursed by the Agent as follows: first, ratably to the
Collateral Agent in accordance with the amounts due to it, to reimburse it for
all fees, costs and expenses reasonably incurred by it in connection with a
Potential Default or an Event of Default or otherwise payable to it in its
capacity as Collateral Agent under the Security Agreement; second, to the Agent,
to reimburse the Agent for all fees, costs and expenses reasonably incurred by
it in connection with a Potential Default or an Event of Default or otherwise
payable to it in its capacity as Agent under the Loan Documents; third, ratably
to the Lenders in accordance with the amount of interest due to each Lender, to
pay all accrued and unpaid interest due hereunder; fourth, ratably to the
Lenders in accordance with the aggregate principal amounts of their respective
outstanding Loans, to repay all outstanding Loans; fifth, ratably to the Lenders
in accordance with their respective unpaid Obligations, to pay all remaining
unpaid Obligations; and sixth, to the Borrowers by transfer to such account as
the Borrowers may direct in writing for such purpose.
19
<PAGE> 24
SECTION 2.12 EURODOLLAR RATE NOT DETERMINABLE; ILLEGALITY OR IMPROPRIETY.
(a) In the event, and on each occasion, that on or before the day on which
the Eurodollar Rate for a Borrowing that is to include Eurodollar Loans is to be
determined, the Agent has determined in good faith that the Eurodollar Rate
cannot be determined for any reason, the Agent shall, as soon as practicable
thereafter, give written notice of such determination to the Borrowers and the
Lenders. Upon any such determination, any request by the Borrowers for a
Eurodollar Loan pursuant to Section 2.2 shall, until the Agent has advised the
Borrowers and the Lenders that the circumstances giving rise to such notice no
longer exist, be deemed to be a request for a Prime Loan. Each determination by
the Agent hereunder shall be conclusive and binding absent manifest error.
(b) If any Lender determines at any time that the introduction of, or any
change in, any applicable law, rule, regulation, order or decree or in the
interpretation or the administration thereof by any Governmental Authority
charged with the interpretation or administration thereof, or compliance by such
Lender with any request or directive (whether or not having the force of law) of
any such Governmental Authority, shall make it unlawful or improper for such
Lender to make, maintain or fund any Eurodollar Loan as contemplated by this
Agreement, then such Lender shall immediately give notice thereof to the Agent
and the Borrowers describing such illegality or impropriety in reasonable
detail. Effective thirty (30) days after the giving of such notice (or effective
upon such earlier date as required by such Governmental Authority), the
obligation of such Lender to make Eurodollar Loans shall be suspended for the
duration of such illegality or impropriety and, if and when such illegality or
impropriety ceases to exist, such suspension shall cease and such Lender shall
notify the Agent and the Borrowers thereof. If any such change makes it unlawful
or improper for any Lender to maintain any Eurodollar Loan such Lender shall,
upon the happening of such event, notify the Agent and the Borrowers thereof,
and the Borrowers shall immediately, or if permitted by applicable law, rule,
regulation, order, decree, interpretation, request or directive, no later than
the date permitted thereby, convert each such Eurodollar Loan into a Prime Loan.
If any Lender notifies the Agent and the Borrowers pursuant to this Section
2.12(b) that it is unlawful or improper for such Lender to make or maintain
Eurodollar Loans, as the case may be, but no other Lenders give similar notices,
then the Borrowers may require such Lender to sell, pursuant to Section 8.6(c)
all of its outstanding Loans to another Lender (if any other Lender agrees, in
its sole and absolute discretion, to purchase such Loans) or to any other
financial institution reasonably acceptable to the Agent that is willing to make
and maintain Eurodollar Loans. The purchase price for such Loans shall be equal
to the aggregate outstanding principal amount of the Loans of such Lender plus
such Lender's pro rata share of all other accrued and unpaid Obligations.
SECTION 2.13 RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES.
(a) Notwithstanding any other provision herein, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) imposes any tax on or changes the basis of taxation of payments to any
Lender of the principal of or interest on any Eurodollar Loan or any other
amounts payable
20
<PAGE> 25
hereunder (other than taxes imposed on the overall net income of such Lender by
the jurisdiction in which such Lender has its principal office or by any
political subdivision or taxing authority therein), or imposes, modifies or
deems applicable any reserve, special deposit or similar requirement against
assets of, deposits with or for the account of or credit extended by such Lender
(except any such reserve requirement that is reflected in the Eurodollar Rate)
or imposes on such Lender any other condition affecting this Agreement or
Eurodollar Loans, and the result of any of the foregoing is to increase the cost
to such Lender of making or maintaining any Eurodollar Loan, or to reduce the
amount of any sum received or receivable by such Lender hereunder (whether of
principal, interest, fee or otherwise) in respect thereof by an amount deemed by
such Lender to be material, then the Borrowers shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such additional
costs incurred or reduction suffered. Any amount or amounts payable by the
Borrowers to any Lender in accordance with the provisions of this Section
2.13(a) shall be paid by the Borrowers to such Lender within ten (10) Business
Days of receipt by the Borrowers from such Lender of a statement setting forth
in reasonable detail the amount or amounts due and the basis for the
determination from time to time of such amount or amounts, which statement shall
be conclusive and binding absent manifest error.
(b) If any Lender has determined that the adoption after the date hereof
of any applicable law, rule or regulation regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by such Lender (or any
lending office of such Lender, as the case may be) or by the holding company of
such Lender, as the case may be, with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, as the case
may be, as a consequence of such Lender's obligations under the Loan Documents
to a level below that which such Lender or such Lender's holding company, as the
case may be, could have achieved but for such adoption, change or compliance
(taking into consideration such Lender's policies or such Lender's holding
company's policies, as the case may be, with respect to capital adequacy) by an
amount deemed by such Lender to be material, then from time to time, the
Borrowers shall reimburse such Lender or such Lender's holding company, as the
case may be, for such reduction. Any amount or amounts payable by the Borrowers
to any Lender in accordance with the provisions of this Section 2.13(b) shall be
paid by the Borrowers to such Lender within ten (10) Business Days of receipt by
the Borrowers from such Lender of a statement setting forth in reasonable detail
the amount or amounts due and the basis for the determination from time to time
of such amount or amounts, which statement shall be conclusive and binding
absent manifest error.
(c) Each Lender agrees to use reasonable efforts to change its lending
office to avoid or minimize (i) any amounts that might otherwise be payable to
such Lender pursuant to this Section 2.13 or pursuant to Section 2.15 or (ii)
the effect of any event referred to in Section 2.12(b); provided that such
efforts or change shall not cause the imposition on such Lender of any
additional
21
<PAGE> 26
cost or legal, regulatory or administrative burdens deemed by such Lender, in
its sole discretion, to be material.
(d) Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Lender's right to demand compensation with respect to such period or any
other period. The protection of this Section 2.13(d) shall be available to any
Lender regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other change or
condition that shall have occurred or been imposed.
SECTION 2.14 INDEMNITY.
(a) The Borrowers shall indemnify and hold harmless each Lender against
any and all claims, demands, liabilities, damages, losses, costs, charges and
expenses (including reasonable attorney's fees) that such Lender actually
sustains or incurs as a consequence of (i) any failure by the Borrowers to
fulfill on the date of this Agreement the applicable conditions set forth in
Article III, (ii) any failure by the Borrowers to borrow any Eurodollar Loan
hereunder, to convert any Loan into a Eurodollar Loan or to continue any
Eurodollar Loan for an additional Eurodollar Interest Period, after irrevocable
notice of such borrowing, conversion or continuation has been given pursuant to
Section 2.2, (iii) any payment, prepayment or conversion of a Eurodollar Loan
required by any provision of this Agreement or otherwise made on a date other
than the last day of the Eurodollar Interest Period applicable thereto, (iv) any
default in payment or prepayment of the principal amount of any Eurodollar Loan
or any part thereof or interest accrued thereon, as and when due and payable (at
the due date thereof, by irrevocable notice of prepayment or otherwise) or (v)
the occurrence of any Event of Default, including, in each such case, any loss
or reasonable expense sustained or incurred in liquidating or employing deposits
from third parties acquired to effect or maintain such Eurodollar Loan or any
part thereof as a Eurodollar Loan. Such loss or reasonable expense shall include
but not be limited to an amount equal to the excess, if any, as reasonably
determined by such Lender, of (A) its cost of obtaining the funds for the
Eurodollar Loan being paid, prepaid or converted or not borrowed, converted or
continued (based on the Eurodollar Rate applicable thereto) for the period from
the date of such payment, prepayment, conversion or failure to borrow, convert
or continue to the last day of the Eurodollar Interest Period, as the case may
be, for such Loan (or, in the case of a failure to borrow, convert, or continue
the Eurodollar Interest Period, as the case may be, for such Loan that would
have commenced on the date of such failure to borrow, convert or continue) over
(B) the amount of interest (as reasonably determined by such Lender) that would
be realized by such Lender in re-employing the funds so paid, prepaid or
converted or not borrowed, converted or continued for such period or Eurodollar
Interest Period, as the case may be. A certificate of any Lender setting forth
in reasonable detail any amount or amounts which such Lender is entitled to
receive pursuant to this Section 2.14 shall be delivered to the Borrowers and
shall be conclusive and binding absent manifest error.
22
<PAGE> 27
(b) Nothing in this Section is intended to limit the reimbursement
obligation of the Borrowers contained elsewhere in this Agreement. The
obligations of the Borrowers under this Section shall survive the termination of
this Agreement.
SECTION 2.15 TAXES.
All payments made by the Borrowers under this Agreement and the other Loan
Documents shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding, in the case of the Agent, the Collateral Agent and each
Lender, net income taxes and franchise taxes (imposed in lieu of net income
taxes) imposed on the Agent, the Collateral Agent or such Lender, as the case
may be, as a result of a present or former connection between the jurisdiction
of the government or taxing authority imposing such tax and the Agent, the
Collateral Agent or such Lender (excluding a connection arising solely from the
Agent, the Collateral Agent or such Lender having executed, delivered, performed
its obligations or received a payment under, or enforced, this Agreement or the
other Loan Documents) or any political subdivision or taxing authority thereof
or therein (all such non-excluded taxes, levies, imposts, duties, charges, fees,
deductions and withholdings being hereinafter called "TAXES"). If any Taxes are
required to be withheld from any amounts payable to the Agent, the Collateral
Agent or any Lender hereunder or under other Loan Documents, the amounts so
payable to the Agent, the Collateral Agent or such Lender shall be increased to
the extent necessary to yield to the Agent, the Collateral Agent or such Lender
(after payment of all Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
other Loan Documents. Whenever any Taxes are payable by the Borrowers, as
promptly as possible thereafter the Borrowers shall send to the Agent for its
own account or for the account of the Collateral Agent or such Lender, as the
case may be, a certified copy of an original official receipt received by the
Borrowers showing payment thereof. If the Borrowers fail to pay any Taxes when
due to the appropriate taxing authority or fails to remit to the Agent the
required receipts or other required documentary evidence, the Borrowers shall
indemnify the Agent, the Collateral Agents and the Lenders for any incremental
taxes, interest or penalties that may become payable by the Agent, the
Collateral Agent or any Lender as a result of any such failure. The agreements
in this subsection shall survive the termination of this Agreement and the
payment of the Notes and all other amounts payable under the Loan Documents.
