**UNITED STATES SECURITIES AND EXCHANGECOMMISSIONWashington, D.C.  20549**

**FORM 10-QSB**

** **

 X        QUARTERLY REPORTUNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Forthe quarterly period ended September 30, 2005

__        TRANSITION REPORTUNDER SECTION 13 OR 15(D) ON THE EXCHANGE ACT

For the transition period from_______________ to _______________         

**Commission file number      0-5559     **

**FIRST FINANCIAL CORPORATION**(Exactname of small business issuer as specified in its charter)

|                  Texas                 |            74-1502313                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (State or other jurisdiction of                                                                                                                                                                        | (I.R.S. EmployerIdentification No.)                                                                                                                                |
| incorporation or organization)                                                                                                                                                                         |                                                                                                                                                                    |
|                                                                                                                                                                                                   |                                                                                                                                                                    |
|      800 Washington Avenue, Waco, Texas                                                                                               |              76701               |
| (Address of principal executive offices)                                                                                                                                                               | (Zip Code)                                                                                                                                                              |

Issuer's telephone number       (254) 757-2424                    

Check whether the issuer (1) filed all reports requiredto be filed by Section 13 or 15(d) of the Exchange Act during the past 12months (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 check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the ExchangeAct). Yes __     No  X

Number of shares of theIssuer's Common Stock outstanding on October 31, 2005 was 173,528.

Transitional Small Business Disclosure Format (check one)                                     Yes __     No  X    

|   |
|--------|

----

FORM 10-QSB

FIRST FINANCIALCORPORATIONSEPTEMBER 30, 2005

INDEX

| Part I Financial Information                                                                                                                                                                                                                                                                              | Page No. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                                                                                                                                                                                                          |     |
|            Item 1. Financial Statements                                                                                                                                                                                                            |     |
|                                                                                                                                                                                                                                                                                                                          |     |
|                                    Consolidated Balance Sheet as of                                                                       | 1        |
|                                    September 30, 2005                                                                      |     |
|                                                                                                                                                                                                                                                                                                                          |     |
|                                    Consolidated Statements of Income                                                                 | 2        |
|                                    for the Nine-Months ended                                                                                   |     |
|                                    September 30, 2005 and 2004                                                                                 |     |
|                                                                                                                                                                                                                                                                                                                          |     |
|                                    Consolidated Statements of Cash                                                                             |     |
|                                    Flow for the Nine-Months                                                                                    |     |
|                                    ended September 30, 2005 and 2004                                                  | 3        |
|                                                                                                                                                                                                                                                                                                                          |     |
|                                    Notes to Consolidated Financial                                                                             |     |
|                                    Statements                                                                                        | 4-5      |
|                                                                                                                                                                                                                                                                                                                          |     |
|            Item 2. Management's Discussion and Analysis                              Or Plan of Operation   | 5-8      |
|                                                                                                                                                |     |
|                                                                                                                                                                                                                                                                                                                          |     |
|            Item 3. Controls and Procedures                                                                                                                                                                                                                   | 8        |
|                                                                                                                                                                                                            |     |
|                                                                                                                                                |     |
| Part II Other Information                                                                                                                                                                                                                                                                                                     |     |
|                                                                                                                                                                                                                                                                                                                          |     |
|            Item 1. Legal Proceedings                                                                                                                                                                                                                    | 9        |
|                                                                                                                                                                                                                                                                                                                          |     |
|            Item 6. Exhibits                                                                                                                                                                                               | 9        |
|                                                                                                                                                |     |

