U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1997
Commission file number 0-5559
FIRST FINANCIAL CORPORATION
(Exact Name of Small Business Issuer in Its Charter)
Texas 74-1502313
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
800 Washington Avenue, Waco, Texas 76701
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (254) 757-2424
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange on
Title of Each Class Which Registered
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, No Par Value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such 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
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. [ ]
State issuer's revenue for its most recent fiscal year. $6,773,924
There is no established trading market for the registrant's class of
voting stock and, therefore, registrant cannot determine the aggregate
value of voting stock held by nonaffiliates.
The number of shares outstanding of the issuer's no par value common
stock was 173,528 at March 31, 1998.
Documents Incorporated by Reference: See Page 2.
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-KSB Incorporated Document
Part III, Item 9 - Directors, The Information required by this
Executive Officers,Promoters and Item 9, is hereby incorporated
Control Persons; Compliance with by reference to the definitive
Section 16(a) of the Exchange information statement to be
Act filed within 120 days after the
end of the last fiscal year.
Part III, Item 10 - Executive The information required by this
compensation Item 10, is hereby incorporated
by reference to the definitive
information statement to be
filed within 120 days after the
end of the last fiscal year.
Part III, Item 11 - Security The information required by this
ownership of certain beneficial Item 11, is hereby incorporated
owners and management by reference to the definitive
information statement to be
filed within 120 days after the
end of the last fiscal year.
Part III, Item 12 - Certain The information required by this
relationships and related Item 12, is hereby incorporated
transactions by reference to the definitive
information statement to be
filed within 120 days after the
end of the last fiscal year.
Transitional Small Business Disclosure Format (check one)
Yes No X
Total number of pages, including cover pages - 56
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PART I
Item 1. Description of Business
First Financial Corporation ("the Company") was incorporated in the
State of Texas in 1964. During the last three years, the primary
business of the Company, either directly or through its subsidiaries,
has been servicing a portfolio of manufactured home loans, engaging in
a limited amount of insurance activities, and providing consulting and
data processing services to related companies. The Company also has a
significant investment as a limited partner in another financial
services business. (See discussion below of Key Group, Ltd.)
As of February 28, 1998, the Company services a portfolio of
manufactured home loans aggregating approximately $3.4 million sold to
conventional investors or held for investment by the Company. This
activity generates service fee and loan administration income, as well
as interest income. A majority of these manufactured home loans carry
some type of insurance against all or a portion of the credit risk.
The Company's servicing activities include collecting payments from
borrowers and remitting such funds to investors, accounting for loan
principal and interest, investor reporting, holding escrow funds for
payment of mortgage-related expenses such as taxes and insurance,
making advances to cover delinquent payments, making inspections as
required of the mortgage premises, contacting delinquent borrowers,
supervising foreclosures and property disposition in the event of
unremedied defaults and administrative duties.
In 1987 and 1988, the Company lost its authority to be involved in
loan programs guaranteed by the Government National Mortgage
Association ("GNMA"), the Veterans Administration ("VA") and the
Federal Housing Administration ("FHA") due to its failure to make
required pass through payments. As a result, the Company is no longer
in a position to actively seek to originate new manufactured home
loans, other than loans for the purchase of repossessed manufactured
homes previously financed by the Company.
A wholly-owned subsidiary of the Company, First Financial Insurance
Agency, Inc., sells hazard insurance policies relating to manufactured
home loans serviced by the Company. This activity generates
commission income. Substantially all of the income relates to
insurance written on manufactured homes financed by the Company.
Apex Lloyds Insurance Company ("Apex Lloyds"), a wholly-owned
subsidiary of the Company, is involved in underwriting hazard and
credit risks relating to manufactured home loans serviced by the
Company. Also, hazard insurance on residential homes not financed by
the Company or any related company is written by Apex Lloyds through a
fronting and reinsurance agreement with an unrelated third party. The
insurance business is a highly regulated business.
On January 7, 1998, First Apex Re, Inc. (FAR) was incorporated for the
purpose of providing reinsurance coverage for mortgage guaranty
insurance placed on loans originated by related and/or affiliated
entities. The Company directly owns 52% of the outstanding stock of
FAR. The remaining 48% is owned by Apex Lloyds Insurance Company, a
wholly-owned subsidiary of the Company.
(continued)
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Item 1. Description of Business (Continued)
Subsidiaries of the Company compete with other insurance agencies and
companies for the sale of manufactured and residential home owners
hazard insurance policies. Primary competitive factors in the
insurance industry include rates, quality of service and marketing
efforts. There are a large number of competitors in the geographic
area in which the Company operates.
The Company owns, as a limited partner, 52.94% of Key Group, Ltd., a
Texas limited partnership ("Key Group"). The general partners of Key
Group are Robert A. Mann, who is Chairman of the Board of the Company,
and First Key Holdings, Inc., a Texas corporation owned by the David
W. Mann 1990 Trust, of which Robert A. Mann is the trustee and David
W. Mann a beneficiary. David W. Mann, who is the son of Robert A.
Mann, is President of the Company. Bluebonnet Investments, Ltd., is
the other limited partner of Key Group, and owns 47.05% of the
partnership. Robert A. Mann and David W. Mann have direct and/or
indirect interests in Bluebonnet Investments, Ltd.
Key Group conducts business through its wholly-owned subsidiary, First
Preference Holdings, Inc. ("First Preference Holdings"), which has
three wholly-owned subsidiaries: Security Washington Avenue Corp.,
First Preference Financial Corp. and First Financial Information
Services, Inc. First Preference Mortgage Corp. ("FPMC"), a wholly-
owned subsidiary of Security Washington Avenue Corp., originates and
services residential mortgage loans and is an approved seller/servicer
for Federal National Mortgage Association, Federal Home Loan Mortgage
Corporation, Veterans Administration and Federal Housing
Administration. FPMC currently operates at locations in Waco,
Colleyville, Austin, Dallas, and Tyler, Texas. Each branch office is
staffed with loan originators who actively solicit residential
mortgage loans in their respective market. Substantially all of the
loans originated by FPMC are sold to governmental or private
investors. FPMC retains the right to service certain loans it sells
to investors for which FPMC is paid a service fee. FPMC funds the
loans it originates prior to the sale of such loans to investors. The
source of money to fund these loans is arrangements with financial
institutions pursuant to which such financial institutions purchase a
participation in the loan. The loan participation is repurchased from
the financial institutions when the loan is sold to the investor. As
of December 31, 1997, and February 28, 1998, FPMC was servicing a
portfolio of conventional residential mortgage loans aggregating
approximately $19.1 million and $18.7 million, respectively for
institutional investors. There are a large number of competitors in
the origination and servicing of residential mortgage loans, including
other mortgage companies, banks and financial institutions. Compared
to its competitors, FPMC is a small company. The loan products
offered by FPMC are similar to loan products offered by its
competitors. With the recent passage of legislation allowing home
equity lending in Texas, FPMC is evaluating the business opportunities
presented by said legislation, but is not currently offering home
equity loans. As a small company, FPMC attempts to provide superior
service to attract customers. FPMC has a trademark registered with
the State of Texas covering its name and Company logo. A similar
trademark application is pending with the Federal Patent and Trademark
Office.
First Preference Financial Corp. ("FPFC") was formed to be an
originator and servicer of consumer loans, primarily in the
manufactured home market. FPFC has not sought or obtained the
necessary governmental licenses to originate and service such consumer
loans. At the present time, FPFC has no active business.
(continued)
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<PAGE>
Item 1. Description of Business (Continued)
During 1994, FPMC sold a participation in a pool of manufactured
housing installment sales contracts and installment loan agreements in
the amount of $388,000 to First Preference Holdings, Inc., its parent
at that time, at face value in exchange for a note from First
Preference Holdings, Inc. for $388,000. The FPMC realized a gain
related to the unamortized discount on these loans of approximately
$50,000. The participation interest was immediately transferred back
to FPMC as a contribution to capital. During 1995, First Preference
Holdings, Inc. paid off the $318,000 remaining balance on the note it
owed FPMC. (See "Certain Relationships and Related Transactions")
During 1995, FPMC repurchased the participation interest held by a
related party in certain manufactured home loans owned by FPMC for
approximately $231,000, the unpaid balance of the participations.
(See "Certain Relationships and Related Transactions")
The Company and its consolidated subsidiaries employed 96 employees as
of December 31, 1997, of which 89 are full-time employees. Seventy-
one (71) of these employees work for First Preference Mortgage Corp.,
of which 67 are full-time employees.
The Company does not spend any significant amounts on research and
development or compliance with environmental laws.
Item 2. Description of Properties
First Preference Mortgage Corp., a second tier subsidiary of Key
Group, Ltd., in which the Company is a limited partner, owns an office
building containing approximately 13,500 square feet of office space
at 800 Washington Avenue, Waco, Texas. This office building has
served as the Company's principal office since August 1991. The
building is in good condition with no known or anticipated material
repairs being required. The building was purchased by FPMC subject to
a lien held by the Company. (See Certain Relationships and Related
Transactions")
First Preference Mortgage Corp. leased approximately 1,676 square feet
of office space located at 914 Lake Air Drive, Suite G, Waco, Texas
for a lease term of 36 months. This lease expired August 1997. Prior
to the expiration of this lease, FPMC moved this office to
approximately 1,750 square feet of office space located at 919 N.
Valley Mills Drive, Waco, Texas, for a lease term of 36 months
commencing July 1, 1997.