SECTION 2.16 SHARING OF SETOFFS.
Each Lender agrees that if it shall, through the exercise of a right
of banker's lien, setoff or counterclaim against the Borrowers, or pursuant to a
secured claim under Section 506 of Title 11 of the United States Code or other
security or interest arising from, or in lieu of, such secured claim, received
by such Lender under any applicable bankruptcy, insolvency or other similar law
or otherwise, or by any other means, obtain payment (voluntary or involuntary)
in respect of any Obligation as a result of which the unpaid portion of its
Obligations shall be proportionately less
23
<PAGE> 28
than the unpaid portion of the Obligations of any other Lender, it shall
simultaneously purchase from such other Lender at face value a participation in
the Obligations of such other Lender, so that the aggregate unpaid amount of the
Obligations and such participations in Obligations held by each Lender shall be
in the same proportion to the aggregate unpaid amount of all Obligations then
outstanding as the amount of its Obligations prior to such exercise of banker's
lien, setoff or counterclaim or other event was to the principal amount of all
Obligations outstanding prior to such exercise of banker's lien, setoff or
counterclaim or other event; provided that, if any such purchase or purchases or
adjustments are made pursuant to this Section 2.16 and the payment giving rise
thereto is thereafter recovered, such purchase or purchases or adjustments shall
be rescinded to the extent of such recovery and the purchase price or prices or
adjustments restored without interest. The Borrowers expressly consent to the
foregoing arrangements and agrees that any Lender holding a participation in an
Obligation deemed to have been so purchased may exercise any and all rights of
banker's lien, setoff or counterclaim with respect to any and all moneys owing
by the Borrowers to such Lender by reason thereof as fully as if such Lender had
made a loan directly to the Borrowers in the amount of such participation.
ARTICLE 3
CONDITIONS TO LOANS
SECTION 3.1 CONDITIONS TO LOANS.
(a) As conditions precedent to the initial disbursement of the Loans
hereunder:
(i) Each Borrower shall have delivered or shall have had delivered
to the Agent, in form and substance and in quantities reasonably
satisfactory to the Agent and its counsel, each of the following:
(A) this Agreement, duly executed by the parties hereto;
(B) each of the Security Agreements and the Power of Attorney
for each Borrower, duly executed (and notarized where required) by
the parties thereto (which Powers of Attorney shall be
"protocolized" under the laws of Puerto Rico by counsel to the
Borrowers, and filed with the Registry of Powers of Attorneys and
Wills by local counsel to the Agent promptly after the closing
contemplated hereunder);
(C) a duly executed Note for each Lender;
(D) duly executed documents, instruments, agreements and
financing statements, properly executed, deemed necessary or
appropriate by the Agent, in its reasonable discretion, to create in
favor of the Lenders a valid and perfected, first priority security
interest in and lien upon the Collateral;
24
<PAGE> 29
(E) a certified copy of resolutions of the Board of Directors
of each of the Borrowers approving the execution, delivery and
performance of all Loan Documents required to be delivered by such
parties hereunder and the transactions contemplated therein;
(F) a certificate of the Secretary or an Assistant Secretary
of each of the Borrowers certifying the names and true signatures of
the officers of such parties authorized to sign the Loan Documents
required to be executed and delivered by such parties hereunder, in
each case dated the date of this Agreement;
(G) an opinion of counsel for the Borrowers in the form of
Exhibit C and covering such other matters as the Agent may
reasonably request, in each case dated the date of this Agreement;
(H) a copy of the Certificate of Incorporation or other
equivalent document available in the applicable jurisdiction of the
Borrowers certified by the appropriate officer of the jurisdiction
of such party's incorporation as of a recent date;
(I) a copy of the Bylaws of the Borrowers, certified by the
Secretary or an Assistant Secretary or other appropriate officer of
each such party as of the date of this Agreement as being accurate
and complete;
(J) a certificate of an executive officer of each of the
Borrowers, in the form of Exhibits D-1 and D-2, respectively, dated
the date of this Agreement;
(K) duly executed acknowledgment agreements from each of FNMA
and FHLMC relating to the validity of the Secured Parties' security
interest in the Pledged Servicing Portfolio;
(L) evidence of (I) the acceptance by the Process Agent of its
appointment pursuant to Section 8.7 and (II) payment of all fees
required by the Process Agent for serving in such capacity;
(M) a copy of the letter delivered to the parties to the
contracts pledged and assigned to the Secured Parties pursuant to
the Loan Documents (together with evidence of such delivery)
notifying such parties of the security interests in such contracts
and the contract rights related thereto granted to the Secured
Parties pursuant to the Loan Documents, which letter shall be in
substantially the form of Attachment 2 to the Security Agreement;
25
<PAGE> 30
(N) a schedule of servicing rights included in the Pledged
Servicing Portfolio, including the owner of such servicing rights
and otherwise in form and substance acceptable to the Agent;
(O) a duly executed Intercreditor Agreement; and
(P) a waiver under the Warehouse Credit Agreement duly
executed by each of the Warehouse Lenders.
(ii) 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 the Loan
Documents and to constitute the same legal, valid and binding obligations,
enforceable in accordance with their respective 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.
(iii) All documentation, including documentation for corporate and
legal proceedings in connection with the transactions contemplated by the
Loan Documents, shall be reasonably satisfactory in form and substance to
the Agent and its counsel.
(iv) The Borrowers shall have paid all Fees required to have been
paid under the Loan Documents prior to or on the date of this Agreement.
(b) As additional conditions precedent to the disbursement of all Loans
(including the initial Loans hereunder), at and as of the date of such
disbursement:
(i) The representations and warranties of the Borrowers contained in
the Loan Documents shall be accurate and complete in all material respects
on and as of the date of such disbursement as if made on and as of such
date.
(ii) No Potential Default or Event of Default shall have occurred
and be continuing.
(iii) Following the funding of the requested Loan, the aggregate
principal amount of Loans outstanding hereunder shall not exceed the
limitations set forth in Sections 2.1 and 2.8.
(iv) Since December 31, 1997, no material adverse change shall have
occurred in the business, financial condition or results of operations of
DFC and its Subsidiaries, taken as a whole.
26
<PAGE> 31
(v) The Agent shall have received such other documents or legal
opinions as the Agent or any Lender or special counsel to the Agent may
reasonably request, all in form and substance reasonably satisfactory to
the Agent.
By delivering a Notice of Borrowing to the Agent hereunder for any Loan, the
Borrowers shall be deemed to have represented and warranted the accuracy and
completeness of the statements set forth in subsections (i) through (iv) above
as of the date of such Loan.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
As an inducement to the Agent and each Lender to enter into this
Agreement and to make Loans as provided herein, each of the Borrowers represents
and warrants to the Agent and each Lender that:
SECTION 4.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW AND
CONTRACTUAL OBLIGATIONS.
Each Borrower (a) is duly organized, validly existing and in good
standing as a corporation under the laws of the Commonwealth of Puerto Rico and
in each jurisdiction where its ownership of property or conduct of business
requires such qualification, except where the failure to be so qualified would
not have a Material Adverse Effect; (b) has the corporate power and authority
and the legal right to own and operate its property and to conduct business in
the manner in which it does and proposes so to do; and (c) is not in violation
of any Requirement of Law or any Contractual Obligation if such violation could
have a Material Adverse Effect.
SECTION 4.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Each Borrower has the corporate power and authority to execute,
deliver and perform the Loan Documents to which it is a party and has taken all
necessary corporate action to authorize the execution, delivery and performance
of such Loan Documents. Such Loan Documents have been duly executed and
delivered on behalf of such Borrower and constitute legal, valid and binding
obligations of such Borrower enforceable against it in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally and by general principles of equity.
SECTION 4.3 NO LEGAL OR CONTRACTUAL BAR.
The execution, delivery and performance of the Loan Documents,
including the creation and perfection of the security interests contemplated
hereunder and thereunder, the borrowings of Loans hereunder and the use of the
proceeds thereof, do not and will not (a) violate any Requirement of Law or any
Contractual Obligation of either Borrower or any of its Subsidiaries,
27
<PAGE> 32
(b) except as contemplated by this Agreement and the Security Agreement, require
any license, consent, authorization, approval or any other action by, or any
notice to or filing or registration with, any Governmental Authority or any
other Person or (c) result in the creation or imposition of any Lien on any
asset of either Borrower or any of its Subsidiaries except as contemplated by
the Loan Documents.
SECTION 4.4 FINANCIAL INFORMATION.
(a) The consolidated balance sheet of DFC and its consolidated
Subsidiaries as at December 31, 1997 and the related consolidated statements of
income, retained earnings and cash flows for the fiscal year then ended,
including in each case the related schedules and notes, reported on by Price
Waterhouse, true copies of which have been previously delivered to each of the
Lenders, are complete and correct and fairly present the consolidated financial
condition of DFC and its consolidated Subsidiaries as at the date thereof and
the consolidated results of operations and cash flows for such period, in
accordance with GAAP applied on a consistent basis.
(b) The unaudited consolidated and consolidating balance sheet of each
Borrower and its consolidated Subsidiaries as at June 30, 1997, and the related
unaudited combined statements of income, retained earnings and cash flows for
the six months then ended, certified by the chief financial officer of DFC, true
copies of which have been previously delivered to each of the Lenders, are
complete and correct and fairly present the consolidated and consolidating
financial condition of DFC and its consolidated Subsidiaries as at the date
thereof and the consolidated and consolidating results of operations and cash
flows for such period in conformity with GAAP applied on a basis consistent with
the financial statements referred to in subsection (a) of this Section 4.4,
subject to normal year-end audit adjustments.
(c) Except for Indebtedness created by this Agreement, neither Borrower
has any material liability of any kind, whether accrued, contingent, absolute,
determined, determinable or otherwise, and no condition, situation or set of
circumstances exists that could be reasonably expected to result in such a
liability, in each case that is not reflected in the financial statements
referred to in Section 4.4(b) or in the most recent financial statements
delivered to the Agent and the Lenders pursuant to Section 5.1(a)(i) or (ii)
(other than liabilities permitted hereunder and incurred after the date of such
most recent financial statements and to be reflected in the next financial
statements to be delivered to the Agent and the Lenders pursuant to Section 5.1
(a)(i) or (ii)).
(d) Since December 31, 1997, no material adverse change has occurred in
the business, financial condition or results of operations of DFC and its
Subsidiaries, taken as a whole.
SECTION 4.5 NO MATERIAL LITIGATION.
Except as set forth on Exhibit I, no litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of either Borrower, threatened by or against such Borrower or
any of its Subsidiaries, or against any of such Borrower's
28
<PAGE> 33
or any such Subsidiary's properties or revenues that, if adversely determined,
could alone, or with any other litigation, investigation or proceeding, affect
the business, financial condition or results of operations of such Borrower and
its Subsidiaries, taken as a whole, in excess of a Material Amount or could have
a Material Adverse Effect.
SECTION 4.6 TAXES.
Each Borrower and each of its Subsidiaries have filed or caused to
be filed all tax returns that are required to be filed and have paid all taxes
shown to be due and payable on such returns or on any assessments made against
them or any of their property other than taxes and assessments that are being
contested in good faith by appropriate proceedings and as to which such Borrower
or such Subsidiary has established adequate reserves in conformance with GAAP.
