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 June 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 August 15, 1996)
FORM 10-QSB
FIRST FINANCIAL CORPORATION
JUNE 30, 1996
INDEX
Part I Financial Information Page
No.
Item 1. Financial Statements
Consolidated Balance Sheet as of 1
June 30, 1996
Consolidated Statements of Income 2
for the Three-Months and Six-Months
ended June 30, 1996 and 1995
Consolidated Statements of Cash
Flow for the Six-Months
ended June 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 5-6
Condition
Part II Other Information
Item 1. Legal Proceedings 6
Item 4. Submission of Matters to a Vote
of Security Holders 7
Item 6. Exhibits and Reports on Form
8-K 7
First Financial Corporation
Consolidated Balance Sheet
June 30, 1996
(Unaudited)
Assets
------
Cash and cash equivalents $ 646,751
Restricted cash 327,524
Accounts receivable 1,164,663
Marketable investment securities 310,382
Real estate held for investment,at cost 474,074
Mortgage loans 3,077,373
Investment in and advances to
affiliated companies 363,622
Property and equipment 857,254
Other assets 1,012,065
-----------
Total Assets $ 8,233,708
===========
Liabilities and Stockholders' Equity
--------------------------------------
Notes payable 205,000
Estimated reserve for losses under servicing
agreements 1,611,327
Other liabilities 1,620,986
-----------
Total Liabilities 3,437,313
-----------
Minority interest 1,754,902
-----------
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 2,558,502
-----------
3,078,204
Less:Treasury stock - at cost (35,309)
Net unrealized loss on marketable
investment securities (1,402)
-----------
Total Stockholders' Equity 3,041,493
-----------
Total Liabilities and Stockholders' Equity $ 8,233,708
===========
See accompanying notes to consolidated financial statements.
-1-
<TABLE>
First Financial Corporation
Consolidated Statements of Income
Three months and Six months ended June 30,1996 and 1995
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Loan administration $ 964,302 $ 867,314 $ 1,749,087 $ 1,407,198
Interest income 288,126 333,036 559,661 528,976
Other income 151,351 129,754 366,115 279,279
----------------- ----------------- ----------------- ------------------
Total Revenues 1,403,779 1,330,104 2,674,863 2,215,453
----------------- ----------------- ----------------- ------------------
Expenses:
Salaries and related expenses 726,534 696,026 1,392,555 1,285,842
Interest expense 192,919 256,598 351,656 339,164
Provision for losses under servicing
agreements (141,000) (144,000) (264,000) (345,000)
Other operating expenses 579,938 485,601 1,134,198 922,217
----------------- ----------------- ----------------- ------------------
Total Expenses 1,358,391 1,294,225 2,614,409 2,202,223
----------------- ----------------- ----------------- ------------------
Income before income taxes,
minority interest, equity in earnings
(loss) of affiliates and extraordinary 45,388 35,879 60,454 13,230
Federal income taxes 0 0 0 0
----------------- ----------------- ----------------- ------------------
Income before minority interest 45,388 35,879 60,454 13,230
Minority interest in net loss (income) 17,109 11,869 51,326 59,829
----------------- ----------------- ----------------- ------------------
Income before equity in earnings (loss)
of affiliates and extraordinary item 62,497 47,748 111,780 73,059
Equity in earnings (loss) of affiliates (3,305) 42,067 (458) 48,729
----------------- ----------------- ----------------- ------------------
Income before extraorinary item 59,192 89,815 111,322 121,788
Utilization of tax loss carryforward 0 0 0 0
----------------- ----------------- ----------------- ------------------
Net income $ 59,192 $ 89,815 $ 111,322 $ 121,788
=========== =========== =========== ===========
Income Per Common Share $ 0.07 $ 0.48 $ 0.56 $ 0.66
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<TABLE>
First Financial Corporation
Consolidated Statement of Cash Flows
<CAPTION>
(Unaudited)
Six Months Ended June 30,
----------------------------
1996 1995
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 111,322 $ 121,788
Adjustments to reconcile net income(loss) to
net cash used by operating activities:
Depreciation 97,783 102,655
Provision for losses under servicing agreements (264,000) (345,000)
Equity in (income) loss of affiliates 457 (48,729)
Realized losses on marketable investment securities 0 0
Net (increase) decrease in accounts receivable (50,958) 0
Net (increase) decrease in other assets 102,653 (471,776)
Net increase (decrease) in other liabilities (413,966) 499,157
Increase in minority interest (51,327) (59,830)
(Increase) decrease in restricted cash used
in operating activities - net (394) (355)
Increase in mortgage loans - net 0 0
MortGage loans funded (85,102,475) (66,165,656)
Mortgage loans sold 87,019,787 50,573,203
Increase in mortgage loans participations sold (1,849,902) 15,191,445
Other 2,046 (3,866)
------------- ------------
Net cash provided (used) for operating activities (398,974) (606,964)
------------- ------------
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 (20,308) (30,014)
Principal collections on mortgage loans 488,608 420,480
Amortization of discount on mortgage loans purchased (24,766) (37,953)
(Advances to) repayments from affiliates 12,500 0
------------- ------------
Net cash provided (used) for investing activities 456,034 302,513
------------- ------------
Cash flows from financing activities:
Payment on notes payable (166,000) 12,366
------------- ------------
Net cash used for financing activities (166,000) 12,366
------------- ------------
Net increase (decrease) in cash and cash equivalents (108,940) (292,085)
Cash and cash equivalents at beginning of year 755,691 723,401
------------- ------------
Cash and cash equivalents at end of period $ 646,751 $ 431,316
=========== =========
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 337,744 $ 217,197
=========== =========
</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
six-month period ended June 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 $5,700,000 at June 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 $27,500 and are included in
restricted cash at June 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 $111,322 for the six
months ended June 30, 1996 compared to net income of
$121,788 for the same period in 1995. Loan
administration revenues were $1,749,087 for the first six
months of 1996 compared to $1,407,198 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 six months ended June 30, 1996,
originations of new residential mortgage loans amounted to
approximately $85.1 million compared to approximately
$66.2 during the same period in 1995.