On January 31, 1994, First Preference Mortgage Corp. subleased
approximately 87 square feet of office space located at 25232 Grogans
Park Drive, The Woodlands, Texas for a lease term of 12 months. On
October 31, 1994, First Preference Mortgage Corp. leased approximately
2834 square feet of office space located at 14000 Woodloch Forest
Drive, The Woodlands, Texas for a lease term of 38 months. In
November, 1994, all operations in The Woodlands were moved to this new
location, and the Grogans Park Drive office in The Woodlands was
closed. The Woodlands office was closed January 31, 1996. In October
1996, First Preference Mortgage Corp. sub-leased this office space to
a third party for a lease term of 14 months beginning November 1,
1996. This lease and sub-lease expired in November 1997.
(continued)
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<PAGE>
Item 2. Description of Properties (Continued)
On March 1, 1994, First Preference Mortgage Corp. leased approximately
1,801 square feet of office space located at 4807 Spicewood Springs
Road, Austin, Texas for a lease term of 60 months. On January 31,
1996, this office was closed. In July 1996, this office was reopened.
On March 30, 1994, First Preference Mortgage Corp. leased
approximately 1,649 square feet of office space located at 6409
Colleyville Blvd., Colleyville, Texas for a lease term of 60 months.
In October 1995, First Preference Mortgage Corp. leased approximately
982 square feet of office space located at 1800 Shiloh Road, Suite
101, Tyler, Texas 75703 for a lease term of 36 months commencing
November 1, 1995.
On June 12, 1996, First Preference Mortgage Corp. sub-leased
approximately 1,899 square feet of office space located at 1221 Abrams
Road, Richardson, Texas, for a lease term of 12 months commencing July
1, 1996. This was closed in April 1997.
In August 1996, First Preference Mortgage Corp. leased approximately
500 square feet of office space located at 1053 North Pacific,
Mineola, Texas, for a lease term of 12 months commencing September 1,
1996. This lease continued in effect on a month-to-month basis until
February 1998, when the office was closed.
On April 30, 1993, Apex Lloyds Insurance Company, a subsidiary of the
Company, purchased an office building containing approximately 14,475
square feet of office space at 825 Washington Avenue, Waco, Texas.
The building is presently being used to store records and was
purchased with the intent that it will be used as the home office of
Apex in the future.
The Company does not invest in real estate in the normal course of
business and, therefore, no formal real estate investment policies
exist. The Company does, however, own a limited amount of real estate
and, from time to time, may purchase such either for possible capital
gain or for income purposes.
The Company currently owns approximately eighty acres of undeveloped
land in McLennan County, Texas, and an interest in a lodge located in
Tyler County, Texas. In addition, the Company has invested in a
limited partnership whose primary assets are undeveloped real estate
holdings in Orange County, Texas.
The Company does not currently invest in real estate mortgages but
does invest in manufactured home loans as mentioned previously in Item
1. First Preference Mortgage Corp., however, originates, services and
warehouses first lien single family residential mortgages which are
then sold to investors. Therefore, these residential mortgages are
not considered to be investments of First Preference Mortgage Corp.
(continued)
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Item 3. Legal Proceedings
The Company is involved in routine litigation incidental to its
business, both as plaintiff and defendant. Management of the Company,
after consulting with legal counsel, feels that liability resulting
from this litigation, if any, will not have a material effect on the
financial position of the Company. The Company is not aware of any
proceeding that a Governmental Authority is contemplating.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
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PART II
Item 5. Market for the Registrants' Common Equity and
Related Security Holder Matters
There is no established public trading market for the Company's no par
value common stock. On March 31, 1998, the Company had approximately
474 holders of record of its common stock.
The Company did not pay any cash dividends during the last two fiscal
years. Other than restrictions applicable to Texas corporations in
general, there are no restrictions that limit the ability to pay
dividends on common equity or that are likely to do so in the future.
Item 6. Management's Discussion and Analysis or
Plan of Operations
The Company had net income of $329,979 for 1997, compared to net
income of $226,823 for 1996. In general, the Company's net income is
due to the negative provision for losses under manufactured home
servicing agreements. The Company's results of operations include the
Company's share of the net income of Key Group, which amounted to
$218,757 in 1997 compared to a net loss of $90,393 in 1996, as
discussed below.
The Company's manufactured home servicing portfolio at the end of 1997
was approximately $3.4 million, consisting of $1.6 million for
institutional investors and $1.8 million held by a third tier
subsidiary of Key Group, Ltd., in which the Company is a limited
partner, compared to a total manufactured home servicing portfolio of
$5.2 million at the end of 1996. This reduction of approximately $1.8
million is attributable to loan foreclosures, loan payoffs and normal
loan run off. In addition, at the end of 1997, First Preference
Mortgage Corp., a third tier subsidiary of Key Group, services
approximately $19.1 million in residential mortgage loans for
governmental and private investors compared to approximately $19.6
million at the end of 1996.
Loan administration and production revenue for 1997 were $3,345,016
compared to $2,585,412 in 1996. The increase in loan administration
and production revenue during 1997, as compared to 1996, is primarily
due to increased loan originations from the Company's residential
mortgage loan operations. During 1997, First Preference Mortgage
Corp. originated approximately $261 million in new residential
mortgage loans compared to approximately $201 million in 1996.
Interest income for 1997 amounted to $1,248,424 compared to $1,361,584
in 1996. During 1997, the interest income earned by the Company on
investments declined by approximately $113,160 or 8.3%. This decline
is primarily due to the decline in the Company's mortgages held for
investment which decreased by approximately $651,941 from December 31,
1996, to December 31, 1997. During the year ended December 31, 1997,
the interest income earned on mortgages held for sale decreased by
approximately $40,000, primarily due to the general decline in
residential mortgage loan interest rates that occurred during 1997.
First Preference Mortgage Corp. earns interest from the date the
mortgage loan is closed until the date the mortgage loan is sold to
investors.
(continued)
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<PAGE>
Item 6. Management's Discussion and Analysis or
Plan of Operations (Continued)
Interest expense for the year ended December 31, 1997, amounted to
$779,975 compared to $894,228 for the same period in 1996. The
decrease in interest expense for the year and the stability of 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 financial institution's prime interest rate. (See
Liquidity and Capital Resources.)
During the years ended December 31, 1997 and 1996, the Company did not
originate any manufactured home loans. The Company only originates
new manufactured home loans to finance the resale of its inventory of
repossessed mobile homes that were originally financed through the
Company.
For the year ended December 31, 1997, the Company realized gain on
sales of assets of $1,863,832 compared to $1,320,635 in 1996. This
increase is attributable to the volume of new residential mortgage
loans sold by First Preference Mortgage Corp. to governmental and
private investors which increased to approximately $259.6 million in
1997, compared to $202.9 million in 1996, and an increase in the net
margin realized on the sale of these mortgage loans.
Salaries and related expenses for 1997 were $3,687,301 compared to
$2,979,991 in 1996. This significant increase is the result of the
continued expansion of the residential mortgage loan origination and
servicing operations of First Preference Mortgage Corp., as discussed
above.
For the year ended December 31, 1997, the Company had a negative
provision for losses under servicing agreements of $324,900 resulting
in a balance in the reserve for losses under servicing agreements at
December 31, 1997, of $908,245. In 1996, the negative provision for
losses under servicing agreements was $508,000, resulting in a balance
in the reserve account at year-end of $1,371,067. 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. The Company has analyzed its servicing portfolio
characteristics, including the servicing portfolio balance, loss
experience, maturity and aging of the loans and the credit insurance
coverage on the loans. Based on this analysis, it is the Company's
belief that its exposure to losses attributable to the servicing
agreements continues to decline.
Operating expenses for 1997 were $2,278,202 compared to $2,092,089 in
1996. The primary reason for this increase is the increase in new
residential mortgage loan originations by First Preference Mortgage
Corp., which increased by approximately 30% in 1997 over 1996.
For the year ended December 31, 1997, Key Group had net income of
$218,757 compared to a net loss of $170,759 in 1996. The minority
interest in the net income (loss) of Key Group amounted to $102,956 in
1997, compared to ($80,365) in 1996. The minority interest represents
the ownership of other entities in the Key Group net income or loss.
(continued)
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<PAGE>
Item 6. Management's Discussion and Analysis or
Plan of Operations (Continued)
The Company's portfolio of manufactured home loans held for investment
and serviced for investors is a declining asset due to loan payoffs
and normal loan run off. It is estimated that a majority of these
manufactured home loans will be liquidated over the next 3 to 4 years.
This decline in the manufactured home loans will adversely affect the
Company's loan administration revenue, interest income and insurance
premiums and commissions.
At December 31, 1997, the Company's total assets were $7,832,929.
Included in the Company's total assets are the assets of Key Group
which amounted to $4,896,371 at December 31, 1997. The Key Group
assets at December 31, 1997, consisted primarily of cash and cash
equivalents of $756,552, mortgage loans of $1,845,232, property and
equipment of $941,838 and prepaid expenses and other assets of
$1,352,673. The minority interest in the net assets of Key Group at
December 31, 1997, amounted to $1,828,819.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash are to meet operational expenses,
meet debt service obligations to its lenders, and make payments due
the holders of loans serviced by the Company. In addition, First
Preference Mortgage Corp. provides interim funding for originated
residential mortgage loans. The Company, under the terms of most of
the Company's manufactured home loan servicing agreements, is required
to make payments to the holders of the serviced loans even if the
borrower does not make the payments due.
On a consolidated basis, cash and cash equivalents (including
restricted cash) were $1,477,794 at December 31, 1997. Included
therein were cash and cash equivalents for Key Group of $756,552 and
Apex Lloyds of $288,736. 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 is only available to the Company as allowed by
state insurance regulations.
The Company's primary sources of cash to meet its operational
expenses, meet debt service obligations to its lenders and advance
deficiencies in scheduled payments due the holders of manufactured
home loans serviced by the Company will be cash on hand, cash
generated by liquidation of existing assets, collection of claims on
credit insurance and servicing fees.
First Preference Mortgage Corp. has a master loan participation
agreement with a financial institution in the amount of $25,000,000
which expires on August 31, 1998. On March 10, 1998, the amount of
this agreement was increased to $30,000,000 and will remain at this
level until May 31, 1998, at which time the amount will decrease to
$25,000,000. Under this agreement, the financial institution has the
option to purchase an undivided interest in the residential mortgage
loans originated by First Preference Mortgage Corp. When the subject
mortgage loan is sold in the secondary market, the financial
institution recoups its investment plus a specified yield on its
investment. At December 31, 1997, approximately $13,581,062 in
participations were outstanding under this agreement.