SECTION 4.7 INVESTMENT COMPANY ACT.
Neither Borrower is an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
SECTION 4.8 SUBSIDIARIES.
DFC has no Subsidiaries as of the date of this Agreement other than
DMC, Doral Bank, Centro Hipotecario de Puerto Rico, Inc., First Florida Realty
Corporation and Doral Securities. DFC owns, directly or through another
Subsidiary, one hundred percent (100%) of the stock of each such Subsidiary, and
all of the stock of each such Subsidiary has been duly issued and is fully paid
and nonassessable. DMC has no Subsidiaries as of the date of this Agreement.
SECTION 4.9 USE OF PROCEEDS.
The proceeds of all Loans shall be used by the Borrowers solely for
the purpose of financing the Borrowers' servicing portfolios and the purchase of
servicing portfolios and for general working capital purposes.
SECTION 4.10 ERISA.
(a) No Prohibited Transactions, Accumulated Funding Deficiencies,
withdrawals from Multi employer Plans or Reportable Events have occurred with
respect to any Plans or Multiemployer Plans that, in the aggregate, could
subject either Borrower or any of such Borrower's Subsidiaries to any material
tax, penalty or other liability where such tax, penalty or liability is not
covered in full, for the benefit of such Borrower or such Subsidiary, by
insurance; (b) no notice of intent to terminate a Plan has been filed, nor has
any Plan been terminated under Section 4041 of ERISA, nor has the PBGC
instituted proceedings to terminate, or appoint a trustee to administer, a Plan
and no event has occurred or condition exists that might constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan; (c) the
29
<PAGE> 34
present value of all benefits liabilities (as defined in Section 4001(a)(16) of
ERISA) under all Plans (based on the actuarial assumptions used to fund the
Plans) does not exceed the assets of the Plans; and (d) the execution, delivery
and performance by Borrowers of the Loan Documents and the borrowing of the
Loans hereunder and the use of the proceeds thereof will not involve any
Prohibited Transaction.
SECTION 4.11 SECURITY INTERESTS.
The security interests created in favor of the Secured Parties under
the Security Agreement constitute valid and perfected first priority security
interests in the Collateral, and the Collateral is not and will not be subject
to any other Liens except as permitted by Section 5.2(a).
SECTION 4.12 AGENCY APPROVALS.
Each Borrower is a FHLMC approved Seller/Servicer, a HUD Direct
Endorsement Lender and a VA approved Lender in good standing, and DFC is also a
FNMA approved Seller/Servicer and a GNMA approved Issuer/Servicer.
SECTION 4.13 SOLVENCY.
Each Borrower is able to pay its debts as they mature. The aggregate
estimated fair market value of each Borrower's assets is greater than such
Borrower's liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities and any and all Obligations hereunder). Each Borrower
has capital sufficient to carry on the business and transactions in which it is
engaged and all business and transactions in which it is about to engage.
SECTION 4.14 PLEDGED SERVICING PORTFOLIO
As of the date of this Agreement, the Mortgage Loans in the Pledged
Servicing Portfolio have an aggregate outstanding principal balance of not less
than $3,500,000,000.
SECTION 4.15 YEAR 2000 ISSUE
Each Borrower and its Subsidiaries have reviewed the effect of the
Year 2000 Issue on the computer software, hardware and firmware systems and
equipment containing embedded microchips owned or operated by or for such
Borrower and its Subsidiaries or used or relied upon in the conduct of their
business (including systems and equipment supplied by others or with which such
computer systems of such Borrower and its Subsidiaries interface). The costs to
such Borrower and its Subsidiaries of any reprogramming required as a result of
the Year 2000 Issue to permit the proper functioning of such systems and
equipment and the proper processing of data, and the testing of such
reprogramming, and of the reasonably foreseeable consequences of the Year 2000
Issue to such Borrower or any of its Subsidiaries (including reprogramming
errors and the failure of systems or equipment supplied by others) are not
reasonably expected to
30
<PAGE> 35
result in a Potential Default or Event of Default or to have a material adverse
effect on the business, assets, operations, prospects or condition (financial or
otherwise) of such Borrower or any of its Subsidiaries.
ARTICLE 5
COVENANTS
SECTION 5.1 AFFIRMATIVE COVENANTS.
Each Borrower hereby covenants and agrees that, as long as any
Obligations remain unpaid or any Lender has any Commitment hereunder, the
Borrowers shall:
(a) Reports to Agent. Furnish or cause to be furnished to the Agent (with
sufficient numbers of copies for each Lender which the Agent shall forward to
each Lender within a reasonable time after receipt thereof):
(i) Annual Financial Statements. As soon as available and in any
event within ninety (90) days after the end of each fiscal year of DFC, a
consolidated balance sheet of DFC and its consolidated Subsidiaries as at
the end of such year and the related consolidated statements of income,
retained earnings and cash flows of DFC and its consolidated Subsidiaries
for such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and
accompanied by a report thereon of Price Waterhouse or other independent
public accountants of comparable recognized national standing, which
report shall be unqualified as to scope of audit and shall state that such
financial statements present fairly the consolidated financial condition
as at the end of such fiscal year, and the consolidated results of
operations and cash flows for such fiscal year, of DFC and its
consolidated Subsidiaries in accordance with GAAP consistently applied;
(ii) Quarterly Financial Statements. As soon as available and in any
event within forty-five (45) days after the end of each fiscal quarter of
DFC, a consolidated and consolidating balance sheet of DFC and its
consolidated Subsidiaries as at the end of such fiscal quarter and the
related consolidated and consolidating statements of income, retained
earnings and cash flows of DFC and its consolidated Subsidiaries for such
fiscal quarter, setting forth in each case in comparative form the figures
for the previous fiscal quarter, all in reasonable detail and certified by
the chief financial officer of DFC that they present fairly the
consolidated and consolidating financial condition as at the end of such
fiscal quarter, and the consolidated and consolidating results of
operations and cash flows for such fiscal quarter, of DFC and its
consolidated Subsidiaries in accordance with GAAP consistently applied,
subject to normal year-end adjustments;
31
<PAGE> 36
(iii) Monthly Financial Statements. Upon thirty (30) days' notice
from the Agent (such notice to be given no earlier than the first day of a
month to receive a statement for the previous month), a consolidated and
consolidating balance sheet of DFC and its consolidated Subsidiaries as at
the end of the previous month and the related consolidated and
consolidating statements of income and retained earnings of DFC and its
consolidated Subsidiaries for such month setting forth in each case in
comparative form the figures for the previous month, all in reasonable
detail and certified by the chief financial officer of DFC that they are
complete and correct and that they present fairly the consolidated and
consolidating financial condition as at the end of such month, and the
consolidated and consolidating results of operations for such month and
such portion of the fiscal year, of DFC and its consolidated Subsidiaries
in accordance with GAAP consistently applied (subject to normal year-end
adjustments);
(iv) No Default/Compliance Certificate. Together with the financial
statements required pursuant to subsections (i) and (ii) above, a
certificate of the chief financial officer of DFC (A) to the effect that,
based upon a review of the activities of DFC and its Subsidiaries and such
financial statements during the period covered thereby, no Event of
Default or Potential Default exists, or if an Event of Default or a
Potential Default exists, specifying the nature thereof and the Borrowers'
proposed response thereto, and (B) demonstrating in reasonable detail
compliance with Section 5.3 as at the end of such fiscal year or such
fiscal quarter, as applicable;
(v) Audit Reports. Upon request by the Agent, copies of each HUD
Single Family Audit Report and FNMA and FHLMC audit reports on each
Borrower and its operations;
(vi) Notice of Default or Misrepresentation. (a) Promptly after
obtaining knowledge of the occurrence of an Event of Default or a
Potential Default, a certificate of the chief financial officer of DFC
specifying the nature thereof and DFC's or DFC's proposed response thereto
and (b) at any time that any representation, warranty or other information
contained in any statement or certificate required to be delivered
hereunder or any representation or warranty deemed to have been made
hereunder shall prove to be false or misleading in any material way,
promptly after obtaining knowledge thereof give notice thereof to the
Agent describing how such representation, warranty or information is
misleading.
(vii) Litigation. Promptly after the occurrence thereof, notice of
the institution of or any material adverse development in any action, suit
or proceeding or any governmental investigation or any arbitration, before
any court or arbitrator or any governmental or administrative body, agency
or official, against either Borrower or any material property of any
thereof, in each case if such action, suit, proceeding, investigation or
arbitration could result in a liability to the Borrowers in excess of the
Material Amount;
32
<PAGE> 37
(viii) ERISA. In connection with ERISA:
(A) Promptly and in any event within ten (10) Business Days
after either Borrower knows or has reason to know of the occurrence of a
Reportable Event with respect to a Plan with regard to which notice must
be provided to the PBGC, a copy of such materials required to be filed
with the PBGC with respect to such Reportable Event and in each such case
a statement of the chief financial officer of such Borrower setting forth
details as to such Reportable Event and the action that such Borrower
proposes to take with respect thereto;
(B) Promptly and in any event within ten (10) Business Days
after either Borrower knows or has reason to know of any condition
existing with respect to a Plan that presents a material risk of
termination of such Plan, imposition of an excise tax, requirement to
provide security to such Plan or occurrence of other liability by the
applicable Borrower or any ERISA Affiliate, a statement of the chief
financial officer of the applicable Borrower describing such condition;
(C) At least ten (10) Business Days prior to the filing by any
plan administrator of a Plan of a notice of intent to terminate such Plan,
a copy of such notice;
(D) Promptly and in no event more than ten (10) Business Days
after the filing thereof with the Secretary of the Treasury, a copy of any
application by either Borrower or an ERISA Affiliate for a waiver of the
minimum funding standard under section 412 of the Code;
(E) Upon request by the Agent from time to time, copies of
each annual report that is filed on Internal Revenue Service Form 5500,
together with certified financial statements for any Plan (if any) as of
the end of such year and actuarial statements on Schedule B to such Form
5500;
(F) Promptly and in any event within ten (10) Business Days
after it knows or has reason to know of any event or condition that might
constitute grounds under section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Plan, a statement of the
chief financial officer of the applicable Borrower describing such event
or condition;
(G) Promptly and in no event more than ten (10) Business Days
after receipt thereof by either Borrower or any ERISA Affiliate, a copy of
each notice received by such Borrower or an ERISA Affiliate concerning the
imposition of any withdrawal liability under section 4202 of ERISA; and
(H) Promptly after receipt thereof a copy of any notice either
Borrower or any ERISA Affiliate may receive from the PBGC or the Internal
Revenue Service with
33
<PAGE> 38
respect to any Plan or Multiemployer Plan; provided that this subparagraph
(H) shall not apply to notices of general application promulgated by the
PBGC or the Internal Revenue Service;
(ix) Servicing Reports.
