U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
Commission file number 0-5559
FIRST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-1502313
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Washington Avenue, Waco, Texas 76701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(817) 757-2424
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 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 .
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
Common Stock, No Par Value 173,528
(Class) (Outstanding at
November 15, 1996)
FORM 10-QSB
FIRST FINANCIAL CORPORATION
SEPTEMBER 30, 1996
INDEX
Part I Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet as of 1
September 30, 1996
Consolidated Statements of Income 2
for the Three-Months and Nine-Months
ended September 30, 1996 and 1995
Consolidated Statements of Cash
Flow for the Nine-Months ended
September 30, 1996 and 1995 3
Notes to Consolidated Financial
Statements 4-5
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial 5-7
Condition
Part II Other Information
Item 1. Legal Proceedings 7
Item 6. Exhibits and Reports on Form
8-K 7
<TABLE>
First Financial Corporation
Consolidated Balance Sheet
September 30, 1996
(Unaudited)
<CAPTION>
Assets
------
<S> <C>
Cash and cash equivalents 618,370
Restricted cash 310,524
Accounts receivable 1,421,789
Marketable investment securities 310,976
Real estate held for investment,at cost 474,074
Mortgage loans 2,937,154
Investment in and advances to
affiliated companies 396,148
Property and equipment 846,591
Other assets 1,110,775
----------
Total Assets 8,426,401
===========
Liabilities and Stockholders' Equity
--------------------------------------
Notes payable 60,000
Estimated reserve for losses under servicing
agreements 1,490,102
Other liabilities 1,987,758
----------
Total Liabilities 3,537,860
Minority interest 1,742,956
----------
Stockholders' equity:
Common stock - no par value; authorized
500,000 shares;issued 183,750 shares,
of which 10,222 shares are held in
treasury shares 1,000
Additonal paid-in capital 518,702
Retained earnings 2,662,072
----------
3,181,774
Less:Treasury stock - at cost (35,309)
Net unrealized loss on marketable
investment securities (880)
----------
Total Stockholders' Equity 3,145,585
----------
Total Liabilities and Stockholders' Equity 8,426,401
===========
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<TABLE>
First Financial Corporation
Consolidated Statements of Income
Three months and Nine months ended September 30,1996 and 1995
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Loan administration 1,062,055 989,204 2,811,142 2,396,402
Interest income 383,227 482,132 942,888 1,011,108
Other income 189,939 175,968 556,054 455,247
---------- ---------- ---------- ----------
Total Revenues 1,635,221 1,647,304 4,310,084 3,862,757
---------- ---------- ---------- ----------
Expenses:
Salaries and related expenses 820,050 778,693 2,212,605 2,064,535
Interest expense 265,884 433,441 617,540 772,605
Provision for losses under servicing
agreements (121,000) (153,000) (385,000) (498,000)
Other operating expenses 607,780 545,444 1,741,979 1,467,661
--------- --------- --------- ---------
Total Expenses 1,572,714 1,604,578 4,187,124 3,806,801
--------- --------- --------- ---------
Income before income taxes,
minority interest, equity in earnings
(loss) of affiliates and extraordinary ite 62,507 42,726 122,960 55,956
Federal income taxes 0 0 0 0
--------- --------- --------- ---------
Income before minority interest 62,507 42,726 122,960 55,956
Minority interest in net loss (income) 11,945 (117) 63,271 59,712
--------- --------- --------- ---------
Income before equity in earnings (loss) of
affiliates and extraordinary item 74,452 42,609 186,231 115,668
Equity in earnings (loss) of affiliates 32,526 11,972 32,069 60,701
--------- --------- --------- ---------
Income before extraorinary item 106,978 54,581 218,300 176,369
Utilization of tax loss carryforward 0 0 0 0
--------- --------- --------- ---------
Net income 106,978 54,581 218,300 176,369
=========== =========== =========== ===========
Income Per Common Share 0.53 0.29 1.09 0.96
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<TABLE>
First Financial Corporation
Consoidated Statement of Cash Flows
<CAPTION>
(Unaudited)
Nine Months Ended September 30,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) 218,300 176,369
Adjustments to reconcile net income(loss) to
net cash used by operating activities:
Depreciation 143,162 147,258
Provision for losses under servicing agreements (385,000) (498,000)
Equity in (income) loss of affiliates (32,526) (60,701)
Realized losses on marketable investment securities 0 0
Net (increase) decrease in accounts receivable (308,084) (394,991)
Net (increase) decrease in other assets 3,943 (273,393)
Net increase (decrease) in other liabilities (47,194) 910,016
Increase in minority interest (63,273) (59,713)
(Increase) decrease in restricted cash used
in operating activities - net 16,606 (535)
Increase in mortgage loans - net 0 0
Mortgage loans funded (146,462,594) (129,554,746)