(continued)
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Item 6. Management's Discussion and Analysis or
Plan of Operations (Continued)
The Company had no material commitments for capital expenditures at
December 31, 1997. As reflected in the attached financial statements,
the stockholders' equity of the Company was $3,492,834 at December 31,
1997, and the stockholders' equity was $3,174,114 at December 31,
1996.
YEAR 2000
The Company has reviewed its critical information systems for YEAR
2000 compliance and has initiated plans to remedy any deficiencies in
a timely manner. As a result of the review and action plan, the
Company believes the cost of such remedial corrective actions are not
material to the Company's financial position, results of operations or
cash flows.
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<PAGE>
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
Number
Independent Auditors' Report ..................................... 13
Financial Statements
Consolidated Balance Sheet................................... 14
Consolidated Statements of Income............................ 15
Consolidated Statements of Stockholders' Equity (Deficit) ... 16
Consolidated Statements of Cash Flow......................... 17
Notes to Consolidated Financial Statements ............... 18 - 32
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<PAGE>
PATTILLO, BROWN & HILL, L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS
Providing Services Since 1923
AMERICAN PLAZA
200 WEST HIGHWAY 6, SUITE 300
P.O. BOX 20725
WACO, TEXAS 76702-0725
(254) 772-4901
FAX (254) 772-4920
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
First Financial Corporation
We have audited the accompanying consolidated balance sheet of
First Financial Corporation and Subsidiaries as of December 31, 1997,
and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the two years on the period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
First Financial Corporation and Subsidiaries as of December 31, 1997,
and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
April 3, 1998
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<PAGE>
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash and cash equivalents $ 1,167,270
Restricted cash 310,524
Accounts receivable 1,199,887
Receivables from related parties 131,891
Marketable investment securities 303,865
Real estate held for investment, at cost 444,000
Mortgage loans held for investment 1,720,495
Mortgage loans held for sale 290,629
Investments in and advances to affiliated companies 414,217
Property and equipment 771,877
Deferred tax benefit 298,705
Cash surrender value of officers' life insurance 345,368
Other assets 434,201
----------
$ 7,832,929
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes payable to related parties $ -
Estimated reserve for losses under servicing agreements 908,245
Estimated reserve for losses under insurance policies 190,043
Accounts payable 814,809
Accrued expenses and other liabilities 481,541
Payables to related parties 38,752
Interest payable 77,886
---------
2,511,276
---------
Minority interest 1,828,819
---------
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
Additional paid-in capital 518,702
Retained earnings 3,003,982
Unrealized gain (loss) on securities
net of applicable taxes 4,459
---------
3,528,143
Less: Treasury stock - at cost 35,309
---------
3,492,834
---------
$ 7,832,929
==========
See accompanying notes to consolidated financial statements.
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<PAGE>
<TABLE>
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years Ended December 31
1997 1996
<S> <C> <C>
REVENUE
Loan administration and production $ 3,345,016 $ 2,585,412
Interest income 1,248,424 1,361,584
Insurance premiums and commissions 63,879 45,857
Consulting fees 246,675 256,464
Realized gain (losses) on sale of assets 1,863,832 1,320,635
Other 6,098 29,064
--------- ---------
6,773,924 5,599,016
--------- ---------
COST AND EXPENSES
Salaries and related expenses 3,687,301 2,979,991
Interest expense 779,975 894,228
Provision for losses under servicing agreements and other ( 324,900) ( 508,000)
Operating expenses
Insurance claim losses and loss expenses 61,940 85,048
Professional fees 153,331 95,799
Depreciation and amortization 144,205 169,721
General and administrative expense 1,918,726 1,741,521
--------- ---------
6,420,578 5,458,308
--------- ---------
INCOME BEFORE INCOME TAXES, EQUITY IN EARNINGS
OF AFFILIATES, AND EXTRAORDINARY ITEMS 353,346 140,708
--------- ---------
INCOME TAXES
Current - -
Deferred - -
--------- ---------
- -
--------- ---------
INCOME BEFORE MINORITY INTEREST 353,346 140,708
MINORITY INTEREST (EARNINGS) LOSS ( 102,956) 80,365
INCOME BEFORE EQUITY IN EARNINGS OF
AFFILIATES AND EXTRAORDINARY ITEMS 250,390 221,073
EQUITY IN EARNINGS OF AFFILIATES 79,589 5,750
--------- ---------
NET INCOME $ 329,979 $ 226,823
========== ==========
INCOME PER COMMON SHARE $ 1.89 $ 1.31
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
-15-
<PAGE>
<TABLE>
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<CAPTION>
Net
Unrealized
Loss on
Additional Marketable
Common Paid-in Retained Treasury Investment
Stock Capital Earnings Stock Securities Total
---------- ---------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 1,000 $ 518,702 $2,447,180 $( 35,309) $( 3,220) $2,928,353
Net Income - - 226,823 - - 226,823
Unrealized gain on marketable
investment securities - - - - 18,938 18,938
---------- ---------- ---------- ----------- ------------ ----------
Balance, December 31, 1996 1,000 518,702 2,674,003 ( 35,309) 15,718 3,174,114
Net Income - - 329,979 - - 329,979
Unrealized loss on marketable
investment securities - - - - ( 11,259) ( 11,259)
---------- ---------- ---------- ----------- ------------ ----------
Balance, December 31, 1996 $ 1,000 $ 518,702 $3,003,982 $( 35,309) $ 4,459 $3,492,834
========== ========== ========= ============ =========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
-16-
<PAGE>
<TABLE>
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Years Ended December 31
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 329,979 $ 226,823
Adjustments to reconcile net income (loss) to
net cash provided for operating activities:
Realized (gain) losses on sale of assets ( 92,638) ( 1,361,584)
Depreciation and amortization 96,593 187,435
Equity in net (earnings) loss of affiliates ( 29,588) 6,751
Provision for losses under servicing agreements and other ( 551,417) ( 515,216)
Increase in restricted cash used in operating activities - net - 16,606
Sale of stock interest in subsidiary - -
(Increase) decrease in accounts receivable ( 376,981) 90,909
Increase (decrease) in accounts payable ( 21,061) ( 438,918)
Increase (decrease) in minority interest 102,956 ( 80,366)
Mortgage loans funded (261,088,529) (201,158,954)
Mortgage loans sold 259,591,829 202,917,657
Change in mortgage loan participation sold 1,251,034 ( 334,054)
Other 139,164 9,886
Uncollectible receivables - 67,999
-------------- --------------
NET CASH USED BY OPERATING ACTIVITIES ( 648,659) ( 365,026)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Gain (loss) on sale of marketable investment securities ( 6,098) 1,289
Proceeds from sale of marketable investment securities 6,847 13,157
Purchases of marketable investment securities - -
Amortization of discount on mortgage loans purchased - (45,273)
Principal received on mortgage loans 943,426 929,647
Purchases of property and equipment ( 801,675) ( 61,206)
Proceeds from sales of property and equipment 816,150 -
-------------- --------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 958,650 837,614
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - -
Payments on notes payable - ( 371,000)
-------------- --------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES - ( 371,000)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 309,991 101,588
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 857,279 755,691
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,167,270 $ 857,279
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 779,975 $ 894,228
============= =============
Federal income taxes paid $ - $ -
============= =============
SIGNIFICANT NON-CASH TRANSACTIONS
Net change in unrealized holding gains on
available-for-sale securities $( 17,059) $ 28,694
============== =============
See accompanying notes to consolidated financial statements.
</TABLE>
-17-
<PAGE>
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
First Financial Corporation ("the Company") was
incorporated in the State of Texas in 1964. During the last
three years, the primary business of the Company, either
directly or through its subsidiaries, has been servicing a
portfolio of manufactured home loans, engaging in a limited
amount of insurance activities, and providing consulting and
data processing services to related companies.
Basis for Financial Presentation
The Company's financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing those financial statements, management is required
to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the
balance sheet and revenue and expenses for the period.
Actual results could differ significantly from those
estimates.
Insurance Related Activities
The Company owns 100% of a property and casualty insurance
company which is included in the consolidated financial
statements. The policies below relate specifically to the
insurance activities of the company.
Premium Revenues - Premiums on property and casualty
contracts are recognized as earned primarily on a prorata
basis over the contract period.
Unpaid Losses and Loss Expenses - Unpaid losses and loss
expenses are based on case-basis estimates for reported
claims, and on estimates, based on experience, for unreported
claims and loss expenses. The provisions for unpaid losses
and loss expenses at December 31, 1997 and 1996, have been
established to cover the estimated net cost of insured
losses. The amounts are necessarily based on estimates and,
accordingly, there can be no assurance that the ultimate
liability will not exceed such estimates.
Acquisition Cost - Acquisition cost includes such things as
commissions, premium taxes and other items, which are charged
to current operations as incurred. Amounts are deferred
based upon the capitalization and unearned premium rates.
Deferred costs are amortized over the contract period on a
prorata basis.
(continued)
-18-
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Insurance Related Activities (Continued)
Reinsurance - The Company cedes 100% of the insurance
written on residential homes to a reinsurer under a fronting
and reinsurance agreement. This reinsurance arrangement
provided greater diversification of business and minimized
the Company's losses arising from large risks or from hazards
of an unusual nature. Although the ceding of insurance does
not discharge the original insurer from its primary liability
to its policyholder, the insurance company that assumes the
coverage assumes the related liability, and it is the
practice of insurers for accounting purposes to treat insured
risks, to the extent of the reinsurance ceded, as though they
were risks for which the original insurer is not liable.
During 1997, substantially all of the Company's insurance was
written under this fronting and reinsurance agreement.