(A) As soon as available and in any event no later than thirty
(30) days after the end of each six-month period ended June 30 and
December 31 of each year, commencing with the six-month period ending June
30, 1998, a Pledged Servicing Portfolio Report dated as of the last day of
such six-month period;
(B) As soon as available and in any event no later than
forty-five (45) days after the date of the initial disbursement of the
Loans, a Pledged Servicing Valuation Report, dated as of a recent date;
(C) As soon as available and in any event no later than
forty-five (45) days after the end of each six-month period ended June 30
and December 31 of each year, commencing with the six-month period ending
June 30, 1998, a Pledged Servicing Valuation Report, dated as of the last
day of each such six-month period; provided, that the Agent shall have the
right to request additional Pledged Servicing Valuation Reports at such
times as it deems necessary or desirable, which reports shall be prepared
at the expense of the Lenders;
(D) As soon as available and in any event no later than thirty
(30) days after the end of each quarterly period ended March 31, June 30,
September 30 and December 31 of each year, commencing with the quarterly
period ending June 30, 1998, a Recourse Servicing Portfolio Report dated
as of the last day of such quarterly period; and
(E) Promptly upon the request of the Agent, a schedule of
servicing rights then included in the Pledged Servicing Portfolio,
including the owner of such servicing rights and otherwise in form and
substance acceptable to the Agent; and
(x) Other Information. Promptly, such additional financial and other
information, including financial statements of the Borrowers or any of its
Subsidiaries, and such information regarding the Collateral as any Lender,
through the Agent, may from time to time reasonably request, including
such information as is necessary for any Lender to grant participations of
its interests in Loans hereunder or to enable another financial
institution to become a signatory hereto.
(b) Maintenance of Existence and Properties; Compliance with Laws;
Maintenance of Agency Status. (i) Except as provided in Section 5.2(e), preserve
and maintain, and cause each of its Subsidiaries to preserve and maintain, its
corporate existence and all rights, privileges, licenses, approvals, franchises,
properties and assets material to the normal conduct of its business; comply,
and cause each of its Subsidiaries to comply, in all material respects with all
Contractual Obligations
34
<PAGE> 39
and Requirements of Law, except when the failure to maintain the existence of
any such Subsidiary or to so comply would not have a Material Adverse Effect;
and (ii) except as permitted under Section 5.2(j), preserve and maintain at all
times its status as a FHLMC approved Seller/Servicer, a HUD Direct Endorsement
Lender and a VA approved Lender in good standing and, with respect to DFC, its
status as a FNMA approved Seller/Servicer and as a GNMA approved
Issuer/Servicer.
(c) Inspection of Property; Books and Records; Discussions. (i) Keep, and
cause each of its Subsidiaries to keep, proper books of record and account in
which full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and transactions in relation
to its business and activities, and, (ii) permit representatives of the Agent
and the Lenders (at no cost to such Borrower unless a Potential Default or an
Event of Default has occurred and is continuing) to visit and inspect any of its
properties and examine and make copies from any of its books and records during
normal business hours, upon reasonable advance notice and as often as may
reasonably be desired by the Agent, and to discuss the business, operations,
properties and financial and other condition of such Borrower and its
Subsidiaries with officers of such parties, and, with their independent
certified public accountants (if a representative of DFC or DMC shall have been
given the right upon reasonable notice to be present by phone or in person), and
with the consent of such Borrower, which consent shall not be unreasonably
withheld, with employees of the Borrowers.
(d) Insurance. Maintain or cause to be maintained with financially sound
and reputable insurers, insurance with respect to its properties and business,
and the properties and business of its Subsidiaries, against loss or damage of
the kinds customarily insured against by reputable companies in the same or
similar businesses, such insurance to be of such types and in such amounts (with
such deductible amounts) as is customary for such companies under similar
circumstances, including errors and omissions coverage and fidelity coverage in
form and substance acceptable under Agency guidelines, and furnish the Agent on
request evidence of all such insurance.
(e) Payment of Taxes and Claims, Etc. Pay, and cause each of its
Subsidiaries to pay, (i) all taxes, assessments and governmental charges imposed
upon it or upon its property, and (ii) all genuine claims (including claims for
labour, materials, supplies or services) that might, if unpaid, become a Lien
upon its property, unless, in each case, the validity or amount thereof is being
contested in good faith by appropriate proceedings and such Borrower or such
Subsidiary has maintained adequate reserves in accordance with GAAP with respect
thereto or has posted a bond in respect thereof satisfactory to the Required
Lenders.
(f) GNMA Acknowledgment Agreement. Obtain, execute and deliver an
Acknowledgment Agreement from GNMA relating to the acknowledgment of the Secured
Parties' security interest in the GNMA Servicing Portfolio, if and when
requested by the Administrative Agent in its sole discretion.
35
<PAGE> 40
(g) Further Documents. Execute and deliver or to cause to be executed and
delivered to the Agent or the Collateral Agent on behalf of the Lenders from
time to time such confirmatory or supplementary security agreements, financing
statements, reaffirmations and consents and such other documents, instruments or
agreements as the Agent may reasonably request, that are in the Agent's
reasonable judgment necessary or desirable to obtain for the Agent on behalf of
the Lenders the benefit of the Loan Documents and the Collateral.
(h) Recording. Cause each Power of Attorney to be "protocolized" under the
laws of Puerto Rico and filed in the Registry of Powers of Attorneys and Wills
and pay any and all fees and charges in connection therewith.
(i) Year 2000 Issue. Take, and shall cause each of its Subsidiaries to
take, all necessary action to complete in all materials respects by June 30,
1999, the reprogramming of computer software, hardware and firmware systems and
equipment containing embedded microchips owned or operated by or for such
Borrower and its Subsidiaries or used or relied upon in the conduct of their
business (including systems and equipment supplied by others or with which such
systems of such Borrower or any of its Subsidiaries interface) required as a
result of the Year 2000 Issue to permit the proper functioning of such computer
systems and other equipment and the testing of such systems and equipment, as so
reprogrammed. At the request of the Agent, such Borrower shall provide, and
shall cause each of its Subsidiaries to provide, to the Agent reasonable
assurance of its compliance with the preceding sentence.
SECTION 5.2 NEGATIVE COVENANTS OF EACH BORROWER.
Each Borrower hereby covenants and agrees that, as long as any
Obligations remain unpaid or any Lender has any Commitment hereunder, such
Borrower shall not, directly or indirectly:
(a) Liens. Create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Lien upon the
Collateral or the Servicing Portfolio now owned or hereafter acquired, except in
favor of the Secured Parties under the Security Agreement, other than:
(i) Liens or charges for current taxes, assessments or other
governmental charges that are not delinquent or which remain payable
without penalty;
(ii) Liens, deposits or pledges made to secure statutory
obligations, surety or appeal bonds, or bonds for the release of
attachments or for stay of execution, or to secure the performance of bids
and tenders or for purposes of like general nature in the ordinary course
of business of such Borrower or such Subsidiary;
(iii) the interests of FNMA and FHLMC with respect to the servicing
rights relating to the underlying Mortgage Loans in the Pledged Servicing
Portfolio as set forth in
36
<PAGE> 41
acknowledgment agreements with such Agencies and the interests of GNMA as
set forth in the GNMA Guide;
(iv) involuntary Liens relating to liabilities not in excess of
$100,000 in the aggregate for each Borrower; provided that such Borrower
or such Subsidiary is making a diligent effort to remove such Liens as
soon as practicable; and
(vi) a second priority Lien in favor of the Warehouse Secured
Parties under the Warehouse Servicing Security Agreement.
(b) Change of Business. Except as permitted under Section 5.2(e), engage
in any type of business that is unrelated to the mortgage banking and lending
business and the servicing of Mortgage Loans or any related financial service
business or permit any of DFC's Subsidiaries to engage in any type of business
other than financial services (including, without limitation, any activity
permitted for banks, savings associations, or savings and loan or bank holding
companies).
(c) Acquisitions. Except as permitted under Section 5.2(e), purchase or
acquire, or permit any of its Subsidiaries to purchase or acquire, or incur
liability for the purchase or acquisition of, or permit any of its Subsidiaries
or to incur liability for the purchase or acquisition of, any or all of the
assets or business of any Person (whether such purchase or acquisition shall be
by means of merger, stock purchase, asset purchase or otherwise) other than (i)
purchases and acquisitions in the ordinary course of business as currently
conducted and (ii) other purchases and acquisitions relating to the mortgage
banking and lending business and the servicing of Mortgage Loans or other
financial services (including, without limitation, any activity permitted for
banks, savings associations, or savings and loan or bank holding companies).
(d) Transactions with Affiliates. Enter into, or permit any of its
Subsidiaries directly or indirectly to enter into, any transaction (including
the purchase, sale, lease or exchange of any property, the making or borrowing
of any loan or the rendering of any service) with any Affiliate on terms that
are less favorable to such Borrower or such Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates, other than the
existing Master Purchase, Servicing and Collections Agreement dated as of
September 15, 1993 with Doral Bank, the Amended and Restated Master Production
Agreement among DFC, DMC and Doral Bank dated as of October 1, 1995, as amended
by the First Amendment to Master Production Agreement, dated as of March 1, 1996
and the Master Servicing and Collection Agreement between DFC and Doral Bank,
dated as of October 1, 1995, as amended by the First Amendment to Master
Servicing and Collection Agreement, dated as of March 1, 1996, each as in effect
on such respective date.
(e) Consolidation, Merger, Sale of Assets, Etc. (i) Enter into any merger,
consolidation or amalgamation, including any such transaction with a regulated
banking entity or that results in either Borrower becoming a Subsidiary of a
regulated banking entity (other than of DFC), or (ii) liquidate, wind-up or
dissolve itself (or suffer or permit any of the foregoing to occur) or (iii)
sell, lease, assign, transfer or otherwise dispose of, or permit any of its
Subsidiaries to sell,
37
<PAGE> 42
lease, assign, transfer or otherwise dispose of, more than twenty-five percent
(25%) of its assets based on the book value of all such assets as set forth in
the last audited financial statement of such Borrower whether now owned or
hereafter acquired, except that the following shall be permitted so long as no
Potential Default or an Event of Default has occurred and is continuing or would
result therefrom:
(A) the Borrowers may merge or consolidate with another Person
where DFC is the surviving entity;
(B) the Borrowers may sell assets in the ordinary course of
business at fair market value (it being expressly agreed and understood
that the sale or other disposition of Mortgage-Backed Securities and of
Mortgage Loans with or without servicing released is in the ordinary
course of business and that, subject to Section 2.8, the Borrowers may
sell all or a portion of their servicing rights to the extent and in the
manner permitted by Sections 5.2(d) and (g) and the Security Agreement).
Notwithstanding the foregoing, DMC may be merged into, become consolidated
with or become a Subsidiary of any Person (other than DFC) that is a
regulated banking entity so long as (x) DFC (I) becomes the sole borrower
under the Loan Documents and affirms the same pursuant to documentation
reasonably satisfactory to Lenders and Agent and (II) satisfies all the
representations, warranties and covenants hereunder, including the
financial covenants, without DMC being included in its consolidated and
consolidating financial statements; (y) no Potential Default
or Event of Default exists at the time of such event and after giving
effect thereto; and (z) such event does not have a Material Adverse
Effect; and
(C) the Borrowers may sell all of the outstanding stock or
assets of Centro Hipotecario de Puerto Rico, Inc.
