UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

**FORM 10-Q**

 

 

[X]          Quarterly Report Pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31,2009

 

or

 

[  ]           Transition Report Pursuantto Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number: 000-05559

 

 

**First Financial Corporation**

(Exact name of registrant as specified inits charter)

 

| Texas                                  | 74-1502313          |
|----------------------------------------|---------------------|
|  (State		or other jurisdiction of | (I.R.S.Employer     |
| incorporation or organization)         | Identification No.) |

 

800 Washington Avenue, Waco, Texas  76701

(Address of principal executive offices)  (Zip Code)

 

 

Registrant's telephone number, includingarea code: (254) 757-2424

 

          Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes [X]        No [  ]

 

          Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, or a smaller reporting company.  See definition of“large accelerated filer”, “accelerated filer” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

    Large accelerated filer[  ]        Accelerated filer [  ]       Non-accelerated filer [  ]          Smallerreporting company [X]    

 

          Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).  Yes [  ]  No [X]

 

                As of April30, 2009, there were 402,058 shares of common stock outstanding.

 

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FORM 10-Q

 

FIRST FINANCIALCORPORATION

March 31, 2009

 

 

 

INDEX

 

 

                                                      

| Part I Financial Information                                                                                                                                                                             | Page No. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                                                                                     |     |
|             Item 1.  FinancialStatements                                                                                           |     |
|                                                                                                                                                                                                     |     |
|                        		Consolidated Balance		Sheets                                 | 1        |
|                        		as of March 31, 2009 and December 31, 2008                        |     |
|                                                                                                                                                                                                     |     |
|                        				Consolidated Statements of Income                          | 2        |
|                         forthe Three-Months ended                                          |     |
|                         March31, 2009 and 2008                                             |     |
|                                                                                                                                                                                                     |     |
|                        				Consolidated Statements of Cash Flow                       | 3        |
|                         for the Three-Months                                     |     |
|                         endedMarch 31, 2009 and 2008                                  |     |
|                        		Notes to Consolidated Financial                              | 4        |
|                         Statements                                                    |     |
|                                                                                                                                                                                                     |     |
|            		Item 2. Management's Discussion and Analysis                                                                                         | 7        |
|                         ofFinancial Condition                                              |     |
|                         AndResults of Operations                                           |     |
|                                     |     |
|            		Item 3. Controls and		Procedures                                                                                                     | 10       |
|                                                                                            |     |
|                                     |     |
| Part II Other Information                                                                                                                                                                                |     |
|                                                                                                                                                                                                     |     |
|            		Item 3. Default Upon		Senior Securities                                                                                              | 10       |
|                                                                                                                                                                                                     |     |
|                                                                                                                                                                                                     |     |
|            		Item 6. Exhibits                                                                                                                     | 11       |

 