|   |
|--------|

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  |  |  |  |  |  |  |  |  |  |  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|--|--|--|--|--|--|--|--|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  |  |  |  |  |  |  |  |  |  |  |
|  First Financial Corporation
Consolidated Balance Sheet
 September 30, 2005
 (Unaudited)
** **
** **
** **
Assets
** **
------
Cash and cash equivalents
 $
1,113,735  
Restricted cash
-    
Accounts receivable, net of		allowance for doubtful
  accounts of $94,225
336,575  
Marketable investment securities
1,442  
Restricted marketable investment		securities
-    
Real estate held for investment,at		cost
553,836  
Mortgage loans 
13,969,158  
Property and equipment
1,428,619  
Other assets
1,012,643  
    Total Assets
 $
18,416,008  
   Liabilities and		Stockholders' Deficit
 		--------------------------------------
Notes on line of credit
 $
13,597,108  
Note payable
2,367,890  
Accounts payable
578,234  
Estimated reserve for		indemnifications and early payment default losses
2,471,106  
Estimated reserve for losses under		servicing agreements
-    
Estimated reserve for losses under		insurance policies
-    
Other liabilities
534,888  
    Total Liabilities
19,549,226  
Stockholders' deficit:
 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
(1,639,079)
  Accumulated other		comprehensive income:
    Unrealized gain		(loss) on marketable securities, net of tax
21,468  
(1,097,909)
  Less:Treasury stock - at cost
(35,309)
    Total		Stockholders' Deficit
(1,133,218)
    Total Liabilities		and Stockholders' Deficit
 $
18,416,008  
See accompanying notes to		consolidated financial statements.
1
 
      First Financial		Corporation
   Consolidated Statements of Income		
                  		Three months and Nine months ended September 30, 2005 and 2004
     (Unaudited)  
     		Three months ended 
        		Nine months ended
           		September 30, 
           		September 30, 
2005		 
2004		 
2005
2004  
Revenues:  
 Loan administration
 $
1,279,236   
 $
1,314,995   
 $
3,592,740  
 $
4,036,046  
  Interest income
226,533   
281,030   
877,570  
910,516  
 Other income
   150,361  		 
   366,241  		 
   698,965  		 
1,046,287  
     Total Revenues
1,656,130  		 
1,962,266  		 
5,169,275  		 
5,992,849     
Expenses:  
  Salaries and related expenses
1,197,713   
1,150,872   
3,527,057  
3,648,767  
  Interest expense
230,623   
219,384   
822,790  
702,726  
  Provision for Loan Losses
1,913,002   
-     
2,568,010   
98,774  
 Other operating expenses
   864,841  		 
759,505  		 
2,511,121  		 
2,315,197  
     Total Expenses
4,206,179  		 
2,129,761  		 
9,428,978  		 
6,765,464     
     Income (loss) before		income taxes,
(2,550,049) 
(167,495) 
(4,259,703) 
(772,615)   
Federal income taxes
                -    		 
     23,886  		 
               -    		 
     23,886  
     Net income (loss)
(2,550,049) 
(191,381) 
(4,259,703) 
(796,501)   
Other comprehensive income:   
  Unrealized holding gains (losses)
            3,440  		 
        10,989  		 
        (16,955)		 
          (650)
     Comprehensive income		(loss) 
 $
(2,546,609) 
 $
(180,392) 
 $
(4,276,658) 
 $
(797,151)   
Income Per Common Share
($14.68) 
($1.04) 
($24.65) 
($4.59)  
See accompanying notes to consolidated financial		statements.   
2

 