(f) ERISA. Take, or permit any of its Subsidiaries to take, any of the
following actions:
(i) Terminate or withdraw from any Plan so as to result in any
material liability to the PBGC;
(ii) Engage in or permit any Person to engage in any Prohibited
Transaction involving any Plan that would subject such Borrower or any of
its Subsidiaries to any material tax, penalty or other liability;
(iii) Incur or suffer to exist any material Accumulated Funding
Deficiency, whether or not waived, involving any Plan;
(iv) Allow or suffer to exist any event or condition that presents a
risk of incurring a material liability to the PBGC;
38
<PAGE> 43
(v) Amend any Plan so as to require the posting of security under
section 401(a)(29) of the Code; or
(vi) Fail to make payments required under section 412(m) of the Code
and section 302(e) of ERISA that would subject such Borrower or any of its
Subsidiaries to any material tax, penalty or other liability.
(g) Transfer to Affiliates. Subject to the proviso in subsection (e)
above, sell, assign or otherwise transfer any of its assets to any Affiliate of
a Borrower without the prior written consent of the Required Lenders, or permit
any of its Subsidiaries to sell, assign or otherwise transfer any of their
respective assets, to any Affiliate of a Borrower without the prior written
consent of the Required Lenders other than inter-company dividends to Borrowers
or Borrowers' Subsidiaries; provided that (I) any Subsidiary of a Borrower may,
subject to subsection (e) above, sell, assign or otherwise transfer any of their
respective assets to such Borrower, (II) DMC may, subject to subsection (e)
above, sell, assign or otherwise transfer its assets to DFC and (III) DFC may
make capital investments in its Subsidiaries.
(h) Subsidiaries. Form or cause to be formed after the date hereof any
Subsidiaries of the Borrowers without prior notice to the Agent.
(i) Margin Regulations. Use any or all of the proceeds of any Loan (i) to
purchase or carry Margin Stock or extend credit to others for the purpose of
purchasing or carrying Margin Stock or (ii) in any manner that will violate or
be inconsistent with the provisions of Regulation G, T, U or X of the Board.
(j) Agency Approvals. Fail to maintain the Agency approvals described in
Section 4.12 as a result of a change in business plan of the Borrower without
the prior consent thereto of the Agent and Lenders, which consent shall not be
unreasonably withheld as long as no Material Adverse Effect would result
therefrom.
(k) Recourse Obligations. In the case of DFC, without the prior written
consent of the Agent, acting at the direction of the Required Lenders, enter
into any transaction whereby (i) DFC sells Mortgage-Backed Securities or
Mortgage Loans and remains obligated to repurchase (whether conditionally or
unconditionally) such Mortgage-Backed Securities or Mortgage Loans or has
retained other recourse obligations with respect thereto, or (ii) DFC assumes or
otherwise incurs recourse obligations with respect to Mortgage-Backed Securities
or Mortgage Loans included in its Servicing Portfolio, if, in either case, in
the reasonable judgment of the management of DFC, the aggregate obligations of
DFC in connection with such transaction and all previous transactions of the
type described in clauses (i) and (ii) above for which DFC is then obligated
could, if DFC is required to perform such obligations, result in a decrease in
DFC's Book Net Worth by a Material Amount.
39
<PAGE> 44
SECTION 5.3 ADDITIONAL NEGATIVE COVENANTS.
Each Borrower hereby covenants and agrees that, as long as any
Obligations remain unpaid or any Lender has any Commitment hereunder, such
Borrower shall not at any time, directly or indirectly:
(a) Total Liabilities. Permit DFC 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) to incur Total
Liabilities in excess of the sum of (i) one hundred percent (100%) of "Cash" or
"Cash equivalents"; (ii) ninety-five percent (95%) of the sum of (A) "Mortgage
Loans held for sale", (B) "Mortgage-backed securities held for trading" (but
excluding "interest only securities" included therein), and (C) "U.S. Treasury &
Other AAA Rated Investments that are held to maturity or available for sale";
(iii) ninety percent (90%) of "Accrued interest receivable"; (iv) eighty percent
(80%) of the sum of (A) "Mortgage-backed securities held to maturity", (B)
"Accounts receivable and mortgage servicing advances", and (C) "Mortgage-backed
securities available for sale"; (v) eighty percent (80%) of "prepaid and other
assets" (excluding investment in Subsidiaries); (vi) fifty percent (50%) of the
sum of (A) "Property, leasehold improvements and equipment" and (B) "Real estate
held for sale"; (vii) sixty-five percent (65%) of "interest only securities";
and (viii) one percent (1.0%) of the principal amount of Mortgage Loans owned by
Persons not affiliated with DFC or DMC or any of their Affiliates (unless
covered by a Permitted Affiliate Servicing Agreement) for which DFC or DMC owns
the direct servicing rights. All quoted terms used in the preceding sentence
shall have the same meanings, and shall continue to be calculated and classified
in the same manner, as the terms used in the balance sheet of DFC and its
consolidated Subsidiaries referred to in Section 4.4(a).
(b) Adjusted Tangible Net Worth. Permit Adjusted Tangible Net Worth at any
time to be less than $108,000,000.
(c) Book Net Worth. Permit Book Net Worth at any time to be less than
$126,000,000.
(d) Servicing Portfolio. Permit DFC on a consolidated basis (excluding any
Subsidiaries that are not primarily engaged in the business of mortgage banking
as reasonably determined by the Agent) to maintain a Servicing Portfolio of
Mortgage Loans with an aggregate outstanding principal balance of less than
$3,500,000,000 or such lesser amount as shall be agreed by the Lenders in their
sole discretion.
40
<PAGE> 45
ARTICLE 6
EVENTS OF DEFAULT
SECTION 6.1 EVENTS OF DEFAULT.
If one or more of the following events (each an "EVENT OF DEFAULT")
shall have occurred and be continuing:
(a) Payments. (i) The Borrowers shall fail to pay when due (whether at
scheduled maturity, upon mandatory repayment or otherwise) any principal of any
Note; or (ii) the Borrowers shall fail to pay within three (3) Business Days
after the due date thereof any interest on any Note or any other Obligation;
(b) Covenants Without Notice. The Borrowers shall fail to observe or
perform any covenant or agreement contained in Sections 5.1(b)(i), 5.1(f), 5.2
or 5.3; provided that any violation of Section 5.2(a) that is attributable to
the existence of an involuntary Lien on the Collateral (other than an
involuntary Lien expressly permitted by Section 5.2(a)) shall not constitute an
Event of Default until thirty (30) days after the imposition thereof if at all
times during such thirty (30) day period the Borrowers are making a diligent
effort by appropriate means to remove such Lien and the existence of such Lien
will not have a Material Adverse Effect);
(c) Covenants With Seven Business Day Grace Period. The Borrowers shall
fail to observe or perform any covenant or agreement contained in Sections
5.1(a), 5.1(b)(ii) or 5.1(c)(ii), and such failure shall remain unremedied for
seven (7) Business Days after oral notice thereof to an Authorized Officer
(which shall be confirmed in writing (which may be by facsimile) before the end
of such seven (7) Business Day period);
(d) Covenants With Thirty Day Grace Period. The Borrowers shall fail to
observe or perform any covenant or agreement contained in any Loan Document,
other than those referred to in Sections 6.1(a), (b) or (c), and, if capable of
being remedied, such failure shall remain unremedied for thirty (30) days after
the earlier of (i) either Borrower's obtaining knowledge thereof or (ii) notice
thereof shall have been given to an Authorized Officer by any Lender or the
Agent before the end of such thirty (30) day period); provided that if such
failure is capable of being remedied but only in a period of more than thirty
(30) days, then such failure shall not constitute an Event of Default until
sixty (60) days after the earlier of the above dates if each Borrower is making
a diligent effort by appropriate means to observe or perform such covenant and
there is otherwise no Material Adverse Effect as a result of such delay;
(e) Representations. Any representation, warranty or statement made or
deemed to be made by either Borrower or any of their respective officers under
or in connection with any Loan Document shall have been inaccurate, incomplete
or incorrect in any respect when made or deemed
41
<PAGE> 46
to be made and such inaccuracy, incompleteness or incorrectness could have a
Material Adverse Effect;
(f) Non-Payment of Other Indebtedness. Either Borrower shall fail to make
any payment of principal of or interest on any of its Indebtedness (other than
the Obligations) exceeding the Material Amount in the aggregate when due
(whether at stated maturity, by acceleration, on demand or otherwise) after
giving effect to any applicable grace period;
(g) Defaults Under Other Agreements. Either Borrower shall fail to observe
or perform any covenant or agreement contained in any agreement or instrument
relating to any of its Indebtedness (other than the Obligations) in excess of
the Material Amount in the aggregate within any applicable grace period, or any
other event shall occur if the effect of such failure or other event is to
accelerate, or to permit the holder of such Indebtedness or any other Person to
accelerate, the maturity of such Indebtedness; or any such Indebtedness shall be
required to be prepaid (other than by a regularly scheduled required prepayment)
in whole or in part prior to its stated maturity;
(h) Bankruptcy. Either Borrower shall commence a voluntary case concerning
itself under Title 11 of the United States Code entitled "Bankruptcy" as now or
hereafter in effect, or any successor thereto (the "BANKRUPTCY CODE"); or any
involuntary case is commenced against either Borrower and the petition is not
dismissed within sixty (60) days after commencement of the case; or a custodian
(as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or
any substantial part of the property of either Borrower; or either Borrower
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law or there is commenced against either Borrower any such proceeding that
remains undismissed for a period of sixty (60) days; or either Borrower is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or either Borrower shall fail
to pay, or shall state that it is unable to pay, or shall be unable to pay, its
debts generally as they become due; or either Borrower shall call a meeting of
its creditors with a view to arranging a composition or adjustment of its debts;
or either Borrower shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate action is
taken by either Borrower for the purpose of effecting any of the foregoing;
(i) Money Judgment. A judgment or order for the payment of money in excess
of the Material Amount shall be rendered against either Borrower and such
judgment or order shall continue unsatisfied (in the case of a money judgment)
and in effect for a period of thirty (30) days during which execution shall not
be effectively stayed or deferred (whether by action of a court, by agreement or
otherwise);
(j) ERISA. (i) Any Reportable Event or a Prohibited Transaction shall
occur with respect to any Plan; (ii) a notice of intent to terminate a Plan
under section 4041 of ERISA shall be filed; (iii) a notice shall be received by
the plan administrator of a Plan that the PBGC has instituted proceedings to
terminate a Plan or appoint a trustee to administer a Plan; (iv) any other event
or
42
<PAGE> 47
condition shall exist that might, in the opinion of the Required Lenders,
constitute grounds under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan; (v) the Borrowers or any ERISA
Affiliate shall withdraw from a Multiemployer Plan under circumstances that the
Required Lenders determine could have a material adverse effect on the financial
condition of either Borrower; and in case of the occurrence of any event or
condition described in clauses (i) through (v) above, such event or condition
together with all other such events or conditions, if any, could subject either
Borrower to any tax, penalty or other liabilities in the aggregate material in
relation to the business, operations, property or financial or other condition
of either Borrower;
(k) Loan Documents. Any of the Loan Documents shall cease for any reason
to be in full force and effect, a breach by the Borrowers under any of the
Acknowledgement Agreements shall occur, or any action shall be taken by any
Person to terminate, revoke or discontinue, or to assert the invalidity or
unenforceability of, any of the Loan Documents;
(l) Security Interests. The Secured Parties shall cease for any reason to
have a valid, perfected, first priority security interest in the Collateral, or
any Person shall take any action to discontinue or to assert the invalidity or
unenforceability of such security interest; or
(m) Warehouse Event of Default. A Warehouse Event of Default shall occur;
THEN, the Agent shall notify the Lenders of such Event of Default and may, and
upon the written request of the Required Lenders, shall, by written notice to
the Borrowers, take any or all of the following actions: (A) declare the
Commitments terminated, whereupon the Commitment of each Lender shall terminate
immediately without any other notice of any kind; and (B) declare the principal
of and any accrued interest on the Loans, and all other Obligations to be,
whereupon the same shall become, forthwith due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrowers; provided that, if an Event of Default specified in Section 6.1(h)
shall occur, the Commitments shall terminate and all Obligations shall become
immediately due and payable automatically without the giving of any such notice
and without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrowers.