Mortgage loans sold 142,363,041 119,654,783
Increase in mortgage loans participations sold 4,086,694 9,756,926
Other 3,296 (6,937)
------------ ------------
Net cash provided (used) for operating activities (463,629) (203,664)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of marketable investment securities 0 0
Purchases of marketable investment securities 0 (50,000)
Purchase of property and equipment (59,523) (41,595)
Principal collections on mortgage loans 719,690 650,568
Amortization of discount on mortgage loans purchased (35,359) (56,332)
(Advances to) repayments from affiliates 12,500 0
------------ ------------
Net cash provided (used) for investing activities 637,308 502,641
------------ ------------
Cash flows from financing activities:
Payment on notes payable (311,000) 12,366
------------ ------------
Net cash used for financing activities (311,000) 12,366
------------ ------------
Net increase (decrease) in cash and cash equivalents (137,321) 311,343
Cash and cash equivalents at beginning of year 755,691 723,401
------------ ------------
Cash and cash equivalents at end of period 618,370 1,034,744
=========== ==========
Supplemental Disclosure of Cash Flow Information
Interest Paid 612,996 700,849
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 - Basis of Presentation
The financial information included herein for First
Financial Corporation, and all of its wholly owned and
majority owned subsidiaries (the "Company") is
unaudited; however, such unaudited information
reflects all adjustments which are, in management's
opinion, necessary for a fair presentation of the
financial position, results of operations and
statement of cash flows for the interim periods.
Minority interest represents ownership of other
entities in the net assets and net earnings of Key
Group, Ltd. ("Key Group").
The results of operations and changes in cash flow for
the nine-month period ended September 30, 1996 are not
necessarily indicative of the results to be expected
for the full year.
Certain reclassifications were made to prior periods
to ensure comparability with the current period.
2 - Earnings Per Share
Earnings per common share were computed by dividing
net income by the weighted average number of shares
outstanding.
3 - Income Taxes
Income taxes are provided for the tax effects of
transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of
the loan loss reserve for financial and income tax
reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those
differences, which will either be taxable or
deductible when the assets and liabilities are
recovered or settled. Deferred taxes also are
recognized for operating losses that are available to
offset future taxable income and tax credits that are
available to offset future federal income taxes. The
Company has approximately $5,900,000 in available net
operating loss carryforward benefits for financial
statement purposes to offset future income, if any.
4 - Contingencies
Substantially all of the conventional pools of
manufactured home loans serviced by the Company,
approximately $5,400,000 at September 30, 1996, were
sold to investors with recourse. The recourse
provisions typically require the Company to repurchase
delinquent loans at the unpaid balances plus accrued
interest, or replace delinquent loans with another
loan which is current. Further, several of the
agreements require the Company to establish and
maintain cash reserve accounts. Deposits are
periodically made to the accounts equal to a specified
percent of the outstanding loans. The accounts may be
used to cover deficiencies from foreclosure and
liquidation of delinquent pooled mortgage loans. Such
cash reserve accounts totaled $10,524 and are included
in restricted cash at September 30, 1996.
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
The Company had a net income of $218,300 for the nine
months ended September 30, 1996 compared to net income
of $176,369 for the same period in 1995. Loan
administration revenues were $2,811,142 for the first
nine months of 1996 compared to $2,396,402 for the
same period of 1995. The increase in loan
administration revenues is primarily due to increased
loan origination and service fees from the Company's
residential mortgage loan operations. During the nine
months ended September 30, 1996, originations of new
residential mortgage loans amounted to approximately
$146.5 million compared to approximately $129.6 during
the same period in 1995.
Interest income for the nine months ended September
30, 1996 amounted to $942,888 compared to $1,011,108
for the same period in 1995. The decrease in interest
income is due to the overall decline in residential
mortgage loan interest rates from 1995 to 1996. First
Preference Mortgage Corp. earns interest from the date
the mortgage loan is closed until the date the
mortgage loan is sold to investors. In addition, the
Company's portfolio of mortgages held for investment
has declined from approximately $3,300,000 at
September 30, 1995 to approximately $2,500,000 at
September 30, 1996.
