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, 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
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 (254) 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, 1997)
<PAGE>
FORM 10-QSB
FIRST FINANCIAL CORPORATION
SEPTEMBER 30, 1997
INDEX
Part I Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet as of 1
September 30, 1997
Consolidated Statements of Income 2
for the Three-Months and Nine-Months
ended September 30, 1997 and 1996
Consolidated Statements of Cash
Flow for the Nine-Months
ended September 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 6. Exhibits and Reports on Form
8-K 7
<PAGE>
First Financial Corporation
Consolidated Balance Sheet
September 30, 1997
(Unaudited)
Assets
------
Cash and cash equivalents $ 1,043,091
Restricted cash 310,524
Accounts receivable 1,298,824
Marketable investment securities 296,945
Real estate held for investment, at cost 474,074
Mortgage loans 2,278,569
Investment in and advances to
affiliated companies 378,545
Property and equipment 751,451
Other assets 1,114,126
-----------
Total Assets $ 7,946,149
===========
Liabilities and Stockholders' Equity
--------------------------------------
Notes payable 0
Estimated reserve for losses under servicing
agreements 1,002,816
Other liabilities 1,737,095
-----------
Total Liabilities 2,739,911
-----------
Minority interest 1,787,636
-----------
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 2,934,209
-----------
3,453,911
Less:Treasury stock - at cost (35,309)
Net unrealized loss on marketable
investment securities 0
-----------
Total Stockholders' Equity 3,418,602
-----------
Total Liabilities and Stockholders' Equity $ 7,946,149
===========
See accompanying notes to consolidated financial statements.
1
<PAGE>
<TABLE>
First Financial Corporation
Consolidated Statements of Income
Three months and Nine months ended September 30,1997 and 1996
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Loan administration $1,500,553 $1,062,055 $3,711,623 $2,811,142
Interest income 358,219 383,227 924,842 942,888
Other income 135,002 118,017 348,888 361,351
---------- ---------- ---------- ----------
Total Revenues 1,993,774 1,563,299 4,985,353 4,115,381
---------- ---------- ---------- ----------
Expenses:
Salaries and related expenses 1,002,594 820,050 2,696,310 2,212,605
Interest expense 250,348 265,884 557,177 617,540
Provision for losses under servicing
agreements (59,214) (121,000) (246,500) (385,000)
Other operating expenses 663,838 535,858 1,700,935 1,547,276
---------- ---------- ---------- ----------
Total Expenses 1,857,566 1,500,792 4,707,922 3,992,421
---------- ---------- ---------- ----------
Income before income taxes,
minority interest, equity in earnings
(loss) of affiliates and extraordinary items 136,208 62,507 277,431 122,960
Federal income taxes 0 0 0 0
---------- ---------- ---------- ----------
Income before minority interest 136,208 62,507 277,431 122,960
Minority interest in net loss (income) (59,293) 11,945 (61,773) 63,271
---------- ---------- ---------- ----------
Income before equity in earnings (loss) of
affiliates and extraordinary item 76,915 74,452 215,658 186,231
Equity in earnings (loss) of affiliates 15,741 32,526 44,548 32,069
---------- ---------- ---------- ----------
Income before extraorinary item 92,656 106,978 260,206 218,300
Utilization of tax loss carryforward 0 0 0 0
---------- ---------- ---------- ----------
Net income $ 92,656 $ 106,978 $ 260,206 $ 218,300
========== ========== ========== ==========
Income Per Common Share $ 0.46 $ 0.53 $ 1.30 $ 1.09
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
First Financial Corporation
Consolidated Statement of Cash Flows
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 260,206 $ 218,300
Adjustments to reconcile net income(loss) to
net cash used by operating activities:
Depreciation 108,503 143,162
Provision for losses under servicing agreements (246,500) (385,000)
Equity in (income) loss of affiliates (42,817) (32,526)
Realized (gain) loss on marketable investment securities (6,098) 0
Net (increase) decrease in accounts receivable (344,028) (308,084)
Net (increase) decrease in other assets (23,666) 3,943
Net increase (decrease) in other liabilities 145,677 (47,194)
Increase in minority interest 61,773 (63,273)
(Increase) decrease in restricted cash used
in operating activities - net 100,000 16,606
Increase in mortgage loans - net 0 0
Mortgage loans funded (190,620,772) (146,462,594)
Mortgage loans sold 186,947,405 142,363,041
Increase in mortgage loans participations sold 3,377,896 4,086,694
Other (114,962) 3,296
-------------- --------------
Net cash provided (used) for operating activities (397,383) (463,629)
-------------- --------------
Cash flows from investing activities:
Proceeds from sale of marketable investment securities 6,847 0
Purchases of marketable investment securities 0 0
Purchase of property and equipment (51,742) (59,523)
Principal collections on mortgage loans 716,086 719,690
Amortization of discount on mortgage loans purchased (37,996) (35,359)
(Advances to) repayments from affiliates 50,000 12,500
-------------- --------------
Net cash provided (used) for investing activities 683,195 637,308
-------------- --------------
Cash flows from financing activities:
Payment on notes payable 0 (311,000)
-------------- --------------
Net cash used for financing activities 0 (311,000)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 285,812 (137,321)
Cash and cash equivalents at beginning of year 757,279 755,691
-------------- --------------
Cash and cash equivalents at end of period $ 1,043,091 $ 618,370
============= ==============
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 541,810 $ 612,996
============= ==============
See accompanying notes to consolidated financial statements.
