U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998 Commission file number 0-5559
FIRST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-1502313
State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
800 Washington Avenue, Waco, Texas 76701
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (254) 757-2424
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No ____.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, No Par Value 173,528
(Class) (Outstanding at April 30, 1998)
<PAGE>
FORM 10-QSB
FIRST FINANCIAL CORPORATION
MARCH 31, 1998
INDEX
Part I Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet as of 1
March 31, 1998
Consolidated Statements of Income 2
for the Three-Months ended
March 31, 1998 and 1997
Consolidated Statements of Cash
Flow for the Three-Months
ended March 31, 1998 and 1997 3
Notes to Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial 5-6
Condition
Part II Other Information
Item 1. Legal Proceedings 6
Item 6. Exhibits and Reports on Form
8-K 6
<PAGE>
<TABLE>
First Financial Corporation
Consolidated Balance Sheet
March 31, 1998
(Unaudited)
<CAPTION>
Assets
------
<S> <C>
Cash and cash equivalents $ 942,000
Restricted cash 487,593
Accounts receivable 1,965,940
Marketable investment securities 297,087
Real estate held for investment, at cost 444,000
Mortgage loans 1,703,082
Investment in and advances to
affiliated companies 399,440
Property and equipment 777,790
Other assets 1,190,006
-----------
Total Assets $ 8,206,938
===========
Liabilities and Stockholders' Equity
--------------------------------------
Notes payable $ 0
Estimated reserve for losses under servicing
agreements 823,639
Other liabilities 1,965,081
-----------
Total Liabilities 2,788,720
-----------
Minority interest 1,835,898
-----------
Stockholders' equity:
Common stock - no par value; authorized
500,000 shares;issued 183,750 shares,
of which 10,222 shares are held in
treasury shares 1,000
Additonal paid-in capital 518,702
Retained earnings 3,097,927
-----------
3,617,629
Less:Treasury stock - at cost (35,309)
Net unrealized loss on marketable
investment securities 0
-----------
Total Stockholders' Equity 3,582,320
-----------
Total Liabilities and Stockholders' Equity $ 8,206,938
===========
See accompanying notes to consolidated financial statements.
</TABLE>
1
<PAGE>
<TABLE>
First Financial Corporation
Consolidated Statements of Income
Three months ended March 31,1998 and 1997
(Unaudited)
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Revenues:
Loan administration $1,593,595 $ 957,081
Interest income 394,694 269,780
Other income 105,175 107,388
----------- ----------
Total revenues 2,093,464 1,334,249
Expenses:
Salaries and related expenses 1,088,133 794,508
Interest expense 312,203 142,094
Provision for losses under servicing
agreements (84,897) (109,286)
Other operating expenses 672,629 498,661
----------- -----------
Total expenses 1,988,068 1,325,977
----------- -----------
Income before income taxes,
minority interest, and equity in earnings
(loss) of affiliates 105,396 8,272
Federal income taxes 0 0
----------- ----------
Income before minority interest 105,396 8,272
Minority interest in net loss (income) (8,025) 34,609
------------ ----------
Income before equity in earnings
(loss) of affiliates 97,371 42,881
Equity in earnings (loss) of affiliates (3,426) 26,585
----------- ----------
Net income $ 93,945 $ 69,466
=========== ==========
Income per common share $0.54 $0.40
=========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
2
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<TABLE>
First Financial Corporation
Consolidated Statement of Cash Flows
<CAPTION>
(Unaudited)
Three Months Ended March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 93,944 $ 69,466
Adjustments to reconcile net income(loss) to
net cash used by operating activities:
Depreciation 39,722 35,428
Provision for losses under servicing agreements (84,897) (109,286)
Equity in (income) loss of affiliates 3,426 (26,585)
Realized losses on marketable investment securities 0 0
Net (increase) decrease in accounts receivable (634,162) (196,521)
Net (increase) decrease in other assets (111,732) 110,306
Net increase (decrease) in other liabilities 362,050 (183,931)
Increase in minority interest 7,079 (34,610)
(Increase) decrease in restricted cash used
in operating activities - net (177,069) 100,000
Increase in mortgage loans - net 0 0
Mortgage loans funded (92,580,474) (49,301,379)
Mortgage loans sold 84,308,620 50,336,891
Increase in mortgage loans participations sold 8,336,664 (1,112,084)
Other 22,028 (51,012)
--------------- --------------
Net cash provided (used) for operating activities (414,801) (363,318)
--------------- --------------
Cash flows from investing activities:
Proceeds from sale of marketable investment securities 0 0
Purchases of marketable investment securities 0 0
Purchase of property and equipment (53,696) (22,543)
Principal collections on mortgage loans 251,187 307,517
Amortization of discount on mortgage loans purchased (7,960) (18,002)
(Advances to) repayments from affiliates 0 50,000
--------------- ---------------
Net cash provided (used) for investing activities 189,531 316,972
--------------- ---------------
Cash flows from financing activities:
Payment on notes payable 0 0
--------------- ---------------
Net cash used for financing activities 0 0
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (225,270) (46,346)
Cash and cash equivalents at beginning of year 1,167,270 757,279
--------------- ---------------
Cash and cash equivalents at end of period $ 942,000 $ 710,933
=============== ===============
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 241,860 $ 170,762
=============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 - Basis of Presentation
The financial information included herein for First Financial
Corporation, and all of its wholly owned and majority owned
subsidiaries (the "Company") is unaudited; however, such unaudited
information reflects all adjustment which are, in management's
opinion, necessary for a fair presentation of the financial position,
results of operations and statement of cash flows for the interim
periods. Minority interest represents ownership of other entities in
the net assets and net earnings of Key Group, Ltd. ("Key Group").
The results of operations and changes in cash flow for the three-month
period ended March 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
Certain reclassifications were made to prior periods to ensure
comparability with the current period.
2 - Earnings Per Share
Earnings per common share were computed by dividing net income by the
weighted average number of shares outstanding.
3 - Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of
the loan loss reserve for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses that are
available to offset future taxable income and tax credits that are
available to offset future federal income taxes. The Company has
approximately $5,500,000 in available net operating loss carryforward
benefits for financial statement purposes to offset future income, if
any.
4 - Contingencies
Substantially all of the conventional pools of manufactured home loans
serviced by the Company, approximately $3,200,000 at March 31, 1998,
were sold to investors with recourse. The recourse provisions
typically require the Company to repurchase delinquent loans at the
unpaid balances plus accrued interest, or replace delinquent loans
with another loan which is current. Further, several of the
agreements require the Company to establish and maintain cash reserve
accounts. Deposits are periodically made to the accounts equal to a
specified percent of the outstanding loans. The accounts may be used
to cover deficiencies from foreclosure and liquidation of delinquent
pooled mortgage loans. Such cash reserve accounts totaled $10,533 and
are included in restricted cash at March 31, 1998.
4
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
The Company had a net income of $93,945 for the quarter ended March
31, 1998 compared to net income of $69,466 for the same period in
1997. Loan administration revenues were $1,593,595 for the first
quarter for 1998 compared to $957,081 for the first quarter of 1997.
The increase in loan administration revenues is primarily due to
increased loan origination and service fees from the Company's
residential mortgage loan operations. During the quarter ended March
31, 1998, First Preference Mortgage Corp., a third tier subsidiary of
Key Group, funded approximately $92.6 million in new residential
mortgage loans compared to approximately $49.3 million during the same
period in 1997.
Interest income for the quarter ended March 31, 1998 amounted to
$394,694 compared to $269,780 for the same period in 1997. During the
quarter ended March 31, 1998, the interest income earned by the
Company on investments declined by approximately $31,000 or 31%. This
decline is primarily due to the decline in the Company's mortgages
held for investment which decreased by approximately $606,000 from
March 31, 1997 to March 31, 1998. During the first quarter of 1998,
the interest income earned on mortgages held for sale increased by
approximately $156,000, primarily due to the increased volume of new
residential mortgage loans originated during this time period as
discussed above. First Preference Mortgage Corp. earns interest from
the date the mortgage loan is closed until the date the mortgage loan
is sold to investors.