ARTICLE 7
THE AGENT
SECTION 7.1 APPOINTMENT OF AGENT.
Each Lender hereby designates Bankers Trust Company as Agent to act
as herein specified. Each Lender hereby irrevocably authorizes, and each holder
of any Note by the acceptance of a Note shall be deemed irrevocably to
authorize, the Agent to take such action on its behalf under the provisions of
this Agreement and the other Loan Documents and any other
43
<PAGE> 48
instruments and agreements referred to herein or therein and to exercise such
powers and to perform such duties hereunder or thereunder as are specifically
delegated to or required of the Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The Agent may perform any of
its duties hereunder or thereunder by or through its agents or employees.
SECTION 7.2 NATURE OF DUTIES OF AGENT.
The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and the other Loan Documents. Neither the
Agent nor any of its officers, directors, employees or agents shall be liable
for any action taken or omitted hereunder or thereunder or in connection
herewith or therewith, unless caused by its or their gross negligence or willful
misconduct. The duties of the Agent shall be mechanical and administrative in
nature; the Agent shall not have by reason of this Agreement or any other Loan
Document a fiduciary relationship in respect of any Lender; and nothing in this
Agreement or any other Loan Document, express or implied, is intended to or
shall be so construed as to impose upon the Agent any obligations in respect of
this Agreement or any other Loan Document except as expressly set forth herein
or therein.
SECTION 7.3 LACK OF RELIANCE ON AGENT.
(a) Independently and without reliance upon the Agent, each Lender, to the
extent it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of each
Borrower and its Affiliates in connection with the taking or not taking of any
action in connection herewith and (ii) its own appraisal of the creditworthiness
of each Borrower and its Affiliates, and, except as expressly provided in this
Agreement, the Agent shall have no duty or responsibility, either initially or
on a continuing basis, to provide any Lender with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter.
(b) The Agent shall not be responsible to any Lender for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection with this
Agreement or any other Loan Document or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility, priority or sufficiency
of this Agreement or any other Loan Document or for the sufficiency of the
Collateral or the validity, perfection or priority of any security interest in
the Collateral or the financial condition of each Borrower or its Affiliates or
be required to make any inquiry concerning either the performance or observance
of any of the terms, provisions or conditions of this Agreement or any other
Loan Document, or the financial condition of each Borrower or its Affiliates, or
the existence or possible existence of any Potential Default or Event of
Default.
44
<PAGE> 49
SECTION 7.4 CERTAIN RIGHTS OF AGENT.
If the Agent shall request instructions from the Required Lenders
with respect to any act or action (including the failure to act) in connection
with this Agreement or any other Loan Document, the Agent shall be entitled to
refrain from such act or taking such action unless and until the Agent shall
have received instructions from the Required Lenders; and the Agent shall not
incur liability to any Lender by reason of so refraining. Without limiting the
foregoing, no Lender shall have any right of action whatsoever against the Agent
as a result of the Agent acting or refraining from acting hereunder or under any
other Loan Document in accordance with the instructions of the Required Lenders.
The provisions of this Section 7.4 are not intended to supersede the provisions
of Section 8.2 that require all of the Lenders to approve certain actions under
the Loan Documents.
SECTION 7.5 RELIANCE BY AGENT.
The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any notice, believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person. The Agent may consult with legal
counsel (including with the consent of DFC, which consent shall not be
unreasonably withheld, counsel for DFC or DMC), independent public accountants
(including those retained by DFC or DMC if a representative of DFC or DMC, as
applicable, shall have been given the right upon reasonable notice to be present
by phone or in person during such consultation) and other experts selected by it
and shall not be liable for any action taken or omitted to be taken by it in
good faith in accordance with the advice of such counsel, accountants or
experts.
SECTION 7.6 INDEMNIFICATION OF AGENT.
To the extent the Agent is not reimbursed and indemnified by DFC or
DMC, each Lender will reimburse and indemnify the Agent, in proportion to its
respective Commitment (before giving effect to any termination of the
Commitments pursuant to the terms of this Agreement), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including reasonable attorneys' fees and disbursements)
or disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in performing its duties hereunder and
under the other Loan Documents, in any way relating to or arising out of this
Agreement or the other Loan Documents; provided that no Lender shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
Agent's gross negligence or willful misconduct, as evidenced by a final judgment
of a court of competent jurisdiction.
SECTION 7.7 AGENT IN ITS INDIVIDUAL CAPACITY.
With respect to its obligation to lend under this Agreement, the
Loans made by it and the Notes issued to it, the Agent shall have the same
rights and powers hereunder as any other Lender or holder of a Note and may
exercise the same as though it were not performing the duties
45
<PAGE> 50
specified herein; and the terms "Lenders," "Required Lenders," "holders of
Notes" or any similar terms shall, unless the context clearly otherwise
indicates, include the Agent in its individual capacity. The Agent may accept
deposits from, lend money to, and generally engage in any kind of banking,
trust, financial advisory or other business with each Borrower or any Affiliate
of the Borrowers as if it were not performing the duties specified herein, and
may accept fees and other consideration from the Borrowers and any Affiliates of
the Borrowers for services in connection with this Agreement and the other Loan
Documents and otherwise without having to account for the same to the Lenders.
SECTION 7.8 HOLDERS OF NOTES.
The Agent may deem and treat the payee of any Note as the owner
thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof shall have been filed with the Agent. Any
request, authority or consent of any Person who, at the time of making such
request or giving such authority or consent, is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or notes issued in exchange therefor.
SECTION 7.9 SUCCESSOR AGENT.
(a) The Agent may resign as Agent hereunder at any time by giving written
notice thereof to the Lenders and the Borrowers if (i) it believes that its
duties hereunder present an actual or potential conflict of interest with any
other business of the Agent or (ii) it determines at any time that the
introduction of, or any change in, any applicable law, rule, regulation, order
or decree or in the interpretation or administration thereof by any Governmental
Authority charged with the interpretation or administration thereof, or
compliance by the Agent with any request or directive (whether or not having the
force of law) of any such Authority, shall make it unlawful or improper for the
Agent to continue as Agent hereunder. Upon any such resignation or any removal
of the Agent pursuant to Section 7.9(b), the Required Lenders shall have the
right, upon five (5) days' notice to the Borrowers, to appoint a successor
Agent, which shall be a Lender. If no successor Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within thirty (30) days after the retiring Agent's giving of notice of
resignation, then, upon five (5) days' notice to the Borrowers, the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a
bank which maintains an office in the United States, or a commercial bank
organized under the laws of the United States of America or of any State
thereof, or any Affiliate of such bank, having a combined capital and surplus of
at least $250,000,000.
(b) The Agent may be removed by the unanimous vote of all the Lenders
hereunder (not including the vote of the Agent if the Agent is also a Lender
hereunder) if (i) the Agent has engaged in willful misconduct with respect to
its obligations and duties hereunder as evidenced by a final judgment of a court
of competent jurisdiction and (ii) has failed to cure such willful misconduct
after sixty (60) days notice by the Lenders to the Agent of such willful
misconduct.
46
<PAGE> 51
(c) Any resignation or removal of the Agent hereunder shall be effective
only upon the acceptance of any appointment as Agent hereunder by a successor
Agent. Upon such acceptance, such successor Agent shall succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement and the other Loan Documents. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article VII shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
ARTICLE 8
MISCELLANEOUS PROVISIONS
SECTION 8.1 NOTICES.
(a) Except as otherwise expressly set forth herein, all notices, requests
and other communications to any party hereunder shall be in writing (including
telecopy or similar teletransmission or writing) and shall be given to such
party at its address or telecopy number set forth on Exhibit H hereto or such
other address or telecopy number as such party may hereafter specify by notice
to the Agent and the Borrowers. Each such notice, request or other communication
shall be effective (a) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified herein and the receipt thereof is confirmed by
the recipient or (b) if sent by overnight courier (with all charges paid)
providing for confirmation of delivery, then upon confirmation of delivery by
such courier; provided that notices to the Agent pursuant to Article II shall
not be effective until received.
(b) Any notice required to be given to one or more Borrowers hereunder or
under any other Loan Document shall be effective if delivered to either
Borrower, it being the intent that notice to either Borrower is effective notice
to the other Borrower. In connection therewith, each Borrower hereby irrevocably
appoints the other Borrower as its agent to receive any and all notices
hereunder or under any other Loan Document and such appointment is coupled with
an interest. In addition to the foregoing, the Agent and the Lenders shall be
entitled to, but shall not be required to, rely on notice from either Borrower
as constituting notice from both Borrowers.
SECTION 8.2 AMENDMENTS, ETC.
No amendment or waiver of any provision of any Loan Document, nor
consent to any departure by the Borrowers therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Borrowers and
the Required Lenders, and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided that (a) notwithstanding anything else contained herein, no
amendment, waiver or consent shall, unless in writing and signed by all the
Lenders, do any of the following: (i) waive or change Section 5.2(e) or any of
the conditions specified in Article III, (ii) increase the Commitments of the
Lenders or subject the Lenders to any additional obligations, (iii) reduce the
principal of, or
47
<PAGE> 52
interest on, the Notes, (iv) postpone any date fixed for any payment in respect
of principal of, or interest on, the Notes, or waive any Event of Default under
Section 6.1(a), (v) change the percentage of the Commitments, the definitions of
"Required Lenders," or "Collateral Value of the Pledged Servicing Portfolio" (or
any definitions contained in such definitions), or the number or identity of
Lenders that is required for any or all of the Lenders to take any action
hereunder, (vi) release the Lien of the Secured Parties on any of the
Collateral, except as provided in the Security Agreement or (vii) amend this
Section 8.2 or Section 8.6; and (b) no amendment, waiver or consent shall,
unless in writing and signed by the Agent, affect the rights or duties of the
Agent under this Agreement or any other Loan Document.
SECTION 8.3 NO WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of the Agent or any Lender in exercising
any right or remedy hereunder or under any other Loan Document and no course of
dealing between the Borrowers, on the one hand, and the Agent or any Lender, on
the other hand, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right or remedy hereunder or under any other Loan
Document preclude any other or further exercise thereof or the exercise of any
other right or remedy hereunder or thereunder. The rights and remedies expressly
provided herein and in the other Loan Documents are cumulative and not exclusive
of any rights or remedies that the Agent or any Lender would otherwise have. No
notice to or demand on the Borrowers not required hereunder or under the other
Loan Documents in any case shall entitle the Borrowers to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of the Agent or any Lender to any other or further action in any
circumstances without notice or demand.