Principles of Consolidation
The accompanying consolidated financial statements include
the financial statements of First Financial Corporation, and
all of its wholly-owned and majority owned subsidiaries.
Minority interest represents ownership of other entities in
the net assets of Key Group, Ltd. (See Note 11). All
significant intercompany transactions and balances have been
eliminated in the consolidation.
Cash Equivalents
For the purposes of the 1997 and 1996 consolidated
statements of cash flows, the Company considers all highly
liquid instruments with original maturities of three months
or less to be cash equivalents.
Marketable Investment Securities
Marketable investment securities classified as available
for sale are adjusted to market value at year-end. The
unrealized gain is recorded net of income taxes to
stockholder's equity. Realized gains or losses on sale of
securities are calculated based on the specific
identification method.
Investment in Affiliated Companies
Investment in a limited partnership, limited-liability
company, and unincorporated joint ventures at December 31,
1997, are accounted for by the equity method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed using accelerated and straight-line methods over the
estimated useful lives of the assets.
(continued)
-19-
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real Estate Held For Investment
Real estate held for investment is carried at the lower of
cost or market in accordance with FASB 121. As of year-end,
no permanent impairments to this property had occurred.
Mortgage Loans Held For Sale
Mortgage loans held for sale are carried at the lower of
aggregate cost or market as determined by outstanding
commitments from investors or current investment yield
requirements calculated on the aggregate loan basis.
Mortgage Loans Held For Investment
Mortgage loans held for investment are carried at
historical cost unless otherwise permanently impaired.
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.
Foreclosed Manufactured Homes and Claims Receivable
Foreclosed manufactured homes and claims receivable, which
consists of manufactured homes acquired by foreclosures, is
valued at the lower of cost or net realizable value.
Loan Administration Revenue
Loan administration revenue represents net fees earned for
servicing manufactured home loans owned by institutional
investors. The fees are generally calculated on the
outstanding principal balances of the loans serviced and are
recorded as income when earned. Loan production revenue,
representing fees earned for originating residential mortgage
loans, is also included in loan administration revenue.
Earnings Per Common Share
Earnings per common share were computed by dividing net
income by the weighted average number of shares outstanding.
(continued)
-20-
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mortgage Loan Servicing Rights
For mortgage loans sold, the Company retains the right to
service certain loans. Those rights are capitalized and
amortized over the life of the loan on a straight-line basis.
Reclassifications
Certain reclassifications have been made to prior periods'
financial statements to conform to current year
classifications. Such reclassifications had no effect on
previously reported net income.
2. CONTINGENCIES AND THE CURRENT OPERATING ENVIRONMENT
First Financial Corporation (FFC) participated in the Government
National Mortgage Association (GNMA) Mortgage-Backed Securities
(GNMA-MBS) program for manufactured homes through 1987. Under the
GNMA-MBS program, the Company collected monthly principal and
interest payments from the mortgagor and remitted the payment to
the security holder, after deducting a service fee. The security
holder of a GNMA-MBS was guaranteed monthly payment of principal
and interest regardless of whether the Company collected the
necessary amount from the mortgagor. Therefore, First Financial
Corporation made advances to security holders using its own funds
for scheduled principal and interest payments due that were
delinquent or in the process of repossession. Substantially all
loans were originated with some credit risk protection; however,
a portion of the loss remained uninsured and had to be sustained
by the Company.
The declining economies and increased unemployment rates of the
Southwest in 1986 and 1987 caused delinquent loans and loans in
repossession status to increase significantly. These high levels
of delinquent loans and loans in repossession status placed a
serious strain on the Company's liquidity. Beginning in 1986 and
on numerous occasions throughout 1987, management met and
discussed with and made various proposals to representatives of
GNMA in an effort to reduce the losses being sustained by the
Company on the loans serviced under the GNMA-MBS Program.
None of the proposals were accepted by GNMA. In September 1987,
the Company advised GNMA that it would not be able to meet the
scheduled payments to security holders on September 15, 1987, and
made application requesting funds to meet the payments. The
advance of funds by GNMA constitutes default under the guaranty
agreements between the Company and GNMA. As a result of the
default, the Company's rights, title and interests in mortgages
pooled under its GNMA-MBS Program were extinguished.
Subsequent to its extinguishment, the Company entered into an
Interim Servicing Agreement with GNMA with respect to the
mortgages pooled under the GNMA-MBS Program. Under the
agreement, the Company continued to service the mortgages on
behalf of GNMA through March 1, 1988.
(continued)
-21-
<PAGE>
2. CONTINGENCIES AND THE CURRENT OPERATING ENVIRONMENT (Continued)
Between September 15, 1987 and March 1, 1988, GNMA made advances of
approximately $15,100,000 to the Company in order to meet scheduled
payments to security holders. On September 12, 1988, GNMA made demand on
the Company for approximately $21,129,000 in losses incurred by GNMA as a
result of the default and GNMA assuming the issuer obligations of the
Company. Further, GNMA anticipated that it would incur additional losses
in connection with assuming the Company's issuer responsibilities. There
has been no reassertion of these claims since that time.
FFC's management and legal counsel are not aware of any facts which would
lead them to believe that it is probable GNMA will or intends to assert
or reassert any claims against FFC. The Company's position is it has no
liability to GNMA. Legal counsel has advised FFC that if GNMA does
assert or reassert any claims, FFC should in addition to its defense it
has no liability, raise other defenses such as the expiration of the
statute of limitations and laches. It is not possible to determine, at
this time, the ultimate outcome of these matters and the effects, if any,
on the accompanying consolidated financial statements since the final
resolution depends on circumstances which cannot currently be evaluated
with certainty.
3. LOAN ADMINISTRATION
The Company was servicing loans owned by institutional investors
aggregating approximately $1,483,000 at December 31, 1997. The Company
was also servicing loans owned by the Company's majority owned
subsidiary, Key Group, Ltd., aggregating approximately $2,132,000 at
December 31, 1997. Related trust funds of approximately $109,000 at
December 31, 1997, on deposit in special bank accounts are not included
in the consolidated financial statements.
The Company's majority owned subsidiary, Key Group, Ltd., was servicing
residential loans held for sale or owned by institutional investors
aggregating approximately $19,152,000 at December 31, 1997. Related
trust funds of approximately $206,000 at December 31, 1997, on deposit
in special bank accounts are not included in the financial statements.
4. MARKETABLE INVESTMENT SECURITIES
Marketable investment securities at December 31, 1997, consist of:
Unrealized Unrealized Market
December 31, 1997 Cost Gain Loss Value
Marketable equity securities -
available-for-sale $123,327 $ 13,906 $ 7,060 $130,173
Corporate bonds - held-to-maturity 173,692 - - 173,692
$297,019 $ 13,906 $ 7,060 $303,865
======== ======== ======== ========
A realized loss of $6,098 was recognized in current year due to sale of
marketable equity securities. The unrealized gain relating to securities
available-for-sale is $4,459.
(continued)
-22-
<PAGE>
4. MARKETABLE INVESTMENT SECURITIES (Continued)
The corporate bonds mature as follows:
1998 $ 50,000
1999 -
2000 -
2001 125,000
2002 -
2003 and thereafter -
5. INVESTMENT IN AND ADVANCES TO AFFILIATED COMPANIES
Investment in and advances to affiliated companies consists of a
24.99% interest in Vidor, Ltd. (a limited partnership) and a 25%
interest in Whispering Pines, L.L.C. (a limited liability
company) at December 31, 1997. Summary financial information of
Vidor, Ltd. and Whispering Pines, L.L.C. for the year ended
December 31, 1997, is as follows:
1997 1996
Vidor, Ltd.
Assets $1,868,862 $1,605,140
Liabilities 74,596 112,096
--------- ---------
Equity $1,794,266 $1,493,044
========= =========
Revenue $ 424,172 $ 36,809
Expenses 111,432 28,736
--------- ---------
Net Income $ 312,740 $ 8,073
========= =========
Whispering Pines
Assets $ 190,777 $ 386,930
Liabilities - -
--------- ---------
Equity $ 190,777 $ 386,930
========= =========
Revenue $ 6,853 $ 22,519
Expenses 3,006 7,590
--------- ---------
Net Income $ 3,847 $ 14,929
========= =========
-23-
<PAGE>
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31,
1997:
Estimated
Useful Lives
Land $ 181,500
Buildings and improvements 395,243 10 to 40 years
Equipment, furniture and fixtures 961,211 3 to 10 years
---------
1,537,954
Less accumulated depreciation ( 766,077)
----------
$ 771,877
==========
7. ESTIMATED RESERVE FOR LOSSES UNDER SERVICING AGREEMENTS
Under the terms of certain of its existing servicing agreements,
the Company is at risk for any credit losses and costs of
foreclosure, net of credit insurance proceeds, sustained on
default of the borrower. During 1987 and 1986, as a result of
the declining economies and other matters discussed in Note 2,
the Company made substantial loss provisions to raise the
estimated reserve for losses under servicing agreements to levels
that adequately reflect management's estimate of future losses
that may be incurred under the Company's current and prior
servicing agreements. Beginning in 1990, the Company changed its
reserve estimate for losses under servicing agreements as a
result of decreases in the amount of serviced loans outstanding.
An analysis of the reserve follows:
December 31,
1997 1996
Balance, beginning $ 1,371,067 $ 1,886,283
Current provisions ( 324,900) ( 508,000)
Losses - net ( 137,922) ( 7,216)
---------- ----------
Balance, ending $ 908,245 $ 1,371,067
========== ==========
The losses incurred above are shown net of credit insurance
proceeds and other payments received as further discussed in Note 2.
8. LEASES
The Company maintains various equipment under long-term operating
leases. Future minimum rental payments required under these
leases are approximately:
1998 $ 62,759
1999 49,153
2000 23,863
(continued)
-24-
<PAGE>
8. LEASES (Continued)
The rental expense for equipment leases was $71,576 and $66,016
for December 31, 1997 and 1996, respectively.