Other income for the nine months ended September 30,
1996 amounted to $556,054 as compared to $455,247 for
the same period in 1995. This increase is primarily
due to increased consulting fees earned by the Company
for providing accounting services. During the first
quarter of 1996, the Company increased the fees it
charges for providing accounting services to
compensate for the Company's increasing costs
Salaries and related expenses increased to $2,212,605
for the nine months ended September 30, 1996, compared
to $2,064,535 for the nine months ended September 30,
1995. This increase is due to the addition of
personnel in connection with the operations of the
residential mortgage origination and servicing
activities of First Preference Mortgage Corp., a
second tier subsidiary of Key Group.
For the nine months ended September 30, 1996, interest
expense amounted to $617,540 compared to $772,605 for
the same period in 1995. The decline in interest
expense is primarily the result of the decline in the
prime interest rate charged by the financial
institutions which the Company maintains warehouse
credit lines in connection with the origination of
residential mortgage loans. During the first nine
months of 1995, the prime rate averaged 8.95%, with a
high of 9.00% and a low of 8.50%. During the
comparable period in 1996, the prime rate averaged
8.27%, with a high of 8.50% and a low of 8.25%.
During the nine months ended September 30, 1996, the
provision for losses under servicing agreements was
($385,000) resulting in a balance in the reserve for
losses under servicing agreements of $1,490,102 at
September 30, 1996. For the nine months ended
September 30, 1995, the Company had a negative
provision for losses under servicing agreements of
($498,000) which resulted in a balance in the reserve
for losses under servicing agreements of $2,174,931 at
September 30, 1995. The negative provisions are due
to the Company's belief that its exposure to losses
attributable to the servicing agreements continues to
decline.
Other operating expenses for the nine months ended
September 30, 1996 were $1,741,979 compared to
$1,467,661 for the same period 1995. This increase is
primarily due to the significant increase in new
residential mortgage loan originations of First
Preference Mortgage Corp. as previously discussed.
The minority interest in the net loss of Key Group
amounted to $63,271 for the nine months ended
September 30, 1996. For the nine months ended
September 30, 1995, the minority interest in the net
loss of Key Group amounted to $59,712. The minority
interest represents the ownership of other entities in
the Key Group net income or net loss.
Financial Condition
At September 30, 1996, the Company's total assets were
$8,426,401. Included in the Company's total assets
are the assets of Key Group, LTD. which amounted to
$4,583,102 at September 30, 1996. The Key Group
assets at September 30, 1996 consisted primarily of
cash and cash equivalents of $184,541, account
receivable of $795,086, mortgage loans of $2,635,268,
property and equipment of $294,763 and prepaid
expenses and other assets of $673,444. The minority
interest in the net assets of Key Group at September
30, 1996 amounted to $1,742,956.
On consolidated basis, cash and cash equivalents
(including restricted cash) were $928,894 at September
30, 1996. Included therein was cash and cash
equivalents for Key Group of $184,541 and Apex Lloyds
Insurance Company of $692,385. The cash flow of Key
Group is only available to the Company to the extent
that cash is received in the form of partnership
distributions. Key Group has paid no distributions
and has no plans to pay distributions in the
foreseeable future. The cash flow of Apex Lloyds
Insurance Company is only available to the Company as
allowed by state insurance regulations.
As more fully discussed in the Annual Report Form 10-
KSB for the year ended December 31, 1995, First
Preference Mortgage Corp. has master loan
participation agreements with two financial
institutions totaling $40,000,000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine litigation
incidental to its business, both as a plaintiff and a
defendant. Management of the Company, after consulting
with legal counsel, feels that liability resulting
from the litigation, if any, will no have a material
effect on this financial position of the Company.
Item 6. Exhibits and Reports on Form 8-K
No Form 8-K was filed during the quarter ended
September 30, 1996.
(Remainder of page purposely left blank.)
SIGNATURES
Pursuant to the requirements of the Securities and
Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Financial Corporation
_____________________________________________________
Date November 13, 1996
David W. Mann
President
Duly Authorized Officer
and Principal Financial
Officer
Date November 13, 1996
Robert L. Harris
Vice President and
Principal Accounting
Officer
(Remainder of page purposely left blank.)
7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 928894
<SECURITIES> 310976
<RECEIVABLES> 1421789
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1936326
<DEPRECIATION> 1089735
<TOTAL-ASSETS> 8426401
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<BONDS> 0
0
0
<COMMON> 1000
<OTHER-SE> 3144585
<TOTAL-LIABILITY-AND-EQUITY> 8426401
<SALES> 0
<TOTAL-REVENUES> 4310084
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4187124
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 122960
<INCOME-TAX> 0
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<NET-INCOME> 218300
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