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|                                                                                                                        |                                                                                    |                                       |            |            |        |          |
|-----------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|--------------------------------------------|-----------------|-----------------|-------------|---------------|
| Item 1. Financial Statements                                                                                 |                                                                                    |                                       |            |
| First Financial Corporation                                                                                       |
| Consolidated Balance Sheet                                                                                        |
|   As of March 31, 2009 and December 31, 2008                              |
| (Unaudited)                                                                                                                 |
|                                                                                                                        |                                                                                    |                                       |            |            |
|                                                                                                                        |                                                                                    | 3/31/2009                                  |            | 12/31/2008      |
|                     Assets   |                                                                                    |         |            |
|   --------------------------------------                                                                          |                                                                                    |                                       |            |
| Cash and cash equivalents                                                                                    | $                                                                                       | 1,909                                 |            | $               | 1,829  |
| Accounts receivable                                                                                                    | 188                                                                                |                                       | 187        |
| Marketable investment securities                                                                                  | 179,439                                                                            |                                       | 216,081    |
| Mortgage loans                                                                                                         | 636                                                                                |                                       | 992        |
| Property and equipment                                                                                            | -                                                                                  |                                       | -          |
| Prepaid expense and other assets                                                                        | 43,354                                                                             |                                       | 47,593     |
|                                                                                                                        |                                                                                    |                                       |            |            |
|                                                                                                                        |     Total Assets                                               | $                                          | 225,526    |            | $           | 266,682  |
|                                                                                                                        |                                                                                    |                                       |            |            |
|    Liabilities and Stockholders' Deficit                                                      |                                                                                    |                                       |            |
|   --------------------------------------                                                                          |                                                                                    |                                       |            |
| Estimated reserve for indemnifications and early payment default losses             | 2,610,011                                                                          |                                       | 2,610,011  |
| Accounts payable                                                                                                       | 173,792                                                                            |                                       | 164,827    |
| Accrued expenses and other liabilities                                                                  | 394,850                                                                            |                                       | 303,163    |
| Notes payable to related parties                                                                        | 2,525,000                                                                          |                                       | 2,525,000  |
| Notes payable                                                                                                          | 319,908                                                                            |                                       | 319,121    |
|                                                                                                                        |                                                                                    |                                       |            |            |
|                                                                                                                        |     Total Liabilities                                          | 6,023,562                             |            | 5,922,122  |
|                                                                                                                        |                                                                                    |                                       |            |            |
|                                                                                                                        |                                                                                    |                                       |            |            |
| Stockholders' deficit:                                                                                                 |                                                                                    |                                       |            |
|   Common stock - no par value; authorized                                           |                                                                                    |                                       |            |
|     2,000,000 shares; issued 402,058 shares                                         | 1,000                                                                              |                                       | 1,000      |
|   Additional paid-in capital                                                                            | 1,454,594                                                                          |                                       | 1,454,594  |
|   Retained earnings                                                                                          | (7,087,207)                                                                             |                                       | (6,978,818)     |
|   Accumulated other comprehensive income:                                                          |                                                                                    |                                       |            |
|     Unrealized gain (loss) on marketable securities, net of tax | (166,423)                                                                               |                                       | (132,216)       |
|                                                                                                                        |                                                                                    |                                       |            |            |
|                                                                                                                        |                                                                                    | (5,798,036)                                |            | (5,655,440)     |
|   Less: Treasury stock - at cost                                                         | -                                                                                  |                                       | -          |
|                                                                                                                        |                                                                                    |                                       |            |            |
|                                                                                                                        |     Total Stockholders' Deficit                           | (5,798,036)                                |            | (5,655,440)     |
|                                                                                                                        |                                                                                    |                                       |            |            |
|                                                                                                                        |     Total Liabilities and Stockholders' Deficit | $                                          | 225,526    |            | $           | 266,682  |
|                                                                                                                        |                                                                                    |                                       |            |            |
|                                                                                                                        |                                                                                    |                                       |            |            |
| See accompanying notes to consolidated financial statements.                                  |                                                                                    |                                       |            |
|                                                                                                                        |                                                                                    |                                       |            |            |

 

 

1

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|                                                                                                           |                         |                           |          |   |      |
|----------------------------------------------------------------------------------------------------------------|------------------------------|--------------------------------|---------------|--------|-----------|
| First Financial Corporation                                                                          |
| Consolidated Statements of Income                                                               |
| Three months ended March 31, 2009 and 2008                                  |
| (Unaudited)                                                                                                    |
|                                                                                                           |                         |                           |          |
|                                                                                                           |                         |                           |          |
|                                                                                                           | Three Months Ended |
|                                                                                                           | March 31,               |
|                                                                                                           |                         |                           |          |
|                                                                                                           | 2009                         |                           | 2008          |
|                                                                                                           |                         |                           |          |
| Revenues:                                                                                                      |                         |       |          |
|   Loan administration                                                                           | $                            | 246                       |          | $      | 260  |
|   Interest income                                                                               | 20                      |                           | 127      |
|   Oil and gas royalties                                                               | 5,662                   |                           | 68,096   |
|   Net gain from sale of securities                                          | 985                     |                           | -        |
|      Total Revenues                                                              | 6,912                   |                           | 68,483   |
|                                                                                                           |                         |                           |          |
| Expenses:                                                                                                      |                         |                           |          |
|   Salaries and related expenses                                                       | 28,148                  |                           | 27,471   |
|   Interest expense                                                                              | 56,861                  |                           | 2,349    |
|   Provision for loan losses                                                           | -                       |                           | -        |
|   Professional fees and other administrative expenses                       | 30,292                  |                           | 154,290  |
|      Total Expenses                                                              | 115,301                 |                           | 184,111  |
|                                                                                                           |                         |                           |          |
|      Income (loss) before provision for income taxes    |                         |                           |          |
|           and other comprehensive gain (loss) | (108,389)                    |                           | (115,628)     |
|                                                                                                           |                         |                           |          |
| Federal income taxes                                                                                 | -                       |                           | -        |
|      Gain (loss) before other comprehensive gain (loss) | (108,389)                    |                           | (115,628)     |
|                                                                                                           |                         |                           |          |
| Other comprehensive gain (loss):                                                                |                         |                           |          |
|   Unrealized holding gains (losses)                                                   | (34,208)                     |                           | (410,158)     |
|      Net comprehensive gain (loss)                                     | $                            | (142,597)                      |          | $      | (525,785) |
|                                                                                                           |                         |                           |          |
| Gain (loss) per common share from continuing operations                     | $                            | (0.27)                         |          | $      | (0.29)    |
|                                                                                                           |                         |                           |          |
| Net comprehensive income (loss) per common share                                 | $                            | (0.35)                         |          | $      | (1.31)    |
|                                                                                                           |                         |                           |          |
|                                                                                                           |                         |                           |          |
| See accompanying notes to consolidated financial statements.                     |                         |                           |          |
|                                                                                                           |                         |                           |          |
|                                                                                                           |                         |                           |          |
|                                                                                                           |                         |                           |          |
|                                                                                                           |                         |                           |          |
|                                                                                                           |                         |                           |          |

