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, 1998 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 August 15, 1998)
<PAGE>
FORM 10-QSB
FIRST FINANCIAL CORPORATION
JUNE 30, 1998
INDEX
Part I Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet as of 1
June 30, 1998
Consolidated Statements of Income 2
for the Three-Months and Six-Months
ended June 30, 1998 and 1997
Consolidated Statements of Cash
Flow for the Six-Months
ended June 30, 1998 and 1997 3
Notes to Consolidated Financial
Statements 4-5
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 5-7
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>
First Financial Corporation
Consolidated Balance Sheet
June 30, 1998
(Unaudited)
Assets
------
Cash and cash equivalents $1,281,533
Restricted cash 563,639
Accounts receivable 1,609,059
Marketable investment securities 297,159
Real estate held for investment, at cost 444,000
Mortgage loans 1,596,631
Investment in and advances to
affiliated companies 428,438
Property and equipment 973,328
Other assets 1,220,257
-----------
Total Assets $8,414,044
===========
Liabilities and Stockholders' Equity
--------------------------------------
Notes payable 0
Estimated reserve for losses under servicing
agreements 767,186
Other liabilities 2,002,866
-----------
Total Liabilities 2,770,052
-----------
Minority interest 1,896,525
-----------
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 3,263,074
-----------
3,782,776
Less:Treasury stock - at cost (35,309)
Net unrealized loss on marketable
investment securities 0
-----------
Total Stockholders' Equity 3,747,467
-----------
Total Liabilities and Stockholders' Equity $8,414,044
===========
See accompanying notes to consolidated financial statements.
1
<PAGE>
<TABLE>
First Financial Corporation
Consolidated Statements of Income
Three months and Six months ended June 30, 1998 and 1997
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------- -----------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Loan administration $1,745,213 $1,253,989 $3,338,808 $2,211,070
Interest income 381,937 296,843 776,631 566,623
Other income 170,734 106,498 275,909 213,886
---------- ----------- ------------ ------------
Total Revenues 2,297,884 1,657,330 4,391,348 2,991,579
---------- ----------- ------------ ------------
Expenses:
Salaries and related expenses 1,157,038 899,208 2,245,171 1,693,716
Interest expense 304,455 164,735 616,658 306,829
Provision for losses under servicing
agreements (31,629) (78,000) (116,526) (187,286)
Other operating expenses 672,189 538,436 1,344,818 1,037,097
---------- ----------- ------------ ------------
Total Expenses 2,102,053 1,524,379 4,090,121 2,850,356
---------- ----------- ------------ ------------
Income before income taxes,
minority interest, equity in earnings
(loss) of affiliates and extraordinary items 195,831 132,951 301,227 141,223
Federal income taxes 0 0 0 0
---------- ----------- ------------ ------------
Income before minority interest 195,831 132,951 301,227 141,223
Minority interest in net loss (income) (59,682) (37,089) (67,707) (2,480)
---------- ----------- ------------ ------------
Income before equity in earnings (loss) of
affiliates and extraordinary item 136,149 95,862 233,520 138,743
Equity in earnings (loss) of affiliates 28,998 2,222 25,572 28,807
---------- ----------- ------------ ------------
Income before extraorinary item 165,147 98,084 259,092 167,550
Utilization of tax loss carryforward 0 0 0 0
---------- ----------- ------------ ------------
Net income $165,147 $98,084 $259,092 $167,550
========== ========== =========== ============
Income Per Common Share $ 0.82 $ 0.49 $ 1.36 $ 0.84
========== ========== =========== ============
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
First Financial Corporation
Consolidated Statement of Cash Flows
<CAPTION>
(Unaudited)
Six Months Ended June 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 259,092 $ 167,550
Adjustments to reconcile net income(loss) to
net cash used by operating activities:
Depreciation 92,789 71,590
Provision for losses under servicing agreements (116,526) (187,286)
Equity in (income) loss of affiliates (25,572) (28,807)
Realized losses on marketable investment securities 0 0
Net (increase) decrease in accounts receivable (277,281) (352,390)
Net (increase) decrease in other assets (141,983) 11,743
Net increase (decrease) in other liabilities 399,835 104,370
Increase in minority interest 67,706 2,480
(Increase) decrease in restricted cash used
in operating activities - net (253,115) 99,991
Increase in mortgage loans - net 0 0
Mortgage loans funded (193,084,348) (109,780,684)
Mortgage loans sold 183,931,192 108,496,680
Increase in mortgage loans participations sold 9,080,997 1,290,509
Other (8,000) (109,561)
-------------- --------------
Net cash provided (used) for operating activities (75,214) (213,815)
-------------- --------------
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 (297,172) (30,685)
Principal collections on mortgage loans 503,730 533,033
Amortization of discount on mortgage loans purchased (17,081) (29,308)
(Advances to) repayments from affiliates 0 50,000
-------------- --------------
Net cash provided (used) for investing activities 189,477 523,040
-------------- --------------
Cash flows from financing activities:
Payment on notes payable 0 0
-------------- --------------
Net cash used for financing activities 0 0
-------------- --------------
Net increase (decrease) in cash and cash equivalents 114,263 309,225
Cash and cash equivalents at beginning of year 1,167,270 757,279
-------------- --------------
Cash and cash equivalents at end of period $ 1,281,533 $ 1,066,504
============== ==============
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 585,393 $ 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 six-month
period ended June 30, 1998 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 $5,500,000 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 $2,800,000 at June 30,
1998, 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,
1998.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
The Company had a net income of $259,092 for the six months ended
June 30, 1998 compared to net income of $167,550 for the same
period in 1997. Loan administration revenues were $3,338,808 for
the first six months of 1998 compared to $2,211,070 for the same
period of 1997. 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, 1998, originations of new residential mortgage
loans amounted to approximately $193.1 million compared to
approximately $109.8 during the same period in 1997.