The Company also leases office space for its locations under
various operating leases. The future minimum rental payments
required are approximately:
1998 $ 97,477
1999 66,984
2000 19,399
2001
The rental expense for office space was $217,441 and $175,641 for
1997 and 1996, respectively. Also, the Company sub-leased the
office in The Woodlands beginning in 1996 for $2,350 per month.
This sub-lease expires December 1997.
9. RELATED PARTY TRANSACTIONS
As described below, the Company is involved in a number of other
transactions with companies owned or managed by related parties.
On September 30, 1991, the Company executed a Limited Partnership
Agreement (the "Agreement") to form a limited partnership with
the name "Key Group, Ltd." A certificate of Limited Partnership
for Key Group, Ltd. ("Key Group") was filed with and approved by
the Secretary of State of Texas on October 2, 1991. The limited
partners in Key Group are the Company and Bluebonnet Investments,
Ltd. ("Bluebonnet"). The general partners are Robert A. Mann and
First Key Holdings, Inc.
Pursuant to the Agreement, on September 30, 1991, the Company, as
a limited partner in Key Group, contributed to Key Group certain
mobile home notes payable to and held by the Company having an
aggregate unpaid balance of approximately $1,750,000, plus an
amount of cash on hand equal to the difference between $2,249,780
and the unpaid balance of such notes as of the date transferred
to Key Group. In exchange for its contribution, the Company
received 52,936 partnership units ("Units") out of a total of
100,000 Units representing approximately 52.94% of Key Group.
Bluebonnet, a Texas limited partnership in which Robert A. Mann
and/or David W. Mann have direct and indirect interest (as
described below), contributed cash or cash equivalents equal to
$1,999,795 in exchange for 47,054 Units representing
approximately 47.05% of Key Group.
(continued)
-25-
<PAGE>
9. RELATED PARTY TRANSACTIONS (Continued)
Robert A. Mann, individually, and First Key Holdings, Inc., a
Texas corporation which is owned by the David W. Mann 1990 Trust,
of which Robert A. Mann is trustee and David W. Mann is a
beneficiary, each contributed $212.50 for 5 Units each in Key
Group.
Key Group executed a Servicing Agreement with the Company
pursuant to which the Company will continue to service the notes
the Company contributed to Key Group.
Key Group conducts business through its wholly-owned subsidiary,
First Preference Holdings, Inc. ("First Preference Holdings").
First Preference Holdings owns three wholly-owned subsidiaries:
First Preference Financial Corp., First Financial Information
Services, Inc., and Security Washington Avenue Corp. First
Preference Mortgage Corp. originates and services residential
mortgage loans and is an approved Seller/Servicer for Federal
National Mortgage Association ("FNMA"), Federal Home Loan
Mortgage Corporation ("Freddie Mac"), Veterans Administration
("VA") and Federal Housing Administration ("FHA"). During 1997,
First Preference Holdings, Inc. transferred 100% of First
Preference Mortgage Corp's stock to Security Washington Avenue
Corp. in exchange for 100% of the outstanding stock of Security
Washington Avenue Corp.
First Preference Financial Corp. was formed to be an originator
and servicer of consumer loans, primarily in the manufactured
home market. At the present time, First Preference Financial
Corp. has not obtained any government licenses to originate and
service consumer loans. First Financial Information Services,
Inc. provides data processing services for the Company and its
subsidiaries. On June 1, 1992, the Company sold 100% of the
issued and outstanding common stock of First Financial
Information Services to First Preference Holdings for a purchase
price equal to its investment in First Financial Information
Services, Inc.
Bluebonnet is directly and indirectly controlled by members of
the Mann family. Robert A. Mann is a general and limited partner
of Bluebonnet in his individual capacity. He is also the
president and sole director of Bluebonnet Enterprises, Inc., the
corporate general partner of Bluebonnet. Robert A. Mann, David
W. Mann, Henry W. Seals, Chapter 7 Trustee for David W. Mann and
Robert A. Mann's other two children (David W. Mann's siblings)
have direct or indirect interests in limited partnerships which
are the limited partners of Bluebonnet. Robert A. Mann is
trustee and David W. Mann is a beneficiary of the trust which
owns the outstanding stock of the corporate general partner of
Bluebonnet and the corporate general partners of the limited
partnerships which are limited partners of Bluebonnet.
During 1997, the Company sold real estate to a related party in
exchange for a note receivable in the amount of $32,500.
-26-
<PAGE>
10. INCOME TAXES
The provision for income taxes consists of the following
components at December 31, 1997 and 1996:
1997 1996
Income tax computed at corporate
Federal rate $ 112,193 $ 77,120
Earnings (loss) of affiliates 7,945 ( 29,279)
Nondeductible reduction in reserve
for losses ( 110,466) ( 172,720)
Nondeductible income and expenses ( 2,310) ( 4,208)
Change in deferred tax asset ( 7,362) 129,087
---------- ----------
$ - $ -
========== ==========
The deferred tax benefit in the accompanying balance sheet at
December 31, 1997, includes the following components:
Deferred tax benefit attributable to net
operating loss carryforwards $ 1,877,073
Deferred tax benefit attributable to
reserve for losses under servicing
agreements 308,803
Deferred tax benefit applicable to unrealized
(gain) loss on marketable equity securities ( 2,388)
Deferred tax asset valuation allowance (1,884,783)
------------
Net deferred tax asset $ 298,705
============
The valuation allowance decreased by approximately $185,000 due
primarily to change in the amount deferred relating to reserve
for losses under servicing, and difference between net operating
loss carryforward recorded on the books and actual benefit from
the tax return for 1996.
A valuation allowance has been provided for substantially all
future benefits available for tax purposes due to the trend of
historical losses of the Company and the unlikely possibility of
future realization. The net deferred tax asset is substantially
unchanged from prior years and relates to benefits available at a
subsidiary level where an unconsolidated return is filed.
At December 31, 1997, for federal income tax purposes, the
Company has consolidated unused net operating loss carryforwards
of approximately $5,500,000 substantially all of which expire in
2002, 2003 and 2006, consolidated unused contribution
carryforwards of approximately $18,000 expiring from 1996 - 1998.
-27-
<PAGE>
11. COMMITMENTS AND CONTINGENCIES
Substantially all of the conventional pools of manufactured home
loans serviced by the Company, approximating $3,600,000 and
$5,200,000 at December 31, 1997 and 1996, respectively, were sold
to investors with recourse. The recourse provisions typically
require the Company to repurchase delinquent loans at the unpaid
principal 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 December 31, 1997.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business. Historically, the
ultimate disposition of these matters has not had a material
adverse effect on the Company's financial condition. It is not
possible to determine, at this time, the ultimate outcome of
these matters and the effects, if any, on the accompanying
consolidated financial statements since the final resolution
depends on circumstances which cannot currently be evaluated with
certainty. Certain accruals for loss contingencies have been
recorded in the financial statements of the Company.
12. SEGMENT REPORTING
The Company operates principally in two segments, mortgage
banking and commission sales and underwriting of hazard insurance
for manufactured housing primarily in the Central and Southeast
region of Texas. Other segments include underwriting credit
insurance, and land development through the Company's affiliated
company.
Information concerning the Company's operations in different
segments follows:
<TABLE>
<CAPTION>
Corporate
Mortgage Insurance and
Banking Sales Other Consolidated
<S> <C> <C> <C> <C>
For the Year Ended
December 31, 1997
Revenue $6,364,286 $ 96,891 $ 246,888 $6,708,065
Operating profit 548,736 ( 7,846) ( 73,275) 467,615
Identifiable assets 6,565,868 1,160,045 111,744 7,837,657
Depreciation 131,882 11,263 1,060 144,205
Capital expenditures 797,115 4,560 - 801,675
For the Year Ended
December 31, 1996
Revenue $5,257,525 $ 84,791 $ 256,700 $5,599,016
Operating profit 56,065 77,374 ( 52,463) 80,976
Identifiable assets 6,374,454 1,366,157 110,682 7,851,293
Depreciation 157,168 12,111 442 169,721
Capital expenditures 56,519 1,506 3,180 61,205
</TABLE>
-28-
<PAGE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
The fair value of cash and cash equivalents approximates
the carrying value because of the short time until
realization of these amounts.
Accounts Receivable and Payable
The fair value of accounts receivable and accounts payable
approximates the carrying value because of the short time
until realization of those balances.
Mortgage Loans Held for Sale
Mortgage loans held for sale are net of any participations
sold to investors. The fair value of mortgage loans held for
sale is based upon the estimated price the investor is
willing to pay. The value of these loans are:
Carrying Value Market Value
Mortgage Loans Held for Sale $ 290,629 $ 299,787
Mortgage Loans Held for Investment
Mortgage loans held for investment are net of any
participations sold and any discounts. The fair value of the
balance is based upon discounted cash flows at the market
rate of interest for similar loans. The value of these loans
are:
Carrying Value Market Value
Mortgage Loans Held for Investment $1,720,495 $1,783,141
Mortgage Servicing Rights
Mortgage Servicing Rights is net of any amortization taken.
The fair value of the balance is based upon the market rate
of servicing rights of similar loans. The value of these
loans are:
Carrying Value Market Value
Mortgage Servicing Rights $ 95,123 $ 138,730
Concentrations of Credit
The Company maintains cash balances at several depository
institutions. Cash accounts at these institutions are
insured by FDIC for up to $100,000 for each account. Amounts
in excess of insured limits were approximately $1,952,805 at
December 31, 1997. Of that balance, approximately $1,200,000
relates to funds on deposit in the settlement account with a
depository institution. The primary function of this account
is to receive payment on loans sold which were financed by
the depository institution. When payments are received, the
balance is distributed to the depository institution and the
Company, based upon the financing agreement.