</TABLE>
3
<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 nine-
month period ended September 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 - Contingencies
Substantially all of the conventional pools of manufactured
home loans serviced by the Company, approximately $3,800,000
at September 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
4
<PAGE>
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, 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 $260,206 for the nine months ended
September 30, 1997 compared to net income of $218,300 for the same
period in 1996. Loan administration revenues were $3,711,623 for
the first nine months of 1997 compared to $2,811,142 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 nine
months ended September 30, 1997, originations of new residential
mortgage loans amounted to approximately $190.6 million compared to
approximately $146.5 million during the same period in 1996.
Interest income for the nine months ended September 30, 1997
amounted to $924,842 compared to $942,888 for the same period in
1996. During the nine months ended September 30, 1997, the interest
income earned by the Company on investments declined by
approximately $55,000 or 18%. This decline is primarily due to the
decline in the Company's mortgages held for investment which
decreased by approximately $634,000 from September 30, 1996 to
September 30, 1997. During the first nine 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 nine months ended September 30, 1997 amounted
to $348,888 as compared to $361,351 for the same period in 1996.
This decrease is primarily due to decreased insurance commissions
earned through a fronting and reinsurance agreement.
Salaries and related expenses increased to $2,696,310 for the nine
months ended September 30, 1997, compared to $2,212,605 for the nine
months ended September 30, 1996. This increase is primarily due to
the significant increase in the operations of the residential
mortgage origination and servicing activities of First Preference
Mortgage Corp.
5
<PAGE>
For the nine months ended September 30, 1997, interest expense
amounted to $557,177 compared to $617,540 for the same period in
1996. The decrease in interest expense for the nine months ended
September 30, 1997 and the 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 first part of 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 nine months ended September 30, 1997, the provision for
losses under servicing agreements was ($246,500) resulting in a
balance in the reserve for losses under servicing agreements of
$1,002,816 at September 30, 1997. For the nine months ended
September 30, 1996, the Company had a negative provision for losses
under servicing agreements of ($385,000) which resulted in a balance
in the reserve for losses under servicing agreements of $1,490,102
at September 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
($61,733) for the nine months ended September 30, 1997. For the
nine months ended September 30, 1996, the minority interest in the
net loss of Key Group amounted to $63,271. 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 nine months ended
September 30, 1997 reflect equity in net income of affiliates of
$44,548 compared to $32,069 for the nine months ended September 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 September 30, 1997.
Financial Condition
At September 30, 1997, the Company's total assets were $7,946,149.
Included in the Company's total assets are the assets of Key Group,
LTD. which amounted to $4,611,961 at September 30, 1997. The Key
Group assets at September 30, 1997 consisted primarily of cash and
cash equivalents of $713,165, mortgage loans of $2,071,536, property
and equipment of $223,468 and accounts receivable, prepaid expenses
and other assets of $1,603,792. The minority interest in the net
assets of Key Group at September 30, 1997 amounted to $1,787,636.
6
<PAGE>
On consolidated basis, cash and cash equivalents (including
restricted cash) were $1,353,615 at September 30, 1997. Included
therein was cash and cash equivalents for Key Group of $713,165 and
Apex Lloyds Insurance Company of $563,603. 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 which expires August 31, 1998.
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 6. Exhibits and Reports on Form 8-K
No Form 8-K was filed during the quarter ended September 30, 1997.
Exhibit 27 - Financial Data Schedule
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 November 13, 1997 /s/ David W. Mann
David W. Mann
President
Duly Authorized Officer and
Principal Financial Officer
Date November 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,353,615
<SECURITIES> 296,945
<RECEIVABLES> 1,298,824
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,984,054
<DEPRECIATION> 1,232,603
<TOTAL-ASSETS> 7,946,149
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 3,417,602
<TOTAL-LIABILITY-AND-EQUITY> 7,946,149
<SALES> 0
<TOTAL-REVENUES> 4,985,353
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,707,922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 277,431
<INCOME-TAX> 0
<INCOME-CONTINUING> 277,431
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 260,206
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
</TABLE>