SECTION 8.4 PAYMENT OF EXPENSES, ETC.
The Borrowers shall:
(a) (i) pay all reasonable out-of-pocket costs and expenses of the outside
legal counsel of the Agent in connection with the preparation, execution and
delivery of, this Agreement and the other Loan Documents, or any amendment,
modification or supplement hereof or thereof, and (ii) pay all reasonable
out-of-pocket costs and expenses of the Agent and each Lender in the
preservation of rights under, enforcement of, and, after the occurrence of a
Potential Default or an Event of Default, the refinancing, the renegotiating or
the restructuring of, this Agreement and the other Loan Documents and the
documents and instruments referred to herein and therein including in connection
with any bankruptcy, insolvency, liquidation, reorganization or similar
proceeding and any amendment, waiver or consent relating hereto and thereto
(including the reasonable fees and disbursements of counsel (including allocated
costs of internal counsel) for the Agent and, in the case of enforcement, for
each of the Lenders);
(b) pay and hold the Agent and each of the Lenders harmless from and
against any and all present and future stamp and other similar taxes with
respect to the foregoing matters and save
48
<PAGE> 53
the Agent and each Lender harmless from and against any and all liabilities with
respect to or resulting from any delay or omission to pay such taxes; and
(c) indemnify the Agent and each Lender, and their respective officers,
directors, employees, representatives and agents from, and hold each of them
harmless against, any and all out-of-pocket costs, losses, liabilities, claims,
damages or expenses actually incurred by any of them (whether or not any of them
is designated a party thereto) arising out of or by reason of any investigation,
litigation or other proceeding related to any actual or proposed use by the
Borrowers of the proceeds of any of the Loans or the Borrowers' entering into
and performing of the Loan Documents to which they are a party, including the
reasonable fees and disbursements of counsel (including allocated costs of
internal counsel) incurred in connection with any such investigation, litigation
or other proceeding; provided that neither the Agent nor any Lender shall have
the right to be indemnified hereunder for its own gross negligence or willful
misconduct as evidenced by a final judgment of a court of competent
jurisdiction. If and to the extent that the obligations of the Borrowers under
this Section 8.4 are unenforceable for any reason, the Borrowers hereby agrees
to make the maximum contribution to the payment and satisfaction of such
obligations that is permissible under applicable law.
SECTION 8.5 RIGHT OF SETOFF.
Subject to Section 2.16, in addition to and not in limitation of all
rights of offset that any Lender may have under applicable law, for so long as
any Event of Default has occurred and is continuing and whether or not any
Lender has made any demand or the Obligations have matured, such Lender shall
have the right to appropriate and apply to the payment of the Obligations all
deposits (general or special, time or demand, provisional or final) then or
thereafter held by, and other indebtedness or property then or thereafter owing
to the Borrowers by, such Lender, whether or not related to any Loan Document or
any transaction hereunder.
SECTION 8.6 BENEFIT OF AGREEMENT.
(a) This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the respective successors and assigns of the parties hereto;
provided that neither of the Borrowers may assign or transfer any of its
interest or delegate any of its obligations under the Loan Documents without the
prior written consent of the Lenders and any such assignment or transfer without
the prior written consent of the Lenders shall be null and void.
(b) Subject to the provisions of Section 2.13(c), any Lender may make,
carry or transfer Loans at, to or for the account of, any of its branch offices
or the office of an Affiliate of such Lender.
(c) Subject to the limitations set forth below, no Lender may assign its
rights or delegate its obligations under this Agreement and the other Loan
Documents to any other financial institution without the prior consent of the
Agent and the Borrowers (such consent not to be unreasonably
49
<PAGE> 54
withheld); provided that (i) no Lender may make an assignment hereunder to
a Person (other than an Affiliate of such Lender or an existing Lender) that is
not a financial institution, (ii) each assignment shall include a corresponding
portion of such Lender's Commitments, Loans, Warehouse Commitments and Warehouse
Loans, it being the intent of the Lenders that each Lender and each subsequent
Lender added hereunder by way of assignment or otherwise shall have and maintain
the same pro rata interest in all Commitments, Loans, Warehouse Commitments and
Warehouse Loans, and (iii) an assignment fee in the amount of $3,500 for each
assignment hereunder shall be payable to the Agent by the applicable assignee.
Any assignment or delegation specifically prohibited by the preceding sentence
shall be null and void. Notwithstanding the foregoing, any Lender may assign its
rights and delegate its obligations under this Agreement and the other Loan
Documents to any Affiliate of such Lender without notice to or consent by the
Borrowers, the Agent, or any other Person, provided the fee set forth in the
proviso to the immediately preceding sentence shall be paid. Each assignment by
a Lender hereunder shall be made pursuant to an Assignment and Acceptance in
substantially the form of Exhibit N hereto. In the case of an assignment by a
Lender, upon the effective date of such assignment as set forth in the
Assignment and Acceptance executed by such Lender, the assignee shall have, to
the extent of such assignment (unless otherwise provided thereby), the same
rights and benefits as it would have if it were a Lender under the Loan
Documents and the holder of a Note and, if the assignee has expressly assumed,
for the benefit of the Borrowers, the assignor Lender's obligations hereunder,
such assignor Lender shall be relieved of its obligations hereunder to the
extent of such assignment and assumption.
(d) Each Lender may transfer, grant or assign participations in all or any
part of such Lender's interests and obligations hereunder pursuant to this
Section to another financial institution, provided that (i) such Lender shall
remain a "Lender" for all purposes of this Agreement and the transferee of such
participation shall not constitute a Lender hereunder and (ii) no participant
under any such participation shall have rights to approve any amendment to or
waiver of this Agreement or any other Loan Document except to the extent such
amendment or waiver would (x) extend the final scheduled maturity of any of the
Loans or the Commitment in which such participant is participating, (y) reduce
the interest rate (other than as a result of waiving the applicability of any
post-default increases in interest rates) or Fees applicable to any of the Loans
or Commitments or postpone the payment of any thereof or (z) release any
collateral under the Security Agreement. In the case of any such participation,
the participant shall not have any rights under this Agreement or any of the
other Loan Documents (the participant's rights against the granting Lender in
respect of such participation to be those set forth in the agreement with such
Lender creating such participation) and all amounts payable by the Borrowers
hereunder shall be determined as if such Lender had not sold such participation,
provided that such participant shall be entitled to receive additional amounts
under Sections 2.13, 2.14 and 2.15 on the same basis as if it were a Lender.
(e) Any Lender may furnish any information concerning the Borrowers and
its Affiliates in the possession of such Lender from time to time to Affiliates,
participants and assignees, and prospective participants and assignees, of such
Lender. No Lender or its Affiliates may furnish such information to any
prospective assignee or participant without the prior written consent of DFC,
which consent will not be unreasonably withheld. Any prospective assignee or
participant shall be
50
<PAGE> 55
required to execute a confidentiality agreement in the form of Exhibit J before
receiving any such information.
(f) Any Lender may at any time pledge all or any portion of its rights
under the Loan Documents to a Federal Reserve Bank without notice to or consent
of either Borrower, the Agent or any other Lender. No such pledge shall release
the transferor Lender from its obligations hereunder.
SECTION 8.7 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(A) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
AND UNDER THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF
NEW YORK.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS TO WHICH EITHER BORROWER IS A PARTY MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY OR OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS HEREBY ACCEPTS FOR ITSELF AND
IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF
THE AFORESAID COURTS. THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY, AND, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE BORROWERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OR MAINTAINING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS.
(C) EACH OF THE BORROWERS IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE
SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO EACH SUCH BORROWER AT ITS SAID ADDRESS, SUCH SERVICE TO
BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. IN ADDITION, EACH BORROWER
HEREBY IRREVOCABLY APPOINTS CT CORPORATION, 1633 BROADWAY, NEW YORK, NEW YORK
10019 (THE "PROCESS AGENT") TO RECEIVE, FOR IT AND ON ITS BEHALF, SERVICE OF
PROCESS IN ANY PROCEEDINGS OR ACTIONS IN NEW YORK. IF FOR ANY REASON THE PROCESS
AGENT IS UNABLE TO ACT AS SUCH, EACH BORROWER WILL PROMPTLY NOTIFY THE AGENT AND
WITHIN THIRTY
51
<PAGE> 56
(30) DAYS APPOINT A SUBSTITUTE PROCESS AGENT ACCEPTABLE TO THE AGENT.
(D) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST
EITHER BORROWER IN ANY OTHER JURISDICTION.
(E) EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LEGAL ACTION OR PROCEEDING REFERRED TO IN THIS SECTION 8.7, ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES. THIS WAIVER IS MADE KNOWINGLY AND
VOLUNTARILY.
SECTION 8.8 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
SECTION 8.9 HEADINGS DESCRIPTIVE.
The headings of the several sections and subsections of this
Agreement, and the Table of Contents, are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
SECTION 8.10 SURVIVAL OF REPRESENTATIONS AND INDEMNITIES.
All covenants, agreements, representations and warranties made
herein and in any certificate delivered pursuant hereto shall survive the making
by the Lenders of the Loans and the execution and delivery to the Agent for the
account of the Lenders of the Notes regardless of any investigation made by the
Agent or the Lenders and of the Agent's and the Lender's access to any
information and shall continue in full force and effect so long as any
Obligation is outstanding and unpaid. The Borrowers' obligations under Sections
2.13, 2.14, 2.15 and 8.4 and under any other indemnification provisions of the
Loan Documents and each Lender's obligations under Sections 7.6 and 8.12 and
under any other indemnification provisions of the Loan Documents shall survive
the termination of this Agreement for any reason whatsoever and payment of the
Notes.
SECTION 8.11 SEVERABILITY.
In case any one or more of the provisions contained in this
Agreement or the Notes should be invalid, illegal or unenforceable in any
respect in any jurisdiction, the validity, legality and enforceability of such
provisions shall not be affected or impaired in any other jurisdiction, nor
52
<PAGE> 57
shall the remaining provisions contained herein and therein in any way be
affected or impaired thereby.
SECTION 8.12 INDEMNIFICATION OF COLLATERAL AGENT.
To the extent that the Collateral Agent is not reimbursed and
indemnified by the Borrowers pursuant to the Security Agreement, each Lender
will reimburse and indemnify the Collateral Agent, in proportion to its
respective Loans, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses (including
reasonable attorneys' fees and disbursements) or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by or asserted against the
Collateral Agent in performing its duties under the Loan Documents, in any way
relating to or arising out of the Loan Documents; provided that no Lender shall
be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Collateral Agent's gross negligence or willful misconduct as evidenced
by a final judgment of a court of competent jurisdiction. The Collateral Agent
shall be entitled to rely on the provisions of this Section 8.12 as if they were
a party to this Agreement.
SECTION 8.13 JOINT AND SEVERAL NATURE OF THE OBLIGATIONS.
The Borrowers agree that any and all of the Obligations of the
Borrowers hereunder and under each other Loan Document shall be the joint and
several obligation of each of them notwithstanding any absence herein or therein
of a reference such as "jointly and severally" with respect to any such
obligation.
SECTION 8.14 CERTAIN WAIVERS.