Interest income for the six months ended June 30, 1998 amounted to
$776,631 compared to $566,623 for the same period in 1997. During
the six months ended June 30, 1998, the interest income earned by
the Company on investments declined by approximately $52,000 or 28%.
This decline is primarily due to the decline in the Company's
mortgages held for investment which decreased by approximately
$635,000 from June 30, 1997 to June 30, 1998. During the first six
months of 1998, the interest income earned on mortgages held for
sale increased by approximately $262,000, 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, 1998 amounted to
$275,909 as compared to $213,886 for the same period in 1997. This
increase is primarily due to increases in the amount of insurance
premiums earned and an increase in the insurance commissions earned
under a fronting and reinsurance agreement.
5
<PAGE>
Salaries and related expenses increased to $2,245,171 for the six
months ended June 30, 1998, compared to $1,693,716 for the six
months ended June 30, 1997. This increase is due to the continued
expansion of the residential mortgage origination and servicing
activities of First Preference Mortgage Corp., as discussed above.
For the six months ended June 30, 1998, interest expense amounted to
$616,658 compared to $306,829 for the same period in 1997. The
significant increase in interest expense for the six months ended
June 30, 1998 primarily due to the increased utilization of the
Company's loan participation agreement. As previously discussed, the
volume of new residential loan originations for the six months ended
June 30, 1998 increased by approximately 75% over the comparable
period in 1997.
During the six months ended June 30, 1998, the provision for losses
under servicing agreements was ($116,526) resulting in a balance in
the reserve for losses under servicing agreements of $767,186 at
June 30, 1998. For the six months ended June 30, 1997, the Company
had a negative provision for losses under servicing agreements of
($187,286) which resulted in a balance in the reserve for losses
under servicing agreements of $1,065,628 at June 30, 1997. 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
($67,707) for the six months ended June 30, 1998. For the six
months ended June 30, 1997, the minority interest in the net income
of Key Group amounted to ($2,480). 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, 1998 reflect equity in net income of affiliates of $25,572
compared to net income of $28,807 for the six months ended June 30,
1997.
Financial Condition
At June 30, 1998, the Company's total assets were $8,414,044.
Included in the Company's total assets are the assets of Key Group,
LTD. which amounted to $5,545,391 at June 30, 1998. The Key Group
assets at June 30, 1998 consisted primarily of cash and cash
equivalents of $1,150,845, mortgage loans of $1,445,590, property
and equipment of $1,074,207 and accounts receivable, prepaid
expenses and other assets of $1,874,749. The minority interest in
the net assets of Key Group at June 30, 1998 amounted to $1,896,525.
6
<PAGE>
On consolidated basis, cash and cash equivalents (including
restricted cash) were $1,845,172 June 30, 1998. Included therein
was cash and cash equivalents for Key Group of $1,150,845 and Apex
Lloyds Insurance Company of $567,194. 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, 1997, First Preference Mortgage Corp. has a
master loan participation with a financial institution totaling
$30,000,000. First Preference Mortgage Corp. is in the process of
negotiating a renewal of this agreement 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 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on May 19, 1998,
pursuant to an information statement dated April 17, 1998, 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, Mary Hyden Hunter Mann, Allen B. Mann 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, 1998 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, 1998.
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 August 13, 1998 /s/ David W. Mann
David W. Mann
President
Duly Authorized Officer and
Principal Financial Officer
Date August 13, 1998 /s/ Annie Laurie Miller
Annie Laurie Miller
Executive Vice President and
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,845,172
<SECURITIES> 297,159
<RECEIVABLES> 1,609,059
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,827,064
<DEPRECIATION> 853,736
<TOTAL-ASSETS> 8,414,044
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 3,746,467
<TOTAL-LIABILITY-AND-EQUITY> 8,414,044
<SALES> 0
<TOTAL-REVENUES> 4,391,348
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,090,121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 301,227
<INCOME-TAX> 0
<INCOME-CONTINUING> 301,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 259,092
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
</TABLE>