(continued)
-29-
<PAGE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Retirement Plans
The Company maintains a 401(k) profit sharing plan for the
benefit of all employees who have attained the age of twenty-
one and have completed one year of service. The calendar
year plan provides for voluntary employee contributions as a
deduction from wages with a required matching contribution by
the employer. The Company has a matching contribution equal
to 50% of the amount of the salary reduction up to 2% plus
25% for reductions in excess of 2% to a maximum of 4%. For
the year ended December 31, 1997, the Company incurred a
total contribution expense of $9,610.
14. CREATION OF SUBSIDIARY
On January 7, 1998, First Apex Re, Inc. (FAR) was incorporated
for the purpose of providing reinsurance coverage for mortgage
guaranty insurance placed on loans originated by related and/or
affiliated entities.
The Company directly owns 52% of the outstanding stock of FAR.
The remaining 48% is owned by Apex Lloyds Insurance Company, a
wholly-owned subsidiary of the Company.
-30-
<PAGE>
PART II
(Continued)
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures
Not Applicable
-31-
<PAGE>
PART III
Item 9. Directors and Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
The information required by this Item 9, is hereby incorporated by
reference to the definitive information statement to be filed within
120 days after the end of the last fiscal year.
Item 10. Executive Compensation
The information required by this Item 10, is hereby incorporated by
reference to the definitive information statement to be filed within
120 days after the end of the last fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item 11, is hereby incorporated by
reference to the definitive information statement to be filed within
120 days after the end of the last fiscal year.
Item 12. Certain Relationships and Related Transactions
The information required by this Item 12, is hereby incorporated by
reference to the definitive information statement to be filed within
120 days after the end of the last fiscal year.
-32-
<PAGE>
PART III
(Continued)
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits included herein:
10 - Second Amendment to Master Whole-Loan
Purchase Agreement dated June 24, 1997,
between First Preference Mortgage Corp.
and Bank One, Texas, N.A.
10 - Third Amendment to Master Whole-Loan
Purchase Agreement dated July 24, 1997,
between First Preference Mortgage Corp.
and Bank One, Texas, N.A.
10 - Fourth Amendment to Master Whole-Loan
Purchase Agreement dated August 24, 1997,
between First Preference Mortgage Corp.
and Bank One, Texas, N.A.
10 - Fifth Amendment to Master Whole-Loan
Purchase Agreement dated September 29, 1997,
between First Preference Mortgage Corp.
and Bank One, Texas, N.A.
10 - Sixth Amendment to Master Whole-Loan
Purchase Agreement dated February 27, 1998,
between First Preference Mortgage Corp.
and Bank One, Texas, N.A.
21 - Subsidiaries of the Registrant
27 - Financial Data Schedule
Exhibits hereby incorporated by reference:
3 - Articles of Incorporation filed with Form 10-K
year ended December 31, 1987, on page 35.
3 - Bylaws of Registrant filed with Form 10-K year
ended December 31, 1991, and pages 38 to 64.
10 - Limited Partnership Agreement with Key Group,
Ltd. dated September 30, 1991, filed with Form
8-K dated September 30, 1991, on pages 5 - 29.
10 - Master Whole-Loan Purchase Agreement dated
March 27, 1996, between First Preference
Mortgage Corp. and Bank One Texas, N.A.
(continued)
-33-
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
10 - First Amendment to Master Whole-Loan
Purchase Agreement dated March 18, 1997,
between First Preference Mortgage Corp.
and Bank One, Texas, N.A.
(b) Report on Form 8-K
A form 8-K with a report date of December 26, 1997, was
filed on January 12, 1998, pertaining to changes in control
of the registrant.
-34-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, First Financial Corporation has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized:
FIRST FINANCIAL CORPORATION
/s/ David W. Mann /s/ Annie Laurie Miller
By: David W. Mann By: Annie Laurie Miller
President and Principal Executive Vice President
Financial Officer and Principal
Accounting Officer
Date: April 13, 1998 Date: April 13, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
/s/ Robert A. Mann Date: April 13, 1998
Robert A. Mann, Director and
Chairman of the Board
/s/ David W. Mann Date: April 13, 1998
David W. Mann, Director and
President
/s/ Walter J. Rusek Date: April 13, 1998
Walter J. Rusek, Director
/s/ Barrett Smith Date: April 13, 1998
Barrett Smith, Director
/s/ Jack Hauser Date: April 13, 1998
Jack Hauser, Director
- 35 -
SECOND AMENDMENT TO MASTER WHOLE-LOAN PURCHASE AGREEMENT
THIS DOCUMENT is entered into as of June 24, 1997, between FIRST
PREFERENCE MORTGAGE CORP., a Texas corporation ("Seller"), and BANK
ONE, TEXAS, N.A., a national banking association ("Buyer").
Seller and Buyer are party to the Master Whole-Loan Purchase
Agreement (as it may have been renewed, extended, and amended through
the date of this document, the "Purchase Agreement") dated as of March
27, 1996. Seller and Buyer have agreed, upon the following terms and
conditions, to extend the Stated-Termination Date. Accordingly, for
adequate and sufficient consideration, Seller and Buyer agree as
follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this
document (a) terms defined in the Purchase Agreement have the same
meanings when used in this document and (b) references to "Sections,"
"Schedules," and "Exhibits" are to the Purchase Agreement's sections,
schedules, and exhibits.
2. AMENDMENT. The following definition in Section 1.1 of
the Purchase Agreement is entirely amended as follows:
Stated-Termination Date means July 31, 1997.
3. CONDITIONS PRECEDENT. Notwithstanding any contrary
provision, the foregoing paragraphs in this document are not effective
unless and until (a) the representations and warranties in this
document are true and correct and (b) Buyer receives counterparts of
this document executed by each party named on the signature page or
pages of this document.
4. RATIFICATIONS. To induce Buyer to enter into this
document, Seller (a) ratifies and confirms all provisions of the
Purchase Documents as amended by this document, (b) ratifies and
confirms that all guaranties, assurances, and Liens granted, conveyed,
or assigned to Buyer under the Purchase Documents (as they may have
been renewed, extended, and amended) are not released, reduced, or
otherwise adversely affected by this document and continue to
guarantee, assure, and secure full payment and performance of the
present and future Obligation, and (c) agrees to perform those acts
and duly authorize, execute, acknowledge, deliver, file, and record
those additional documents, and certificates as Buyer may request in
order to create, perfect, preserve, and protect those guaranties,
assurances, and Liens.
5. REPRESENTATIONS. To induce Buyer to enter into this
document, Seller represents and warrants to Buyer that as of the date
of this document (a) Seller has all requisite authority and power to
execute, deliver, perform its obligations under this document, which
execution, delivery, and performance have been duly authorized by all
necessary corporate action, require no action by or filing with any
Tribunal, do not violate any of its articles of incorporation,
certificate of incorporation, or bylaws or (except where not a
Material-Adverse Event) violate any Law applicable to it or any
material agreement to which it or its assets are bound, (b) upon
execution and delivery by all parties to it, this document will
constitute Seller's legal and binding obligation, enforceable against
it in accordance with this document's terms except as that
enforceability may be limited by Debtor Laws and general principles of
equity, (c) all other representations and warranties in the Purchase
Documents are true and correct in all material respects except to the
extent that (i) any of them speak to a different specific date or (ii)
the facts on which any of them were based have been changed by
transactions contemplated or permitted by the Purchase Agreement, and
(d) no Material-Adverse Event, Default or Potential Default exists.
<PAGE>
6. EXPENSES. Seller shall pay all costs, fees, and
expenses paid or incurred by Buyer incident to this document,
including, without limitation, the reasonable fees and expenses of
Buyer's counsel in connection with the negotiation, preparation,
delivery, and execution of this document and any related documents.
7. MISCELLANEOUS. All references in the Purchase
Documents to the "Master Whole-Loan Purchase Agreement" refer to the
Purchase Agreement as amended by this document. This document is a
"Purchase Document" referred to in the Purchase Agreement; therefore,
the provisions relating to Purchase Documents in Sections 1 and 11 are
incorporated in this document by reference. Except as specifically
amended and modified in this document, the Purchase Agreement is
unchanged and continues in full force and effect. This document may
be executed in any number of counterparts with the same effect as if
all signatories had signed the same document. All counterparts must
be construed together to constitute one and the same instrument. This
document binds and inures to each of the undersigned and their
respective successors and permitted assigns, subject to Section 11.12.
This document and the other purchase Documents represent the final
agreement between the parties and may not be contradicted by evidence
of prior, contemporaneous, or subsequent oral agreements by the
parties. There are no unwritten oral agreements between the parties.
EXECUTED as of the date first stated above.
FIRST PREFERENCE MORTGAGE CORP., BANK ONE, TEXAS, N.A.,
as Seller as Buyer
By /s/ David W. Mann By /s/ Brian J. Hilberth
David W. Mann, Brian J. Hilberth,
President Assistant Vice President
THIRD AMENDMENT TO MASTER WHOLE-LOAN PURCHASE AGREEMENT
THIS DOCUMENT is entered into as of July 24, 1997, between FIRST
PREFERENCE MORTGAGE CORP., a Texas corporation ("Seller"), and BANK
ONE, TEXAS, N.A., a national banking association ("Buyer").
Seller and Buyer are party to the Master Whole-Loan Purchase
Agreement (as it may have been renewed, extended, and amended through
the date of this document, the "Purchase Agreement") dated as of March
27, 1996. Seller and Buyer have agreed, upon the following terms and
conditions, to extend the Stated-Termination Date. Accordingly, for
adequate and sufficient consideration, Seller and Buyer agree as
follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this
document (a) terms defined in the Purchase Agreement have the same
meanings when used in this document and (b) references to "Sections,"
"Schedules," and "Exhibits" are to the Purchase Agreement's sections,
schedules, and exhibits.
2. AMENDMENT. The following definition in Section 1.1 of
the Purchase Agreement is entirely amended as follows:
Stated-Termination Date means August 29, 1997.