Each of the Borrowers agrees that its joint and several liability
under this Agreement and each of the other Loan Documents shall be absolute,
unconditional and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of the Obligations of
the other Borrower or any other Person under this Agreement or any other Loan
Document;
(b) the failure of any Lender:
(i) to assert any claim or demand or to enforce any right or remedy
against the other Borrower or any other Person (including any guarantor)
under the provisions of this Agreement or any other Loan Document or
otherwise, or
(ii) to exercise any right or remedy against any guarantor of, or
Collateral securing, any Obligations;
53
<PAGE> 58
(c) any change in the time, manner or place or payment of, or in any other
term of, all or any of the Obligations, or any other extension, compromise or
renewal of any Obligation with respect to the other Borrower or any other
Person;
(d) any reduction, limitation, impairment or termination of any of the
Obligations of the other Borrower or any other Person for any reason, including
any claim of waiver, release, surrender, alteration or compromise, and the
liability of each of the Borrowers shall not be subject to (and each of them
hereby waives any right to or claim of) any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality,
non-genuineness, irregularity, compromise, unenforceability of, or any other
event or occurrence affecting, any of the Obligations of the other Borrower or
any other Person;
(e) any rescission, waiver, amendment or other modification of, or any
consent to departure from, any of the Obligations of the other Borrower or any
other Person under the terms of this Agreement or any other Loan Document;
(f) any exchange, release or non-perfection of any Collateral, or any
release, amendment or waiver of, or consent to departure from, any guaranty or
other agreement from the other Borrower or any other Person, securing any of the
Obligations; or
(g) any other circumstances which might otherwise constitute a defense
available to, or a legal or equitable discharge of, the other Borrower or any
surety or any guarantor. Each of the Borrowers waives any right to require that
any resort be made by any Lender to any of the Collateral.
SECTION 8.15 SUBROGATION, ETC.
At any time that a payment is made by either Borrower with respect
to the Obligations, such Borrower shall have a right of contribution against the
other Borrower in the maximum amount permitted by applicable law, which right of
contribution shall be subject to adjustment at the time of any subsequent
payment with respect to the Obligations; provided, that the maximum aggregate
liability of either Borrower with respect to such contribution rights of the
other Borrower shall not exceed the maximum amount of liability that such first
Borrower can incur without rendering such contribution rights void or voidable
under applicable law relating to fraudulent conveyance or fraudulent transfers,
and not for any greater amount, and provided further, that neither Borrower will
exercise any such contribution rights or any other rights which it may acquire
by reason of any payment made hereunder, whether by way of rights of
subrogation, reimbursement or otherwise, until the prior payment, in full and in
cash, of all Obligations and the termination of all Commitments. Any amount paid
to either Borrower on account of any payment made hereunder prior to the payment
in full of all Obligations other than intercompany payments or reimbursements
made in the ordinary course of the businesses of each Borrower shall be held in
trust for the benefit of the Agent and the Lenders and shall immediately be paid
to the Agent and credited and applied against the Obligations, whether matured
or unmatured, in accordance with the terms of this Agreement and the other Loan
Documents. In furtherance of the foregoing, for so long
54
<PAGE> 59
as any Obligation or any Commitment remains outstanding, each Borrower shall
refrain from taking any action or commencing any proceeding against the other
Borrower (or its successors or assigns, whether in connection with a bankruptcy
proceeding or otherwise) to recover any amounts in respect of payments made
under this Agreement to the Agent and the Lenders.
SECTION 8.16 CONFIDENTIALITY.
Each Lender agrees not to disclose, without the prior written
consent of the Borrowers, any of the financial information or other information
of the Borrowers or any Affiliate of any of the Borrowers, designated in writing
by either Borrower as "confidential" and obtained under or in connection with
this Agreement or any of the other Loan Documents. Notwithstanding the
foregoing, each Lender may disclose such information: (a) as is permitted under
Section 8.6; (b) as is required by law or by subpoena or similar court order, or
by any governmental, regulatory or supervisory authority or official or as
otherwise required to be provided by the Lender in the ordinary course of its
business; (c) to counsel to such Lender in connection with the transactions
contemplated by this Agreement and the other Loan Documents; (d) to independent
auditors and other advisers retained by such Lender; and (e) to the Agent or the
Collateral Agent as contemplated by this Agreement and the other Loan Documents.
In addition, unless specifically prohibited by applicable law or court order,
each Lender shall, to the extent practical, notify the Borrowers of any subpoena
or similar court order or of any request by any governmental, regulatory or
supervising authority or official (other than any such request in connection
with an examination of the financial condition of such Lender by such authority)
for disclosure of any such information prior to disclosure of such information
so that the Borrowers may seek an appropriate protective order. Notwithstanding
the foregoing, the Lenders shall have no obligation to keep any such information
confidential if such information (i) becomes generally available to the public
other than as a result of the disclosure by any Lender in violation of this
Section 8.16, (ii) is available to any Lender on a non-confidential basis prior
to its disclosure to such Lender by the Borrower or, if applicable, by the
Lender from whom such Lender has purchased its participation or assignment, or
(iii) becomes available to any Lender on a non-confidential basis from a source
other than the Borrower or, if applicable, the Lender from whom such Lender has
purchased its participation or assignment; and any Lender may disclose any such
information in connection with any litigation to which such Lender is party
relating to this Agreement or any of the other Loan Documents.
SECTION 8.17 INTEGRATION
This Agreement and the other Loan Documents represent the entire
agreement of the Borrowers, the Agent and the Lenders with respect to the
subject matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to the subject
matter hereof or thereof not expressly set forth or referred to herein or in the
other Loan Documents.
SECTION 8.18 EFFECTIVENESS; INTERCREDITOR AGREEMENT.
55
<PAGE> 60
(a) This Agreement 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 the Agent:
(i) 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:
(A) this Agreement and the other Loan Documents, including an
additional Security Agreement in substantially the form of
Exhibit B hereto, duly executed and delivered by the parties
hereto and thereto, provided that the execution and delivery
of such Security Agreement shall not affect the Security
Agreement in effect as of the date of this Agreement, which
Security Agreement shall remain in full force and effect;
(B) 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 herein and
therein;
(C) 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, dated the
Amendment Effective Date; and
(D) such other documents, instruments and agreements, duly
executed, deemed necessary or appropriate by the Agent.
(ii) The Borrowers shall have paid all Fees and other Obligations
required to have been paid under the Original Credit Agreement, this
Agreement and the other Loan Documents prior to or on the Amendment
Effective Date.
(iii) All conditions precedent set forth in Section 3.1(b) shall
have been satisfied at and as of such date (both before and after
giving effect to this Agreement).
(iv) 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 Agreement 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.
56
<PAGE> 61
(b) If each of the above conditions has been satisfied, on the Amendment
Effective Date, (A) all Loans outstanding under the Original Credit Agreement
shall remain outstanding and shall be deemed to be Loans under this Agreement
governed by the terms hereof, and (B) the promissory notes delivered to the
lenders pursuant to the Original Credit Agreement shall become void. Upon
receiving the Notes delivered pursuant to subsection (a)(i) above, each Lender
that was a party to the Original Credit Agreement shall promptly cancel its
promissory note delivered under the Original Credit Agreement and return such
promissory note to the Borrowers. No failure of a Lender to cancel or return
such promissory note shall affect the validity of the new Notes delivered
hereunder.
(c) Each of the Agent, the Collateral Agent and the Lenders agrees that
the Intercreditor Agreement shall be terminated as of the Amendment Effective
Date without any further action by any party hereto or thereto.
57
<PAGE> 62
SECTION 8.19 RATIFICATION; NO NOVATION.
Except as set forth herein and therein, all Loan Documents,
including the Security Agreement, 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 and thereby. The parties do not intend for this
Agreement or any of the other Loan Documents to effect, nor does this Agreement
or any of the Loan Documents constitute, a novation of the obligations of the
Borrowers evidenced by the Original Credit Agreement and the Loan Documents
referred to therein. This Agreement and the other Loan Documents, other than the
Security Agreement to be delivered pursuant to Section 8.18(a)(i)(A), constitute
an amendment and restatement of the terms governing such obligations.
SECTION 8.20 WAIVER OF JURY TRIAL.
THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE
TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THE SUBJECT MATTER OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
DORAL FINANCIAL CORPORATION,
as a Borrower
By: /s/ Mario S. Levis
-----------------------------------------
Mario S. Levis
Executive Vice President and Treasurer
DORAL MORTGAGE CORPORATION,
as a Borrower
By: /s/ Mario S. Levis
-----------------------------------------
Mario S. Levis
Executive Vice President and Treasurer
58
<PAGE> 63
Commitment: $9,000,000 BANKERS TRUST COMPANY,
as Agent and as a Lender
By: /s/ Kevin M. McCann
--------------------------------------
Kevin M. McCann
Principal
Commitment: $9,000,000 FIRST UNION NATIONAL BANK,
as a Lender
By: /s/ R. Steven Hall
--------------------------------------
Name: R. Steven Hall
--------------------------------------
Title: Vice President
--------------------------------------
Commitment: $9,000,000 BANKBOSTON, N.A. (formerly known as The
Bank of Boston),
as a Lender
By: /s/ Paul Chmielinski
--------------------------------------
Name: Paul Chmielinski
--------------------------------------
Title: Vice President
--------------------------------------
Commitment: $9,000,000 THE BANK OF NEW YORK,
as a Lender
By: /s/ Robert A. Tweed
--------------------------------------
Name: Robert A. Tweed
--------------------------------------
Title: Vice President
--------------------------------------
Commitment: $9,000,000 NATIONAL CITY BANK OF KENTUCKY,
as a Lender
By: /s/ Robert J. Ogburn
--------------------------------------
Robert J. Ogburn
--------------------------------------
Vice President
--------------------------------------
59
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DORAL FINANCIAL CORPORATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998, AND IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,711
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 148,935
<TRADING-ASSETS> 692,405
<INVESTMENTS-HELD-FOR-SALE> 490,641
<INVESTMENTS-CARRYING> 130,764
<INVESTMENTS-MARKET> 133,078
<LOANS> 870,521
<ALLOWANCE> 3,095
<TOTAL-ASSETS> 2,715,539
<DEPOSITS> 410,772
<SHORT-TERM> 1,546,502
<LIABILITIES-OTHER> 274,044
<LONG-TERM> 224,839
0
8
<COMMON> 40,485
<OTHER-SE> 218,889
<TOTAL-LIABILITIES-AND-EQUITY> 2,715,539
<INTEREST-LOAN> 30,985
<INTEREST-INVEST> 66,844
<INTEREST-OTHER> 6,734
<INTEREST-TOTAL> 104,563
<INTEREST-DEPOSIT> 12,032
<INTEREST-EXPENSE> 68,336
<INTEREST-INCOME-NET> 24,195
<LOAN-LOSSES> 474
<SECURITIES-GAINS> 39,709
<EXPENSE-OTHER> 40,129
<INCOME-PRETAX> 42,801
<INCOME-PRE-EXTRAORDINARY> 42,801
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,978
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.91
<YIELD-ACTUAL> 1.45
<LOANS-NON> 3,446
<LOANS-PAST> 55,858
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,432
<ALLOWANCE-OPEN> 1,241
<CHARGE-OFFS> 29
<RECOVERIES> 93
<ALLOWANCE-CLOSE> 1,357
<ALLOWANCE-DOMESTIC> 474
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