 

 

2

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|                                                                                                                                         |                         |                           |          |   |         |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------------------------|--------------------------------|---------------|--------|--------------|
| First Financial Corporation                                                                                                        |
| Consolidated Statement of Cash Flows                                                                                     |
| Three months ended March 31, 2009 and 2008                                                                |
| (Unaudited)                                                                                                                                  |
|                                                                                                                                         |                         |                           |          |
|                                                                                                                                         | Three Months Ended |
|                                                                                                                                         |                         |                           |          |
|                                                                                                                                         | 2009                         |                           | 2008          |
|                                                                                                                                         |                         |                           |          |
| Cash flows from operating activities:                                                                                    |                         |       |          |
|    Net income (loss)                                                                                                | $                            | (108,389)                      |          | $      | (115,628)    |
|    Adjustments to reconcile net income (loss) to                                                |                         |                           |          |
|     net cash used by operating activities:                                                      |                         |                           |          |
|    Depreciation                                                                                                               | -                       |                           | 1,910    |
|    Provision for loan losses                                                                                   | 0                       |                           | (415,968)     |
|    Loan and insurance losses paid                                                                         | -                       |                           | -        |
|    Realized (gains) losses on marketable investment securities                                  | (985)                        |                           | -        |
|    Gain on sale of real estate held for investment                                    | -                       |                           | -        |
|    Net (increase) decrease in accounts receivable                                                    | (1)                          |                           | (187)         |
|    Net (increase) decrease in other assets                                                           | 4,239                   |                           | 35,926   |
|    Net increase (decrease) in accounts payable                                                       | 8,965                   |                           | 17,971   |
|    Net increase (decrease) in other liabilities                                                      | 91,687                  |                           | 20,349   |
|    Mortgage loans sold                                                                                              | -                       |                           | 1,072    |
|    Other                                                                                                                      |                         |                           |          |
|                                                                                                                                         |                         |                           |          |
|         Net cash provided (used) for operating activities              | (4,483)                      |                           | (454,555)     |
|                                                                                                                                         |                         |                           |          |
| Cash flows from investing activities:                                                                                    |                         |                           |          |
|    Net (increase) decrease in notes receivable                                                       | -                       |                           | -        |
|    Proceeds from sale of marketable investment securities                                       | 3,420                   |                           | -        |
|    Purchases of marketable investment securities                                                          | -                       |                           | -        |
|    Proceeds from sale of real estate held for investment                              | -                       |                           | -        |
|    Purchase of property and equipment                                                                     | -                       |                           | -        |
|    Principal collections on mortgage loans                                                                | 356                     |                           | -        |
|    (Increase) decrease in deferred gain on sale of property & equipment | -                       |                           | -        |
|                                                                                                                                         |                         |                           |          |
|         Net cash provided (used) for investing activities              | 3,776                   |                           | -        |
|                                                                                                                                         |                         |                           |          |
| Cash flows from financing activities:                                                                                    |                         |                           |          |
|    Net change in short term borrowings                                                               | -                       |                           | -        |
|    Proceeds from notes payable                                                                                 | 787                     |                           | 416,757  |
|    Payments on notes payable                                                                                   | -                       |                           | -        |
| Proceeds from additional paid-in capital                                                                                 | -                       |                           | -        |
| Proceeds from sale of treasury stock                                                                                | -                       |                           | -        |
|                                                                                                                                         |                         |                           |          |
|         Net cash used for financing activities                              | 787                     |                           | 416,757  |
|                                                                                                                                         |                         |                           |          |
| Net increase (decrease) in cash and cash equivalents                                                      | 80                      |                           | (37,798)      |
| Cash and cash equivalents at beginning of year                                                            | 1,829                   |                           | 82,769   |
|                                                                                                                                         |                         |                           |          |
| Cash and cash equivalents at end of period                                                                | $                            | 1,909                     |          | $      | 44,971  |
|                                                                                                                                         |                         |                           |          |
| Supplemental Disclosure of Cash Flow Information                                                                    |                         |                           |          |
|    Interest Paid                                                                                                         | $                            | 56,861                    |          | $      | 2,349   |
|                                                                                                                                         |                         |                           |          |
|                                                                                                                                         |                         |                           |          |
| See accompanying notes to consolidated financial statements.                                                   |                         |                           |          |
|                                                                                                                                         |                         |                           |          |
|                                                                                                                                         |                         |                           |          |
|                                                                                                                                         |                         |                           |          |

