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, 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 August 15, 1997)
<PAGE>
FORM 10-QSB
FIRST FINANCIAL CORPORATION
JUNE 30, 1997
INDEX
Part I Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet as of 1
June 30, 1997
Consolidated Statements of Income 2
for the Three-Months and Six-Months
ended June 30, 1997 and 1996
Consolidated Statements of Cash
Flow for the Six-Months
ended June 30, 1997 and 1996 3
Notes to Consolidated Financial
Statements 4-5
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial 5-7
Condition
Part II Other Information
Item 1. Legal Proceedings 7
Item 4. Submission of Matters to a Vote
of Security Holders 7
Item 6. Exhibits and Reports on Form 8-K 7
<PAGE>
<TABLE>
First Financial Corporation
Consolidated Balance Sheet
June 30, 1997
(Unaudited)
<CAPTION>
Assets
------
<S> <C>
Cash and cash equivalents $ 1,066,504
Restricted cash 310,533
Accounts receivable 1,307,187
Marketable investment securities 297,623
Real estate held for investment, at cost 474,074
Mortgage loans 2,150,955
Investment in and advances to affiliated companies 362,805
Property and equipment 767,308
Other assets 1,078,717
-----------
Total Assets $ 7,815,706
===========
Liabilities and Stockholders' Equity
--------------------------------------
Notes payable -
Estimated reserve for losses under servicing agreements 1,065,628
Other liabilities 1,695,788
-----------
Total Liabilities 2,761,416
-----------
Minority interest 1,728,343
-----------
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 2,841,554
-----------
3,361,256
Less:Treasury stock - at cost (35,309)
Net unrealized loss on marketable investment securities -
-----------
Total Stockholders' Equity 3,325,947
-----------
Total Liabilities and Stockholders' Equity $ 7,815,706
===========
See accompanying notes to consolidated financial statements.
</TABLE>
-1-
<PAGE>
<TABLE>
First Financial Corporation
Consolidated Statements of Income
Three months and Six months ended June 30,1997 and 1996
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Loan administration $ 1,253,989 $ 964,302 $ 2,211,070 $ 1,749,087
Interest income 296,843 288,126 566,623 559,661
Other income 106,498 100,171 213,886 266,134
----------- ---------- ----------- -----------
Total Revenues 1,657,330 1,352,599 2,991,579 2,574,882
----------- ---------- ----------- -----------
Expenses:
Salaries and related expenses 899,208 726,534 1,693,716 1,392,555
Interest expense 164,735 192,919 306,829 351,656
Provision for losses under servicing agreements (78,000) (141,000) (187,286) (264,000)
Other operating expenses 538,436 528,758 1,037,097 1,034,217
---------- ---------- ---------- ----------
Total Expenses 1,524,379 1,307,211 2,850,356 2,514,428
Income before income taxes, ---------- ---------- ---------- ----------
minority interest, equity in earnings
(loss) of affiliates and extraordinary items 132,951 45,388 141,223 60,454
Federal income taxes 0 0 0 0
---------- ---------- ---------- -----------
Income before minority interest 132,951 45,388 141,223 60,454
Minority interest in net loss (income) (37,089) 17,109 (2,480) 51,326
---------- ---------- ---------- ----------
Income before equity in earnings (loss) of
affiliates and extraordinary item 95,862 62,497 138,743 111,780
Equity in earnings (loss) of affiliates 2,222 (3,305) 28,807 (458)
---------- ---------- ---------- ----------
Income before extraorinary item 98,084 59,192 167,550 111,322
Utilization of tax loss carryforward 0 0 0 0
----------- ----------- ------------ ------------
Net income $ 98,084 $ 59,192 $ 167,550 $ 111,322
=========== =========== ============ ===========
Income Per Common Share $ 0.49 $ 0.30 $ 0.84 $ 0.56
=========== =========== ============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
First Financial Corporation
Consoidated Statement of Cash Flows
<CAPTION>
(Unaudited)
Six Months Ended June 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 167,550 $ 111,322
Adjustments to reconcile net income(loss) to
net cash used by operating activities:
Depreciation 71,590 97,783
Provision for losses under servicing agreements (187,286) (264,000)
Equity in (income) loss of affiliates (28,807) 457
Realized losses on marketable investment securities 0 0
Net (increase) decrease in accounts receivable (352,390) (50,958)
Net (increase) decrease in other assets 11,743 102,653
Net increase (decrease) in other liabilities 104,370 (413,966)
Increase in minority interest 2,480 (51,327)
(Increase) decrease in restricted cash used
in operating activities - net 99,991 (394)
Increase in mortgage loans - net 0 0
Mortgage loans funded (109,780,684) (85,102,475)
Mortgage loans sold 108,496,680 87,019,787
Increase in mortgage loans participations sold 1,290,509 (1,849,902)
Other (109,561) 2,046
------------- -------------
Net cash provided (used) for operating activities (213,815) (398,974)
------------- -------------
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 (30,685) (20,308)
Principal collections on mortgage loans 533,033 488,608
Amortization of discount on mortgage loans purchased (29,308) (24,766)
(Advances to) repayments from affiliates 50,000 12,500
------------- -------------
Net cash provided (used) for investing activities 523,040 456,034
------------- -------------
Cash flows from financing activities:
Payment on notes payable 0 (166,000)
------------- -------------
Net cash used for financing activities 0 (166,000)
------------- -------------
Net increase (decrease) in cash and cash equivalents 309,225 (108,940)
Cash and cash equivalents at beginning of year 757,279 755,691
------------- -------------
Cash and cash equivalents at end of period $ 1,066,504 $ 646,751
============= =============
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 371,483 $ 337,744
============= ============
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
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, 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-
<PAGE>
4 - Contingencies
Substantially all of the conventional pools of manufactured
home loans serviced by the Company, approximately $4,100,000 at
June 30, 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
$10,524 and are included in restricted cash at June 30, 1997.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
The Company had a net income of $167,550 for the six months
ended June 30, 1997 compared to net income of $111,322 for the
same period in 1996. Loan administration revenues were
$2,211,070 for the first six months of 1997 compared to
$1,749,087 for the same period 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 six months ended June 30,
1997, originations of new residential mortgage loans amounted
to approximately $109.8 million compared to approximately $85.1
during the same period in 1996.