Interest income for the six months ended June 30, 1996
amounted to $559,661 compared to $528,976 for the same
period in 1995. The increase in interest income is
primarily due to the increased volume of new residential
mortgage loans originated during the period ended June 30,
1996 as compared to the same period in 1995 as discussed
above. First Preference Mortgage Corp. earns interest
from the date the mortgage loan is closed until the date
the mortgage loan is sold to investors.
Other income for the six months ended June 30, 1996
amounted to $366,115 as compared to $279,279 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 $1,392,555 for
the six months ended June 30, 1996, compared to $1,285,842
for the six months ended June 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 six months ended June 30, 1996, interest expense
amounted to $351,656 compared to $339,164 for the same
period in 1995. This increase is the result of the
increased utilization of the Company's warehouse credit
lines in connection with the origination of residential
mortgage loans.
During the six months ended June 30, 1996, the provision
for losses under servicing agreements was ($264,000)
resulting in a balance in the reserve for losses under
servicing agreements of $1,611,327 at June 30, 1996. For
the six months ended June 30, 1995, the Company had a
negative provision for losses under servicing agreements
of ($345,000) which resulted in a balance in the reserve
for losses under servicing agreements of $2,327,931 at
June 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 six months ended June 30,
1996 were $1,134,198 compared to $922,217 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 $51,326 for the six months ended June 30,
1996. For the six months ended June 30, 1995, the
minority interest in the net loss of Key Group amounted to
$59,829. The minority interest represents the ownership
of other entities in the Key Group net income or net loss.
Financial Condition
At June 30, 1996, the Company's total assets were
$8,233,708. Included in the Company's total assets are
the assets of Key Group, LTD. which amounted to $4,650,717
at June 30, 1996. The Key Group assets at June 30, 1996
consisted primarily of cash and cash equivalents of
$246,532, mortgage loans of $2,756,540, property and
equipment of $291,017 and accounts receivable, prepaid
expenses and other assets of $1,356,628. The minority
interest in the net assets of Key Group at June 30, 1996
amounted to $1,754,902.
On consolidated basis, cash and cash equivalents
(including restricted cash) were $974,275 at June 30,
1996. Included therein was cash and cash equivalents for
Key Group of $246,532 and Apex Lloyds Insurance Company of
$642,724. 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 a master loan participation 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 4. Submission of Matters to a Vote of Security
Holders
The annual meeting of shareholders was held on May 28,
1996, pursuant to an information statement dated April 26,
1996, furnished by the Board of Directors to the
Shareholders of Record.
At the meeting, the following were elected to the Board of
Directors: Henry Dietz, John Carl Hauser, David W. Mann,
Robert A. Mann. Walter J. Rusek, Barrett Smith, and
Jackson K. Walker.
In other matters, the shareholders approved the selection
of Pattillo, Brown, & Hill, Certified Public Accountants,
as auditors for the fiscal year ended December 31, 1996
and ratified and approved all actions taken by the
Company's directors and management during the preceding
year. No other matters were voted upon.
Item 6. Exhibits and Reports on Form 8-K
No Form 8-K was filed during the quarter ended June 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 August 13, 1996
David W. Mann
David W. Mann
President
Duly Authorized Officer and
Principal Financial Officer
Date August 13, 1996
Robert L. Harris
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 974,275
<SECURITIES> 310,382
<RECEIVABLES> 1,164,663
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,909,414
<DEPRECIATION> 1,052,160
<TOTAL-ASSETS> 8,233,708
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 3,041,493
<TOTAL-LIABILITY-AND-EQUITY> 8,233,708
<SALES> 0
<TOTAL-REVENUES> 2,674,863
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,614,409
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 60,454
<INCOME-TAX> 0
<INCOME-CONTINUING> 60,454
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,322
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