3. CONDITIONS PRECEDENT. Notwithstanding any contrary
provision, the foregoing paragraphs in this document are not effective
unless and until (a) the representations and warranties in this
document are true and correct and (b) Buyer receives counterparts of
this document executed by each party named on the signature page or
pages of this document.
4. RATIFICATIONS. To induce Buyer to enter into this
document, Seller (a) ratifies and confirms all provisions of the
Purchase Documents as amended by this document, (b) ratifies and
confirms that all guaranties, assurances, and Liens granted, conveyed,
or assigned to Buyer under the Purchase Documents (as they may have
been renewed, extended, and amended) are not released, reduced, or
otherwise adversely affected by this document and continue to
guarantee, assure, and secure full payment and performance of the
present and future Obligation, and (c) agrees to perform those acts
and duly authorize, execute, acknowledge, deliver, file, and record
those additional documents, and certificates as Buyer may request in
order to create, perfect, preserve, and protect those guaranties,
assurances, and Liens.
5. REPRESENTATIONS. To induce Buyer to enter into this
document, Seller represents and warrants to Buyer that as of the date
of this document (a) Seller has all requisite authority and power to
execute, deliver, perform its obligations under this document, which
execution, delivery, and performance have been duly authorized by all
necessary corporate action, require no action by or filing with any
Tribunal, do not violate any of its articles of incorporation,
certificate of incorporation, or bylaws or (except where not a
Material-Adverse Event) violate any Law applicable to it or any
material agreement to which it or its assets are bound, (b) upon
execution and delivery by all parties to it, this document will
constitute Seller's legal and binding obligation, enforceable against
it in accordance with this document's terms except as that
enforceability may be limited by Debtor Laws and general principles of
equity, (c) all other representations and warranties in the Purchase
Documents are true and correct in all material respects except to the
extent that (i) any of them speak to a different specific date or (ii)
the facts on which any of them were based have been changed by
transactions contemplated or permitted by the Purchase Agreement, and
(d) no Material-Adverse Event, Default or Potential Default exists.
<PAGE>
6. EXPENSES. Seller shall pay all costs, fees, and
expenses paid or incurred by Buyer incident to this document,
including, without limitation, the reasonable fees and expenses of
Buyer's counsel in connection with the negotiation, preparation,
delivery, and execution of this document and any related documents.
7. MISCELLANEOUS. All references in the Purchase
Documents to the "Master Whole-Loan Purchase Agreement" refer to the
Purchase Agreement as amended by this document. This document is a
"Purchase Document" referred to in the Purchase Agreement; therefore,
the provisions relating to Purchase Documents in Sections 1 and 11 are
incorporated in this document by reference. Except as specifically
amended and modified in this document, the Purchase Agreement is
unchanged and continues in full force and effect. This document may
be executed in any number of counterparts with the same effect as if
all signatories had signed the same document. All counterparts must
be construed together to constitute one and the same instrument. This
document binds and inures to each of the undersigned and their
respective successors and permitted assigns, subject to Section 11.12.
This document and the other purchase Documents represent the final
agreement between the parties and may not be contradicted by evidence
of prior, contemporaneous, or subsequent oral agreements by the
parties. There are no unwritten oral agreements between the parties.
EXECUTED as of the date first stated above.
FIRST PREFERENCE MORTGAGE CORP., BANK ONE, TEXAS, N.A.,
as Seller as Buyer
By /s/ David W. Mann By /s/ Brian J. Hilberth
David W. Mann, Brian J. Hilberth,
President Assistant Vice President
FOURTH AMENDMENT TO MASTER WHOLE-LOAN PURCHASE AGREEMENT
THIS DOCUMENT is entered into as of August 27, 1997, between
FIRST PREFERENCE MORTGAGE CORP., a Texas corporation ("Seller"), and
BANK ONE, TEXAS, N.A., a national banking association ("Buyer").
Seller and Buyer are party to the Master Whole-Loan Purchase
Agreement (as it may have been renewed, extended, and amended through
the date of this document, the "Purchase Agreement") dated as of March
27, 1996. Seller and Buyer have agreed, upon the following terms and
conditions, to extend the Stated-Termination Date. Accordingly, for
adequate and sufficient consideration, Seller and Buyer agree as
follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this
document (a) terms defined in the Purchase Agreement have the same
meanings when used in this document and (b) references to "Sections,"
"Schedules," and "Exhibits" are to the Purchase Agreement's sections,
schedules, and exhibits.
2. AMENDMENT. The following definition in Section 1.1 of
the Purchase Agreement is entirely amended as follows:
Stated-Termination Date means August 31, 1998.
3. CONDITIONS PRECEDENT. Notwithstanding any contrary
provision, the foregoing paragraphs in this document are not effective
unless and until (a) the representations and warranties in this
document are true and correct and (b) Buyer receives counterparts of
this document executed by each party named on the signature page or
pages of this document.
4. RATIFICATIONS. To induce Buyer to enter into this
document, Seller (a) ratifies and confirms all provisions of the
Purchase Documents as amended by this document, (b) ratifies and
confirms that all guaranties, assurances, and Liens granted, conveyed,
or assigned to Buyer under the Purchase Documents (as they may have
been renewed, extended, and amended) are not released, reduced, or
otherwise adversely affected by this document and continue to
guarantee, assure, and secure full payment and performance of the
present and future Obligation, and (c) agrees to perform those acts
and duly authorize, execute, acknowledge, deliver, file, and record
those additional documents, and certificates as Buyer may request in
order to create, perfect, preserve, and protect those guaranties,
assurances, and Liens.
5. REPRESENTATIONS. To induce Buyer to enter into this
document, Seller represents and warrants to Buyer that as of the date
of this document (a) Seller has all requisite authority and power to
execute, deliver, perform its obligations under this document, which
execution, delivery, and performance have been duly authorized by all
necessary corporate action, require no action by or filing with any
Tribunal, do not violate any of its articles of incorporation,
certificate of incorporation, or bylaws or (except where not a
Material-Adverse Event) violate any Law applicable to it or any
material agreement to which it or its assets are bound, (b) upon
execution and delivery by all parties to it, this document will
constitute Seller's legal and binding obligation, enforceable against
it in accordance with this document's terms except as that
enforceability may be limited by Debtor Laws and general principles of
equity, (c) all other representations and warranties in the Purchase
Documents are true and correct in all material respects except to the
extent that (i) any of them speak to a different specific date or (ii)
the facts on which any of them were based have been changed by
transactions contemplated or permitted by the Purchase Agreement, and
(d) no Material-Adverse Event, Default or Potential Default exists.
<PAGE>
6. EXPENSES. Seller shall pay all costs, fees, and
expenses paid or incurred by Buyer incident to this document,
including, without limitation, the reasonable fees and expenses of
Buyer's counsel in connection with the negotiation, preparation,
delivery, and execution of this document and any related documents.
7. MISCELLANEOUS. All references in the Purchase
Documents to the "Master Whole-Loan Purchase Agreement" refer to the
Purchase Agreement as amended by this document. This document is a
"Purchase Document" referred to in the Purchase Agreement; therefore,
the provisions relating to Purchase Documents in Sections 1 and 11 are
incorporated in this document by reference. Except as specifically
amended and modified in this document, the Purchase Agreement is
unchanged and continues in full force and effect. This document may
be executed in any number of counterparts with the same effect as if
all signatories had signed the same document. All counterparts must
be construed together to constitute one and the same instrument. This
document binds and inures to each of the undersigned and their
respective successors and permitted assigns, subject to Section 11.12.
This document and the other purchase Documents represent the final
agreement between the parties and may not be contradicted by evidence
of prior, contemporaneous, or subsequent oral agreements by the
parties. There are no unwritten oral agreements between the parties.
EXECUTED as of the date first stated above.
FIRST PREFERENCE MORTGAGE CORP., BANK ONE, TEXAS, N.A.,
as Seller as Buyer
By /s/ David W. Mann By /s/ Brian J. Hilberth
David W. Mann, Brian J. Hilberth,
President Vice President
FIFTH AMENDMENT TO MASTER WHOLE-LOAN PURCHASE AGREEMENT
THIS DOCUMENT is entered into as of September 29, 1997, between
FIRST PREFERENCE MORTGAGE CORP., a Texas corporation ("Seller"), and
BANK ONE, TEXAS, N.A., a national banking association ("Buyer").
Seller and Buyer are party to the Master Whole-Loan Purchase
Agreement (as it may have been renewed, extended, and amended through
the date of this document, the "Purchase Agreement") dated as of March
27, 1996. Seller and Buyer have agreed, upon the following terms and
conditions, to extend the Stated-Termination Date. Accordingly, for
adequate and sufficient consideration, Seller and Buyer agree as
follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this
document (a) terms defined in the Purchase Agreement have the same
meanings when used in this document and (b) references to "Sections,"
"Schedules," and "Exhibits" are to the Purchase Agreement's sections,
schedules, and exhibits.
2. AMENDMENT. Schedule 8.1 to the Purchase Agreement is
amended in its entirety and replaced with the attached Amended
Schedule 8.1.
3. CONDITIONS PRECEDENT. Notwithstanding any contrary
provision, the foregoing paragraphs in this document are not effective
unless and until (a) the representations and warranties in this
document are true and correct and (b) Buyer receives counterparts of
this document executed by each party named on the signature page or
pages of this document.
4. RATIFICATIONS. To induce Buyer to enter into this
document, Seller (a) ratifies and confirms all provisions of the
Purchase Documents as amended by this document, (b) ratifies and
confirms that all guaranties, assurances, and Liens granted, conveyed,
or assigned to Buyer under the Purchase Documents (as they may have
been renewed, extended, and amended) are not released, reduced, or
otherwise adversely affected by this document and continue to
guarantee, assure, and secure full payment and performance of the
present and future Obligation, and (c) agrees to perform those acts
and duly authorize, execute, acknowledge, deliver, file, and record
those additional documents, and certificates as Buyer may request in
order to create, perfect, preserve, and protect those guaranties,
assurances, and Liens.