Salaries and related expenses increased to $1,088,133 for the three
months ended March 31, 1998, compared to $794,508 for the three months
ended March 31, 1997. This increase is due to the continued expansion
of the residential mortgage origination and servicing activities of
First Preference Mortgage Corp., as discussed above.
For the quarter ended March 31, 1998, interest expense amounted to
$312,203 compared to $142,094 for the same period in 1997. The
significant increase in interest expense for the quarter ended March
31, 1998 is primarily due to increased utilization of the Company's
loan participation agreement. As previously discussed, the volume of
new residential loan originations for the quarter ended March 31, 1998
increased by approximately 88% over the comparable period in 1997.
During the quarter ended March 31, 1998, the provision for losses
under servicing agreements was ($84,897) resulting in a balance in the
reserve for losses under servicing agreements of $823,639 at March 31,
1998. For the quarter ended March 31, 1997, the Company had a
negative provision for losses under servicing agreements of ($109,286)
which resulted in a balance in the reserve for losses under servicing
agreements of $1,202,155 at March 31, 1997. As previously discussed,
under the terms of certain of its servicing agreements, the Company is
at risk for any credit losses and costs of foreclosure, net of credit
insurance proceeds, if any, sustained on default of the borrower.
Based on an analysis of the Company's servicing portfolio, it is the
Company's belief that its exposure to losses attributable to the
servicing agreements continues to decline.
5
<PAGE>
The minority interest in the net income of Key Group amounted to
$8,025 for the quarter ended March 31, 1998. For the quarter ended
March 31, 1997, the minority interest in the net loss of Key Group
amounted to $34,609. The minority interest represents the ownership
of other entities in the Key Group net income or net loss.
The consolidated statements of income for the three months ended March
31, 1998 reflect equity in net loss of affiliates of ($3,426) compared
to net income of $26,585 for the three months ended March 31, 1997.
During the quarter ended March 31, 1997, the affiliate realized a
significant gain on the sale of certain real estate.
Financial Condition
At March 31, 1998, the Company's total assets were $8,206,938.
Included in the Company's total assets are the assets of Key Group,
LTD. which amounted to $5,232,678 at March 31, 1998. The Key Group
assets at March 31, 1998 consisted primarily of cash and cash
equivalents of $750,699, mortgage loans of $1,544,801, property and
equipment of $918,324 and accounts receivable, prepaid expenses and
other assets of $2,018,854. The minority interest in the net assets
of Key Group at March 31, 1998 amounted to $1,835,898.
On consolidated basis, cash and cash equivalents (including restricted
cash) were $1,429,593 at March 31, 1998. Included therein was cash
and cash equivalents for Key Group of $750,699 and Apex Lloyds
Insurance Company of $524,878. The cash flow of Key Group is only
available to the Company to the extent that cash is received in the
form of partnership distributions. Key Group has paid no
distributions and has no plans to pay distributions in the foreseeable
future. The cash flow of Apex Lloyds Insurance Company is only
available to the Company as allowed by state insurance regulations.
As more fully discussed in the Annual Report Form 10-KSB for the year
ended December 31, 1997, First Preference Mortgage Corp. has a master
loan participation with a financial institution totaling $25,000,000
which expires 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine litigation incidental to its
business, both as a plaintiff and a defendant. Management of the
Company, after consulting with legal counsel, feels that liability
resulting from the litigation, if any, will no have a material effect
on this financial position of the Company.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
No Form 8-K was filed during the quarter ended March 31, 1998.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
First Financial Corporation
______________________________________________________________
Date May 14, 1998 /s/ David W. Mann
David W. Mann
President
Duly Authorized Officer and
Principal Financial Officer
Date May 14, 1998 /s/ Annie Laurie Miller
Annie Laurie Miller
Executive Vice President and
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,429,593
<SECURITIES> 297,087
<RECEIVABLES> 1,965,940
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,583,589
<DEPRECIATION> 805,799
<TOTAL-ASSETS> 8,206,938
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 3,581,320
<TOTAL-LIABILITY-AND-EQUITY> 8,206,938
<SALES> 0
<TOTAL-REVENUES> 2,093,464
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,988,068
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 105,396
<INCOME-TAX> 0
<INCOME-CONTINUING> 105,396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,945
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
</TABLE>
