<PAGE>
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 March 31, 1997 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 Identification No.)
incorporation or organization)
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 April 30, 1997)
<PAGE>
FORM 10-QSB
FIRST FINANCIAL CORPORATION
MARCH 31, 1997
INDEX
Part I Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet as of 1
March 31, 1997
Consolidated Statements of Income 2
for the Three-Months ended
March 31, 1997 and 1996
Consolidated Statements of Cash
Flow for the Three-Months
ended March 31, 1997 and 1996 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 6. Exhibits and Reports on Form 8-K 7
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<TABLE>
First Financial Corporation
Consolidated Balance Sheet
March 31, 1997
(Unaudited)
<CAPTION>
Assets
------
<S> <C>
Cash and cash equivalents $ 710,933
Restricted cash 310,524
Accounts receivable 1,151,318
Marketable investment securities 291,086
Real estate held for investment, at cost 474,074
Mortgage loans 2,448,292
Investment in and advances to
affiliated companies 360,583
Property and equipment 795,328
Deferred tax benefit 292,996
Other assets 687,158
----------
Total Assets $7,522,292
==========
Liabilities and Stockholders' Equity
--------------------------------------
Notes payable $ 0
Estimated reserve for losses under servicing
agreements 1,202,155
Other liabilities 1,407,487
----------
Total Liabilities 2,609,642
----------
Minority interest 1,691,253
----------
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 2,743,470
----------
3,263,172
Less:Treasury stock - at cost (35,309)
Net unrealized loss on marketable
investment securities (6,466)
----------
Total Stockholders' Equity 3,221,397
----------
Total Liabilities and Stockholders' Equity $7,522,292
==========
See accompanying notes to consolidated financial statements.
-1-
</TABLE>
<PAGE>
<TABLE>
First Financial Corporation
Consolidated Statements of Income
Three months ended March 31,1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Loan administration $ 957,081 $ 843,351
Interest income 269,780 271,535
Other income 107,388 95,997
----------- -----------
Total revenues 1,334,249 1,210,883
Expenses:
Salaries and related expenses 794,508 666,021
Interest expense 142,094 158,737
Provision for losses under servicing
agreements (109,286) (123,000)
Other operating expenses 498,661 494,060
----------- -----------
Total expenses 1,325,977 1,195,818
----------- -----------
Income before income taxes,
minority interest, and equity in earnings
(loss) of affiliates 8,272 15,065
Federal income taxes 0 0
----------- -----------
Income before minority interest 8,272 15,065
Minority interest in net loss (income) 34,609 34,217
----------- -----------
Income before equity in earnings
(loss) of affiliates 42,881 49,282
Equity in earnings (loss) of affiliates 26,585 2,848
----------- -----------
Net income $ 69,466 $ 52,130
=========== ===========
Income per common share $ 0.40 $ 0.30
=========== ===========
See accompanying notes to consolidated financial statements.
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</TABLE>
<PAGE>
<TABLE>
First Financial Corporation
Consolidated Statement of Cash Flows
<CAPTION>
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 69,466 $ 52,129
Adjustments to reconcile net income(loss) to
net cash used by operating activities:
Depreciation 35,428 87,606
Provision for losses under servicing agreements (109,286) (123,000)
Equity in (income) loss of affiliates (26,585) (2,848)
Realized losses on marketable investment securities 0 0
Net (increase) decrease in accounts receivable (196,521) (7,553)
Net (increase) decrease in other assets 110,306 104,646
Net increase (decrease) in other liabilities (183,931) (366,367)
Increase in minority interest (34,610) (34,219)
(Increase) decrease in restricted cash used
in operating activities - net 100,000 (199)
Increase in mortgage loans - net 0 0
Mortgage loans funded (49,301,379) (36,300,205)
Mortgage loans sold 50,336,891 38,217,518
Increase in mortgage loans participations sold (1,112,084) (1,849,901)
Other (51,012) 13,076
------------- -------------
Net cash provided (used) for operating activities (363,318) (209,319)
------------- -------------
Cash flows from investing activities:
Proceeds from sale of marketable investment securities 0 0
Purchases of marketable investment securities 0 0
Purchase of property and equipment (22,543) (20,308)
Principal collections on mortgage loans 307,517 251,822
Amortization of discount on mortgage loans purchased (18,002) (12,973)
(Advances to) repayments from affiliates 50,000 12,500
------------- -------------
Net cash provided (used) for investing activities 316,972 231,041
------------- -------------
Cash flows from financing activities:
Payment on notes payable 0 (61,000)
------------- -------------
Net cash used for financing activities 0 (61,000)
------------- -------------
Net increase (decrease) in cash and cash equivalents (46,346) (39,278)
Cash and cash equivalents at beginning of year 757,279 755,691
------------- -------------
Cash and cash equivalents at end of period $ 710,933 $ 716,413
============= =============
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 170,762 $ 210,271
============= =============
See accompanying notes to consolidated financial statements.