5. REPRESENTATIONS. To induce Buyer to enter into this
document, Seller represents and warrants to Buyer that as of the date
of this document (a) Seller has all requisite authority and power to
execute, deliver, perform its obligations under this document, which
execution, delivery, and performance have been duly authorized by all
necessary corporate action, require no action by or filing with any
Tribunal, do not violate any of its articles of incorporation,
certificate of incorporation, or bylaws or (except where not a
Material-Adverse Event) violate any Law applicable to it or any
material agreement to which it or its assets are bound, (b) upon
execution and delivery by all parties to it, this document will
constitute Seller's legal and binding obligation, enforceable against
it in accordance with this document's terms except as that
enforceability may be limited by Debtor Laws and general principles of
equity, (c) all other representations and warranties in the Purchase
Documents are true and correct in all material respects except to the
extent that (i) any of them speak to a different specific date or (ii)
the facts on which any of them were based have been changed by
transactions contemplated or permitted by the Purchase Agreement, and
(d) no Material-Adverse Event, Default or Potential Default exists.
<PAGE>
6. EXPENSES. Seller shall pay all costs, fees, and
expenses paid or incurred by Buyer incident to this document,
including, without limitation, the reasonable fees and expenses of
Buyer's counsel in connection with the negotiation, preparation,
delivery, and execution of this document and any related documents.
7. MISCELLANEOUS. All references in the Purchase
Documents to the "Master Whole-Loan Purchase Agreement" refer to the
Purchase Agreement as amended by this document. This document is a
"Purchase Document" referred to in the Purchase Agreement; therefore,
the provisions relating to Purchase Documents in Sections 1 and 11 are
incorporated in this document by reference. Except as specifically
amended and modified in this document, the Purchase Agreement is
unchanged and continues in full force and effect. This document may
be executed in any number of counterparts with the same effect as if
all signatories had signed the same document. All counterparts must
be construed together to constitute one and the same instrument. This
document binds and inures to each of the undersigned and their
respective successors and permitted assigns, subject to Section 11.12.
This document and the other purchase Documents represent the final
agreement between the parties and may not be contradicted by evidence
of prior, contemporaneous, or subsequent oral agreements by the
parties. There are no unwritten oral agreements between the parties.
EXECUTED as of the date first stated above.
FIRST PREFERENCE MORTGAGE CORP., BANK ONE, TEXAS, N.A.,
as Seller as Buyer
By /s/ David W. Mann By /s/ Brian J. Hilberth
David W. Mann, Brian J. Hilberth,
President Vice President
<PAGE>
AMENDED SCHEDULE 8.1
PERMITTED DEBT
1. Obligations to pay Taxes.
2. Liabilities for accounts payable, non-capitalized equipment or
operating leases, and similar liabilities if in each case incurred
in the ordinary course of business.
3. Accrued expenses, deferred credits, and loss contingencies that
are properly classified as liabilities under GAAP.
4. The Obligation.
5. A term note payable to United Western General Agency, Inc. with
a maturity date of November 15, 1996, and a principal balance of
$185,000 as of March 29, 1996.
6. A term note payable to Vidor Ltd. with a maturity date of November
15, 1996, and a principal balance of $125,000 as of March 29, 1996.
7. A warehouse line of credit with Pacific Southwest Bank with a total
committed amount of $10,000,000 (this item shall constitute
Permitted Debt for no longer than 90 days following the Closing
Date.)
8. A note payable to Fleet Mortgage Corp. with a maturity date of
July 20, 1996, and a principal balance of $400,000 as of March
29, 1996.
9. A building loan in an amount of $600,000.
10. A term note in the amount of $600,000, payable to _____________,
with a maturity date of ______________.
SIXTH AMENDMENT TO MASTER WHOLE-LOAN PURCHASE AGREEMENT
THIS DOCUMENT is entered into as of February 27, 1998, between
FIRST PREFERENCE MORTGAGE CORP., a Texas corporation ("Seller"), and
BANK ONE, TEXAS, N.A., a national banking association ("Buyer").
Seller and Buyer are party to the Master Whole-Loan Purchase
Agreement (as it may have been renewed, extended, and amended through
the date of this document, the "Purchase Agreement") dated as of March
27, 1996. Seller and Buyer have agreed, upon the following terms and
conditions, to temporarily increase the Purchase Commitment to
$30,000,000. Accordingly, for adequate and sufficient consideration,
Seller and Buyer agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this
document (a) terms defined in the Purchase Agreement have the same
meanings when used in this document and (b) references to "Sections,"
"Schedules," and "Exhibits" are to the Purchase Agreement's sections,
schedules, and exhibits.
2. AMENDMENT. The following definition in Section 1.1 of
the Purchase Agreement is entirely amended as follows:
Purchase Commitment means $30,000,000 through and including
May 31, 1998, and thereafter, $25,000,000.
3. CONDITIONS PRECEDENT. Notwithstanding any contrary
provision, the foregoing paragraphs in this document are not effective
unless and until (a) the representations and warranties in this
document are true and correct and (b) Buyer receives counterparts of
this document executed by each party named on the signature page or
pages of this document.
4. RATIFICATIONS. To induce Buyer to enter into this
document, Seller (a) ratifies and confirms all provisions of the
Purchase Documents as amended by this document, (b) ratifies and
confirms that all guaranties, assurances, and Liens granted, conveyed,
or assigned to Buyer under the Purchase Documents (as they may have
been renewed, extended, and amended) are not released, reduced, or
otherwise adversely affected by this document and continue to
guarantee, assure, and secure full payment and performance of the
present and future Obligation, and (c) agrees to perform those acts
and duly authorize, execute, acknowledge, deliver, file, and record
those additional documents, and certificates as Buyer may request in
order to create, perfect, preserve, and protect those guaranties,
assurances, and Liens.
5. REPRESENTATIONS. To induce Buyer to enter into this
document, Seller represents and warrants to Buyer that as of the date
of this document (a) Seller has all requisite authority and power to
execute, deliver, perform its obligations under this document, which
execution, delivery, and performance have been duly authorized by all
necessary corporate action, require no action by or filing with any
Tribunal, do not violate any of its articles of incorporation,
certificate of incorporation, or bylaws or (except where not a
Material-Adverse Event) violate any Law applicable to it or any
material agreement to which it or its assets are bound, (b) upon
execution and delivery by all parties to it, this document will
constitute Seller's legal and binding obligation, enforceable against
it in accordance with this document's terms except as that
enforceability may be limited by Debtor Laws and general principles of
equity, (c) all other representations and warranties in the Purchase
Documents are true and correct in all material respects except to the
extent that (i) any of them speak to a different specific date or (ii)
the facts on which any of them were based have been changed by
transactions contemplated or permitted by the Purchase Agreement, and
(d) no Material-Adverse Event, Default or Potential Default exists.
<PAGE>
6. EXPENSES. Seller shall pay all costs, fees, and
expenses paid or incurred by Buyer incident to this document,
including, without limitation, the reasonable fees and expenses of
Buyer's counsel in connection with the negotiation, preparation,
delivery, and execution of this document and any related documents.
7. MISCELLANEOUS. All references in the Purchase
Documents to the "Master Whole-Loan Purchase Agreement" refer to the
Purchase Agreement as amended by this document. This document is a
"Purchase Document" referred to in the Purchase Agreement; therefore,
the provisions relating to Purchase Documents in Sections 1 and 11 are
incorporated in this document by reference. Except as specifically
amended and modified in this document, the Purchase Agreement is
unchanged and continues in full force and effect. This document may
be executed in any number of counterparts with the same effect as if
all signatories had signed the same document. All counterparts must
be construed together to constitute one and the same instrument. This
document binds and inures to each of the undersigned and their
respective successors and permitted assigns, subject to Section 11.12.
This document and the other purchase Documents represent the final
agreement between the parties and may not be contradicted by evidence
of prior, contemporaneous, or subsequent oral agreements by the
parties. There are no unwritten oral agreements between the parties.
EXECUTED as of the date first stated above.
FIRST PREFERENCE MORTGAGE CORP., BANK ONE, TEXAS, N.A.,
as Seller as Buyer
By /s/ Gonzalo Padilla By /s/ Brian J. Hilberth
Gonzalo Padilla, Brian J. Hilberth,
Executive Vice President, Vice President
Chief Operating Officer
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
<PAGE>
Exhibit 21
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Name Under Which Subsidiary State of Incorporation Percentage
Does Business or Organization of Ownership
First Financial Insurance Agency, Inc. Arkansas 100.0%
First Financial Credit Corporation Delaware 100.0%
PreOwned Homes, Inc. Delaware 100.0%
Mobile Home Conveyors and Liquidators, Inc. Delaware 100.0%
First Advisory Services, Inc. Delaware 100.0%
Shelter Resources, Inc. Delaware 100.0%
Apex Lloyds Insurance Company Texas 100.0%
Texas Apex, Inc. Texas 100.0%
Key Group, Ltd. Texas 52.9%
The following are 100% owned Subsidiaries of Key Group, Ltd.:
First Preference Holdings, Inc. Texas
First Preference Mortgage Corp. Texas
First Preference Financial Corp. Texas
First Financial Information Services, Inc. Delaware
Security Washington Avenue Corp. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,477,794
<SECURITIES> 297,019
<RECEIVABLES> 1,331,778
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,537,954
<DEPRECIATION> 766,077
<TOTAL-ASSETS> 7,832,929
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 3,491,834
<TOTAL-LIABILITY-AND-EQUITY> 7,832,929
<SALES> 0
<TOTAL-REVENUES> 6,773,924
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,420,578
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 353,346
<INCOME-TAX> 0
<INCOME-CONTINUING> 353,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 329,979
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.89
</TABLE>