 

 

3

 

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FIRST FINANCIALCORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

(Unaudited)

 

## PART I – FINANCIAL INFORMATION

 

1 - Basis of Presentation

 

The financial informationincluded herein for First Financial Corporation, and all of its wholly ownedsubsidiaries (the "Company") is unaudited; however, such unauditedinformation reflects all adjustments which are, in management's opinion,necessary for a fair presentation of the financial position, results ofoperations and statement of cash flows for the interim periods, assuming thatthe Company will continue as a going concern. In preparing these financialstatements, management is required to make estimates and assumptions thataffect the reported amounts of assets and liabilities as of the date of thebalance sheet and revenue and expense for the period. Actual results coulddiffer significantly from those estimates. 

 

The results of operationsand changes in cash flow for the three-month period ended March 31, 2009 arenot necessarily indicative of the results to be expected for the full year orany future period.

 

Certain reclassificationswere made to prior periods to ensure comparability with the current period.

 

2 – Going Concern

 

First Preference Mortgage Company(“FPMC”), which had been the Company’s principal operating subsidiary, discontinuedits mortgage operation in April 2006, after which the Company had nosignificant source of income.

 

The Company recorded net losses for the years ended December31, 2004 through 2007 and would have recorded a net loss for the year endedDecember 31, 2008 but for the reversal of a provision for loan losses resultingfrom the entry of a judgment in favor of CitiMortgage, Inc. (“CitiMortgage”)that was less than the reserve that had been established for loan losses onloans sold to CitiMortgage.  As of March 31, 2009 and December 31, 2008, theCompany had negative stockholders’ equity in the amounts of $5,798,036 and$5,655,440, respectively.  The financialcondition of the Company and its lack of significant income producing assetscontinue to create an uncertainty about the Company’s ability to continue as agoing concern.  The financial statements do not include any adjustmentsthat might be necessary if FPMC or the Company is unable to continue as a goingconcern.

 

3 – DiscontinuedOperations

 

In 2005 and 2006, FPMC lost its sources of funding for its mortgageorigination activities upon the termination of its mortgage warehouse line ofcredit and loan participation agreements with commercial banks and itsineligibility to participate in mortgage insurance programs sponsored by theDepartment of Housing and Urban Development (“HUD”).  No new mortgage loanshave been funded since April 28, 2006.  

 

On December 1, 2006, FPMC and Citizens Mortgage Corporation (“CMC”)executed an agreement entitled Memorandum of Asset Purchase (the “Agreement”)under which FPMC sold to CMC substantially all of its furniture, fixtures, andequipment and its retail and wholesale loan production operations and goingconcern value for a purchase price of $333,873.  Under the terms of thesale, CMC paid FPMC $78,873 in cash and executed a note payable to FPMC in theamount of $255,000.  Payments on CMC’spromissory note were made periodically in 2007, with the balance paid in fullon December 27, 2007.