First		Financial Corporation
  		Consolidated Statement of Cash Flows
(Unaudited)
 Nine		Months Ended September 30,
2005		 
2004 
Cash flows from operating activities:
   Net income (loss)
($4,259,704)
($796,501)
   Adjustments to reconcile net		income(loss) to
    net cash used by operating		activities:
   Depreciation
245,101  
79,900  
   Provision for loan losses		
2,568,010  
98,774  
   Loan and insurance losses paid
(2,409,143)
(1,537,208)
   Realized (gains) losses on marketable		investment securities
(1,214)
4,225  
   Net (increase) decrease in accounts		receivable
384,322  
1,758,156  
   Net (increase) decrease in other		assets
88,518  
(78,407)
   Net increase (decrease) in accounts		payable
(69,569)
166,502  
   Net increase (decrease) in reserve for		losses under
     insurance policies
(308,696)
-    
   Net increase (decrease) in other		liabilities
(252,082)
(50,960)
   (Increase) decrease in restricted cash		used 
     in operating activities -		net
479,495  
(154,759)
   Mortgage loans funded
(236,054,333)
(261,575,469)
   Mortgage loans sold
247,140,071  
264,162,344  
   Increase (decrease) in mortgage loans		participations sold
(1,850,227)
-    
   Other
2,137  
(22,271)
        Net cash		provided (used) for operating activities
5,702,686  
2,054,326  
Cash flows from investing activities:
   Proceeds from sale of marketable		investment securities
2,224,741  
83,457  
   Purchases of marketable investment		securities
(904,648)
(725,407)
   Unrealized holding (gain) loss
(16,955)
-    
   Purchase of property and equipment
(71,530)
(649,443)
   Principal collections on mortgage		loans
9,453  
18,284  
   (Increase) decrease in deferred gain		on sale of property & equipment
102,152  
131,337  
        Net cash		provided (used) for investing activities
1,343,213  
(1,141,772)
Cash flows from financing activities:
   Net change in short term borrowings
(9,136,421)
(2,520,470)
   Proceeds from notes payable
1,703,086  
825,000  
   Payments on notes payable
(174,295)
(18,976)
        Net cash		used for financing activities
(7,607,630)
(1,714,446)
Net increase (decrease) in cash and cash		equivalents
(561,730)
(801,892)
Cash and cash equivalents at beginning of year
1,675,465  
2,388,739  
Cash and cash equivalents at end of period
 $
1,113,735  
 $
1,586,847  
Supplemental Disclosure of Cash Flow Information
   Interest Paid
 $
833,415  
 $
711,622  
See accompanying notes to consolidated financial		statements.
3

 

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, necessaryfor a fair presentation of the financial position, results of operations andstatement of cash flows for the interim periods. 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 nine-month period ended September 30, 2005 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 - Earnings Per Share

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

3 - 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.  The Company has approximately $6.8 million in availablenet operating loss carryforward benefits for financial statement purposes tooffset future income, if any. A valuation allowance has been provided for alltax benefits.

4

4 - ContingenciesIn the ordinary course of business, the Company sells loans toinstitutional investors without recourse that may have to be subsequentlyrepurchased due to defects that occurred during the origination of the loan.  Inaddition, mortgage loans sold to investors are subject to repurchase orindemnification if the loans become a specified number of months delinquentwithin a specified period of time after the loans are sold (i.e., early paymentdefault).  When a loan sold to an investor without recourse fails to perform,the investor will typically review the loan file to determine whether defectsin the origination process occurred.  If a defect is identified, the Companymay be required to either repurchase the loan or indemnify the investor forlosses sustained.  If there are no defects, the Company has no commitment torepurchase the loan.  The Company has accrued for this potential loss exposureas further discussed in Item 2.  At September 30, 2005, the estimated reservefor indemnifications and early payment default losses was $2,471,106.  

Item 2. Management'sDiscussion and Analysis or Plan of Operation

Results of Operations

The Company had a net lossof $(4,259,703) for the nine months ended September 30, 2005 compared to netloss of $(796,501) for the same period in 2004.  Loan administration revenueswere $3,592,740 for the first nine months of 2005 compared to $4,036,046 forthe same period of  2004.  The decrease in loan administration revenues is theresult of decreased loan origination fees from the Company's residentialmortgage loan operations. During the nine months ended September 30, 2005, FPMCfunded approximately $50.5 million in retail residential mortgage loans andapproximately $185.5 million in wholesale loans compared to approximately $64.4million and $197.2 million, respectively during the same period in 2004. Inaddition, the revenues from the sale of the mortgage loans to governmental andprivate investors decreased by approximately $173,000 for the nine months endedSeptember 30, 2005 compared to the same period in 2004. This decrease is due toan approximately 6% reduction in the net margins realized on the sale of thesemortgage loans during the nine months ended September 30, 2005 compared withthe same period in 2004. In addition, the amount on loans sold during theperiod decreased by $15.1 million from the same period in 2004. 