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</TABLE>
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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 adjustment 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 three-
month period ended March 31, 1997 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 $5,800,000 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 $4,500,000 at March
31, 1997, 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 $10,533 and are included in
restricted cash at March 31, 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
The Company had a net income of $69,466 for the quarter ended
March 31, 1997 compared to net income of $52,130 for the same
period in 1996. Loan administration revenues were $957,081 for
the first quarter for 1997 compared to $843,351 for the first
quarter of 1996. 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
quarter ended March 31, 1997, First Preference Mortgage Corp., a
third tier subsidiary of Key Group, funded approximately $49
million in new residential mortgage loans compared to
approximately $36 million during the same period in 1996.
Interest income for the quarter ended March 31, 1997 amounted to
$269,780 compared to $271,535 for the same period in 1996.
During the quarter ended March 31, 1997. the interest income
earned by the Company on investments declined by approximately
$15,000 or 16%. This decline is primarily due to the decline in
the Company's mortgages held for investment which decreased by
approximately $935,000 from March 31, 1996 to March 31, 1997.
During the first quarter of 1997, the interest income earned on
mortgages held for sale increased by approximately $14,000,
primarily due to the increased volume of new residential mortgage
loans originated during this time period 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 quarter ended March 31, 1997 amounted to
$107,388 as compared to $95,997 for the same period in 1996.
This increase is primarily due to increased consulting fees
earned by the Company for providing accounting services. During
the first quarter of 1997, 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 $794,508 for the three
months ended March 31, 1997, compared to $666,021 for the three
months ended March 31, 1996. 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.
For the quarter ended March 31, 1997, interest expense amounted
to $142,094 compared to $158,737 for the same period in 1996.
The decrease in interest expense for the quarter ended March 31,
1997 and the significant increase in the spread between interest
income and interest expense is primarily due to a new loan
participation agreement utilized by the Company. During the
quarter ended March 31, 1997, the Company's loan participation
agreement provided that the yield earned by the financial
institution was at a specified rate above the federal funds rate.
During the corresponding period in 1996, the yields earned by the
Company's primary financial institutions were at varying rates
above the prime interest rates.
During the quarter ended March 31, 1997, the provision for losses
under servicing agreements was ($109,286) resulting in a balance
in the reserve for losses under servicing agreements of
$1,202,155 at March 31, 1997. For the quarter ended March 31,
1996, the Company had a negative provision for losses under
servicing agreements of ($123,000) which resulted in a balance in
the reserve for losses under servicing agreements of $1,763,283
at March 31, 1996. As previously discussed, under the terms of
certain of its servicing agreements, the Company is at risk for
any credit losses and costs of foreclosure, net of credit
insurance proceeds, if any, sustained on default of the borrower.
Based on an analysis of the Company's servicing portfolio, it is
the Company's belief that its exposure to losses attributable to
the servicing agreements continues to decline.
The minority interest in the net loss of Key Group amounted to
$34,609 for the quarter ended March 31, 1997. For the quarter
ended March 31, 1996, the minority interest in the net loss of
Key Group amounted to $34,217. The minority interest represents
the ownership of other entities in the Key Group net income or
net loss.
The consolidated statements of income for the three months ended
March 31, 1997 reflect equity in net income of affiliates of
$26,585 compared to net income of $2,848 for the three months
ended March 31, 1996. This increase is primarily due to the
affiliate realizing a significant gain on the sale of certain
real estate during the quarter ended March 31, 1997.
Financial Condition
At March 31, 1997, the Company's total assets were $7,522,292.
Included in the Company's total assets are the assets of Key
Group, LTD. which amounted to $4,123,686 at March 31, 1997. The
Key Group assets at March 31, 1997 consisted primarily of cash
and cash equivalents of $374,948, mortgage loans of $2,211,298,
property and equipment of $257,664 and accounts receivable,
prepaid expenses and other assets of $1,249,278. The minority
interest in the net assets of Key Group at March 31, 1996
amounted to $1,279,776.
On consolidated basis, cash and cash equivalents (including
restricted cash) were $1,021,460 at March 31, 1997. Included
therein was cash and cash equivalents for Key Group of $374,948
and Apex Lloyds Insurance Company of $591,623. 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, 1996, First Preference Mortgage Corp. has
a master loan participation with a financial institution totaling
$25,000,000. First Preference Mortgage Corp. is in the process on
negotiating a renewal of this agreement which expires June 24,
1997.
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
Exhibit 27 - Financial Data Schedule
No Form 8-K was filed during the quarter ended March 31, 1997.
<PAGE>
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 May 13, 1997 /s/ David W. Mann
David W. Mann
President
Duly Authorized Officer and
Principal Financial Officer
Date May 13, 1997 /s/ Annie Laurie Miller
Annie Laurie Miller
Executive Vice President and
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,021,457
<SECURITIES> 291,086
<RECEIVABLES> 1,151,318
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,954,855
<DEPRECIATION> 1,159,527
<TOTAL-ASSETS> 7,522,292
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 3,220,397
<TOTAL-LIABILITY-AND-EQUITY> 7,522,292
<SALES> 0
<TOTAL-REVENUES> 1,334,249
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,325,977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,272
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,466
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