 

 

4

----

 

4 – Notes Payable

 

In January 2005, FPMC entered into a repayment plan with HUDin the amount of $194,014 for the settlement of various claims.  FPMCbooked a note payable to HUD for the net present value of the obligation andreduced the amount of the loan loss reserve.  The obligation carries aninterest rate of 1.0% and is payable in 24 monthly installments.  The notebalance and repayment terms were amended in 2005 and 2006 to increase the obligationdue to additional indemnification claims.  As of March 31, 2009 and December31, 2008, the total balance of principal and interest due this obligation was $319,908and $319,121, respectively.  FPMC is in default on the repayment terms ofthis obligation.  HUD has assigned the collection of this obligation to ato a collection agency.  Thus far, no legal action has been initiated forcollection of the debt.  FPMC does not intend to pay the obligation inhopes that a settlement can be reached.

 

In July 2005, FPMC entered into a Workout and Forbearance Agreement withCitiMortgage.  Under the terms of this agreement, FPMC agreed to payCitiMortgage a total of $6,618,793.  FPMC was required to make an initialdown payment of $254,544 which was charged against the loan loss reserve. The obligation was further reduced by FPMC causing the discounted sale ofactive non-defaulted loans from CitiMortgage to EMC Mortgage Corporation. FPMC booked a note payable to CitiMortgage for the net present value of theremaining balance of the obligation and reduced the amount of the loan loss reserve. The agreement called for FPMC to make monthly payments, increasing quarterly,to be paid in full by December 31, 2008.  The note balance and repaymentterms were amended in 2006 and 2005 to increase the obligation due toadditional indemnification claims.  FPMC defaulted on the repayment termsof this obligation and CMI initiated legal action against FPMC for collectionof the debt.

 

On March 25, 2008, FPMC, David W.Mann, the President, Chief Executive Officer, and principal beneficial owner ofthe Company’s outstanding shares, and CitiMortgage entered into a settlementagreement to resolve the litigation initiated by CitiMortgage.  Thesettlement agreement called for the entry of a consent judgment in favor ofCitiMortgage against FPMC in the amount of $2,500,000 and a stay of the actionagainst the defendants.  The consent judgment was entered by the court onMarch 27, 2008.  The stay remained in effect until CitiMortgage received$600,000 in two payments of $300,000 each, on or before March 31, 2008 and July31, 2008, respectively.  Mr. Mann and other entities of which he is aprincipal owner (other than the Company and its subsidiaries), made therequired payments totaling $600,000 to CitiMortgage and the judgment wasassigned by CitiMortgage to Mr. Mann. 

 

On March 28, 2007 JRPMloaned the Company $110,000 in order to fund the Company’s exercise of awarrant held by the Company to purchase 246,429 shares of Inspiration MiningCorporation (“IMC”) at a price of $0.450 CAD per share, or $.0389 USD per share. At the time of the loan the closing price of the IMC shares on the TorontoStock Exchange was $3.12 CAD per share, or $2.69 USD per share. The $110,000loan is represented by a promissory note that bears interest at 9.5% per year,was originally payable in full as to principal and interest on July 25, 2007,and is secured by a pledge of 82,143 of the IMC shares.  Through March 31, 2009,$10,755 of interest and $85,000 of principal have been paid on the note.  Onthat date the principal balance of the note had been reduced to $25,000 and therepayment date has been extended to June 21, 2009.  Interest on the notecontinues to accrue at 9.5% per year.

 

 

 

 

5

----

 

 

5 – Authorized Shares

 

In an Amendment to theArticles of Incorporation that became effective December 31, 2008, theauthorized capital stock of the Company was increased to 2,000,000 shares.

 

6 - Earnings Per Share

 

Earnings per common sharewere computed by dividing net income by the weighted average number of sharesoutstanding during the period. 

 

7 - Income Taxes

 

Income taxes are providedfor the tax effects of transactions reported in the financial statements andconsist of taxes currently due plus deferred taxes related primarily todifferences between the basis of the loan loss reserve for financial and incometax reporting.  The deferred tax assets and liabilities represent the futuretax return consequences of those differences, which will either be taxable ordeductible when the assets and liabilities are recovered or settled.  Deferredtaxes also are recognized for operating losses that are available to offsetfuture taxable income and tax credits that are available to offset futurefederal income taxes.  As of December 31, 2008, the Company had approximately$17.2 million in available net operating loss carryforward benefits forfinancial statement purposes to offset future income, if any.  A valuationallowance has been provided for all tax benefits; therefore, no asset isreflected on the Company’s balance sheet for the net operating losscarryforward benefits.