Interest income for the six months ended June 30, 1997 amounted
to $566,623 compared to $559,661 for the same period in 1996.
During the six months ended June 30, 1997, the interest income
earned by the Company on investments declined by approximately
$30,000 or 16%. This decline is primarily due to the decline in
the Company's mortgages held for investment which decreased by
approximately $816,000 from June 30, 1996 to June 30, 1997.
During the first six months of 1997, the interest income earned
on mortgages held for sale increased by approximately $37,000,
primarily due to the increased volume of new residential
mortgage loans originated during this time period as discussed
above. First Preference Mortgage Corp., a third tier
subsidiary of Key Group, 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, 1997 amounted to
$213,886 as compared to $266,134 for the same period in 1996.
This decrease is primarily due to decreased insurance
commissions earned through a fronting and reinsurance
agreement.
-5-
<PAGE>
Salaries and related expenses increased to $1,693,716 for the
six months ended June 30, 1997, compared to $1,392,555 for the
six months ended June 30, 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 six months ended June 30, 1997, interest expense
amounted to $306,829 compared to $351,656 for the same period
in 1996. The decrease in interest expense for the six months
ended June 30, 1997 and the significant increase in the spread
between interest income and interest expense was primarily due
to the utilization of a loan participation agreement that
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 primary loan participation
agreement utilized by the Company provided that the yield
earned by the financial institution was at a specified rate
above the prime interest rate.
During the six months ended June 30, 1997, the provision for
losses under servicing agreements was ($187,286) resulting in a
balance in the reserve for losses under servicing agreements of
$1,065,628 at June 30, 1997. For the six months ended June 30,
1996, the Company had a negative provision for losses under
servicing agreements of ($264,000) which resulted in a balance
in the reserve for losses under servicing agreements of
$1,611,327 at June 30, 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 income of Key Group amounted
to ($2,480) for the six months ended June 30, 1997. For the
six months ended June 30, 1996, the minority interest in the
net loss of Key Group amounted to $51,326. 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 six months ended
June 30, 1997 reflect equity in net income of affiliates of
$28,807 compared to a net loss of ($458) for the six months
ended June 30, 1996. This increase is primarily due to the
affiliate realizing a significant gain on the sale of certain
real estate during the period ended June 30, 1997.
Financial Condition
At June 30, 1997, the Company's total assets were $7,815,706.
Included in the Company's total assets are the assets of Key
Group, LTD. which amounted to $4,293,234 at June 30, 1997. The
Key Group assets at June 30, 1997 consisted primarily of cash
and cash equivalents of $683,355, mortgage loans of $1,938,388,
property and equipment of $236,649 and accounts receivable,
prepaid expenses and other assets of $1,434,842. The minority
interest in the net assets of Key Group at June 30, 1997
amounted to $1,728,343.
-6-
<PAGE>
On consolidated basis, cash and cash equivalents (including
restricted cash) were $1,377,037 at June 30, 1997. Included
therein was cash and cash equivalents for Key Group of $683,355
and Apex Lloyds Insurance Company of $640,732. 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 of negotiating a renewal of this
agreement which expires August 31, 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 not 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 20, 1997,
pursuant to an information statement dated April 28, 1997,
furnished by the Board of Directors to the Shareholders of Record.
At the meeting, the following were elected to the Board of Directors:
John Carl Hauser, David W. Mann, Robert A. Mann. Walter J. Rusek,
and Barrett Smith.
In other matters, the shareholders approved the selection of Pattillo,
Brown, & Hill, Certified Public Accountants, as auditors for the fiscal
year ended December 31, 1997 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, 1997.
-7-
<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 August 13, 1997 /s/ David W. Mann
David W. Mann
President
Duly Authorized Officer and
Principal Financial Officer
Date August 13, 1997 /s/ Annie Laurie Miller
Annie Laurie Miller
Executive Vice President and
Principal Accounting Officer
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,377,034
<SECURITIES> 297,623
<RECEIVABLES> 1,307,187
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,962,998
<DEPRECIATION> 1,195,690
<TOTAL-ASSETS> 7,815,706
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 3,324,947
<TOTAL-LIABILITY-AND-EQUITY> 7,815,706
<SALES> 0
<TOTAL-REVENUES> 2,991,579
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,850,356
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 141,223
<INCOME-TAX> 0
<INCOME-CONTINUING> 141,223
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167,550
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
</TABLE>