 

8 - Contingencies

 

In the ordinary course of FPMC’s mortgagebusiness, prior to its discontinuance in April, 2006, FPMC sold loans toinstitutional investors without recourse that may have to be subsequentlyrepurchased due to defects that occurred during the origination of the loan. In addition, mortgage loans sold to investors were subject to repurchase orindemnification if the loans became a specified number of months delinquentwithin a specified period of time after the loans were sold (i.e., earlypayment default).  When a loan sold to an investor without recourse failed toperform, the investor would typically review the loan file to determine whetherdefects in the origination process occurred.  If a defect was identified, FPMCwould be required to either repurchase the loan or indemnify the investor forlosses sustained.  If there were no defects, FPMC had no commitment torepurchase the loan.  FPMC has accrued for this potential loss exposure.  At March31, 2009, the estimated reserve for indemnifications and early payment defaultlosses of the Company was $2,610,011.  The CitiMortgage litigation wasdismissed in its entirety on November 4, 2008.  The settlement is describedfurther in Note 4.

 

 

 

 

6

----

 

 

FPMC is in default on the repayment terms of itsnotes payable to HUD and hopes to reach a settlement.  This obligation isdescribed further in Note 4.

 

Morgan Stanley asserted various mortgage-relatedclaims against FPMC and alleged that damages or amount of such claims wereapproximately $168,244.  There has been no settlement of such claim and nosuit has been filed by Morgan Stanley against FPMC.

 

Countrywide also asserted various mortgage-related claims against FPMCand alleged that damages or amount of such claims were at least $296,936. Such claims are still outstanding and no suit has been filed by Countrywideagainst FPMC.

 

During 2008, the Company recorded reverse provisions for losses in theamount of $1,638,832, in conjunction with the CitiMortgage settlement, andcharge-offs of $83,999, resulting in a loan loss reserve in the amount of$2,610,011 at December 31, 2008 and at March 31, 2009.  No loans have beenfunded since April 28, 2006, but the Company is at risk under certain of itsagreements with these investors for credit losses and cost of foreclosure ondefault of the borrower.  FPMC calculates the loan loss reserve based onhistorical loan losses, current claims against FPMC, and recoverability oflosses under FPMC’s Errors and Omissions insurance policy as well as otherfactors. 

           

In addition to the foregoing, the Company isinvolved in routine litigation incidental to its business, both as a plaintiffand a defendant.  Management of the Company, after consulting with legalcounsel, believes that liability resulting from such litigation, if any, willnot have a material effect on the financial position of the Company.

 

Item 2. Management'sDiscussion and Analysis of Financial Condition and Results of Operations

 

Results of Operations

 

The Company had a loss before othercomprehensive gain (loss) of $108,389 for the three months ended March 31, 2009compared to a loss of $115,628 for the same period in 2008.  The total expensesduring the three months ended March 31, 2009 were $115,301 as compared to $184,111for the same period last year.  

 

7

----

 

 

Loan administration revenues were $246 for the first threemonths of 2009 compared to $260 for the same period of 2008.  Interest incomefor the three months ended March 31, 2009 amounted to $20 compared to $127 forthe same period in 2008.  Because of the discontinuance of FPMC’s mortgageoperations, the Company’s loan administration revenues and interest income willcontinue to be insignificant.

 

Oil and gas royalties forthe three months ended March 31, 2009 amounted to $5,662 compared to $68,096for the same period in 2008.  The Company received a $60,020 oil and gas leasebonus in the first quarter of 2008.  Oil and gas royalties fluctuate with oiland gas prices and the amount of production from the properties covered by theroyalties.  The lease bonus is not expected to recur.

 

Net gain from sale ofsecurities for the three months ended March 31, 2009 was $985 compared to zerofor the same period in 2008.

 

Other comprehensive gain(loss) consists of unrealized holding gains (losses) on marketable investmentsecurities.  Unrealized holding losses for the three months ended March 31,2009 amounted to $34,208 compared to losses of $410,158 for the same period in2008.  Most of the volatility is attributable to the change in the market valueof shares of stock of a Canadian mining company, Inspiration Mining Corporation,which is traded on the Toronto Stock Exchange.

 

Salaries and relatedexpenses were $28,148 for the three months ended March 31, 2009 compared to $27,471for the same period in 2008.

 

Interest expense for the threemonths ended March 31, 2009 was $56,861 compared to $2,349 for the same timeperiod in 2008.  Theincrease in interest expense is due to the $2,500,000 consent judgment enteredinto in connection with the settlement of the CitiMortgage Litigation describedin Note 4 to the financial statements filed with this report.  The judgmentbears interest at a rate of 9% per year.

 

Professional fees andother administrative expenses for the three months ended March 31, 2009amounted to $30,292 compared to $154,290 for the same period in 2008.  This isprimarily due to a decrease in legal fees.  Legal fees were $9,330 in the firstquarter of 2009 compared to $103,820 in 2008.

 

During the quarters ended March31, 2009 and March 31, 2008, FPMC did not record a provision for loan losses,indemnifications and early default losses.   At March 31, 2009, the reserve forloan losses amounted to $2,610,011 compared to $3,916,875 at March 31, 2008.  Duringthe last quarter of 2008, FPMC recorded a reverse provision for loan losses of$1,222,865 and loss chargeoffs of $83,999 resulting in a net decrease to thereserve for loan losses of $1,306,864 from March 31, 2008 to March 31, 2009.  Thereverse provision for loan losses recorded in 2008 was largely the result ofthe settlement of the CitiMortgage litigation settlement described in Note 4.  Noloans have been funded since April 28, 2006, but the Company is at risk undercertain of its agreements with the purchasers of loans it originated for creditlosses and cost of foreclosures on default of the borrowers.

 

8

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Financial Condition

 

At March 31, 2009, the Company's total assets were $225,526compared to $266,682 at December 31, 2008 and $1,178,161 at March 31, 2008. The decrease in total assets is primarily due to the decreased value ofmarketable investment securities of $179,439 and $961,349 compared to March 31,2009 and March 31, 2008, respectively.  The Company’s primary source ofpotential value is its net operating loss carryforward in the amount ofapproximately $17.2 million which, in circumstances permitted by United Statesfederal income tax laws and regulations, could be available to shelter taxableincome produced by the operations of certain entities if those operations andthe Company’s operations were combined.  Under those laws and regulations,entities that could make maximum use of the Company’s net operating loss carryforwards would be those controlled by David W. Mann.  As reflected in thefinancial statements, the stockholders’ deficit of the Company was $5,798,036 atMarch 31, 2009, $5,655,440 at December 31, 2008, and $5,834,919 at March 31,2008.

 

# Liquidity and Capital Resources

 

As of April 28, 2006, FPMC’smortgage operations, its primary source of revenue ceased.  Further discussioncan be found under “Liquidity and Capital Resources” in the 10-KSB filed by theCompany on April 16, 2007 for the year ended December 31, 2006.

 

On a consolidated basis,cash and cash equivalents were $1,909 at March 31, 2009. On that date theCompany had an accumulated deficit (that is, total liabilities in excess oftotal assets) of approximately $5.8 million.  

 

At this time, management doesnot intend to cause the Company or FPMC to seek protection under the bankruptcylaws, but intends to seek settlements with creditors, to the extent that suchsettlements are in the best interest of the Company, as part of the orderlywinding down of FPMC’s business.  FPMC has reached settlements with WashingtonMutual and has settled the litigation with CitiMortgage, as reported in Note 4to the financial statements filed with this report.  If its other creditors canbe satisfied, FPMC may retain some residual value that will be preserved forshareholders.  It is entirely possible, however, that this process will beunsuccessful, in which case FPMC, the Company or both may have to seekprotection under the bankruptcy laws or may be forced into involuntarybankruptcy by creditors.  If that occurs, the Company’s common stock would belikely to have no value. 

 

Forward-lookingInformation

Certainstatements made above and elsewhere in this Form 10-Q constitute“forward-looking statements,” including but not limited to those identified bythe words “expect,” “believe,” “seek to,” “intend,” “will,” “possible,” “may”and similar expressions that are attributed to the Company or its management.No forward-looking statements of the Company or its management are guaranteesof future outcomes. These statements involve risks and uncertainties, andactual results may differ materially from those in the forward-lookingstatements as a result of various factors, including but not limited to thevalue that can be obtained from the sale of the Company’s mortgageoperations and Company assets and the terms on which creditors will agreeto be repaid.

 

 

 

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# Item 3. Controls and Procedures

 

The Company evaluated the effectiveness of the design andoperation of its disclosure controls and procedures (as defined in Rule13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2009. Theevaluation was carried out under the supervision and with the participation ofthe Company’s management, including the Company’s Chief Executive Officer andChief Financial Officer. Based on the evaluation, Mr. Mann, the Chief ExecutiveOfficer and the Chief Financial Officer, concluded that the design andoperation of the Company’s disclosure controls and procedures are effective inproviding assurance that information required to be disclosed by the Company inthe reports that it files or submits to the Securities and Exchange Commissionunder the Securities Exchange Act of 1934 is recorded, processed, summarizedand reported within the time periods specified in the rules and forms of theSecurities and Exchange Commission, and that such information is accumulatedand communicated to management as appropriate to allow timely decisionsregarding disclosure. There have been no changes during the fiscal quarterended March 31, 2009 in the Company’s internal controls over financialreporting that have materially affected, or are reasonably likely to materiallyaffect the Company’s internal control over financial reporting.

 

PART II -OTHER INFORMATION

 

Item 3. Defaults Upon Senior Securities

 

Information is contained in Note 4 to the financialstatements filed with this report as to the default by FPMC upon itsobligations to HUD under a promissory note on which the amount of principal andinterest due as of March 31, 2009 was $319,908.  Also contained in Note 4 ininformation regarding FPMC’s default upon its obligations to CitiMortgage, thesettlement of the CitiMortgage litigation and the consent judgment in theamount of $2,500,000 entered in that litigation in favor of CitiMortgage andassigned to Mr. David Mann.  FPMC is in default of its obligations to pay theprincipal amount of the consent judgment and interest accrued thereon.

 

 

 

 

 

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Item 6. Exhibits

 

Exhibit 3.1  Restated Articles of Incorporation of FirstFinancial Corporation (incorporated by reference to the Company’s Annual Reporton Form 10-KSB for fiscal year ended December 31, 2002).

 

Exhibit 3.2  Articles of Amendment to Restated Articlesof Incorporation of First Financial Corporation (incorporated by reference toExhibit 3.1 of the Company’s quarterly report on Form 10-Q for the quarterended September 30, 2008).

 

Exhibit 3.3  Amended and Restated Bylaws of FirstFinancial Corporation (incorporated by reference to the Company’s Annual Reporton Form 10-KSB for fiscal year ended December 31, 2002).

 

Exhibit 10.1  Workoutand Forebearance Agreement between First Preference Mortgage Corp. andCitiMortgage, Inc. dated August 9, 2005 (incorporated by reference to theCompany’s current report on Form 8-K dated August 9, 2005).

Exhibit 10.2  Memorandum of Asset Purchase betweenFirst Preference Mortgage Corp. and Citizens Mortgage Corp. dated December 1,2006 (incorporated by reference to the Company's Annual Report on form 10-KSB/Afor fiscal year ended December 31, 2006.)

Exhibit 10.3  Settlement Agreement and Mutual Releaseentered into March 28, 2008, by and among CitiMortgage, Inc., First PreferenceMortgage Corporation and David W. Mann (incorporated by reference to theCompany's Annual Report on form 10-KSB for fiscal year ended December 31,2007).

Exhibit 21.1      Subsidiaries of the Registrant(incorporated by reference to the Company’s Annual Report on Form 10-KSB forfiscal year ended December 31, 2006).

Exhibit 31.1   Certification of the Chief ExecutiveOfficer and Chief Financial Officer pursuant to Section 302 of theSarbanes-Oxley Act of 2002 filed herewith.

Exhibit 32.1  Certification of the Chief Executive Officer and Chief Financial Officerpursuant to 18 U.S.C. Section 1350 filed herewith.

 

 

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SIGNATURES

 

 

Pursuant to therequirements of the Securities and Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 

First FinancialCorporation

________________________________________________

 

 

 

 

 

| Date		    May 20, 2009                 |    /s/ David W. Mann                                               		David W. Mann |
|-------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                            | President                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                            | DulyAuthorized Officer and                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                            | PrincipalFinancial Officer                                                                                                                                                                                                                                                                                                                   |

 

 

 

 

 

 

 

 

 

 

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