Interest income for thenine months ended September 30, 2005 amounted to $877,570 compared to $910,516for the same period in 2004. During this period, the interest income earned onmortgages held-for-sale decreased by approximately $29,000 from the same periodin 2004 primarily due to the reduction in the volume of residential mortgageloan funded as discussed above. FPMC earns interest from the date the mortgageloan is closed until the date the mortgage loan is sold to investors.

5

Other income for the ninemonths ended September 30, 2005 amounted to $698,965 compared to $1,046,287 forthe same period in 2004. As more fully discussed in the Annual Report Form10-KSB for the year ended December 31, 2004, the Company sold First Apex Re("FAR") effective December 29, 2004. The Company's consolidated statements ofincome include the revenue and expense of FAR for the period January 1, 2004 toSeptember 30, 2004. During the nine months ended September 30, 2004, FAR hadtotal insurance revenues of approximately $221,095. In addition, the net feesearned under fronting and reinsurance agreements decreased due to a reductionin the number of policies written and changes in commissions paid under theseagreements.  

As more fully discussed inthe Annual Report Form 10-KSB for the year ended December 31, 2004, the Companysold Apex Lloyds Insurance Company ("Apex Lloyds") on March 31, 2005. TheCompany realized a gain on the sale of $73,234. The Company's consolidatedstatements of income include the revenue and expense of Apex for the periodJanuary 1, 2004 to September 30, 2004. During the nine months ended September30, 2004, Apex had total insurance revenues of approximately $408,000.

Salaries and relatedexpenses decreased to $3,527,057 for the nine months ended September 30, 2005,compared to $3,648,767 for the nine months ended September 30, 2004. Thisdecrease is primarily due to the decrease in the volume of new retailresidential mortgage loans originated during the nine months ended September30, 2005 compared to the same period in 2004 as previously discussed.

For the nine months endedSeptember 30, 2005, interest expense amounted to $822,790 compared to $702,726for the same period in 2004.  The increase in interest expense for the ninemonths ended September 30, 2005 is primarily the result of the increase in theweighted average interest rate on the Company's financing of its mortgagelending activities. During this period, the weighted average interest rateincreased to approximately 5.19% compared to approximately 4.36% for the sameperiod in 2004.

Other operating expensesfor the nine months ended September 30, 2005 were $2,511,121 compared to$2,315,197 for the same period in 2004. This increase is primarily due to thedepreciation expense on computer software which was placed in service duringthe first nine months of 2005.

As more fully discussed inForm 8-K dated August 9, 2005 and Quarterly Report Form 10-QSB for the quarterended June 30, 2005, FPMC entered into a Workout and Forebearance Agreementwith CitiMortgage, Inc. (CMI), effective July 20, 2005 related to indemnityobligations under a Loan Purchase Agreement in which FPMC is obligated torepurchase an aggregate of $6,618,793 in loans from CMI.  Prior to theexecution of the Workout and Forebearance Agreement on August 9, 2005, the lossexposure was included in the reserve for indemnifications and early paymentdefault losses.  After execution of the agreement, the net present value ofamounts payable to CMI of $1,463,099 has been included as a component of notepayable on the accompanying consolidated balance sheet.

6

During the nine monthsended September 30, 2005, the Company recorded a provision for loan losses of$2,568,010 compared to $98,774 for the same period in 2004. At September 30,2005, the reserve for indemnifications and early payment default lossesamounted to $2,471,106 compared to $55,485 at September 30, 2004. The Companyis at risk under certain of its agreements with private investors for creditlosses and cost of foreclosure on default of the borrower. The Company hasanalyzed certain attributes of the mortgage loans that it has sold toinvestors, including delinquencies, credit quality, credit insurance, lossexperience and insurance coverage. Based on this review, the Company believesthat its reserve for indemnifications and early payment default losses isadequate for potential loan losses.

At September 30, 2004, theCompany had a reserve for losses under servicing agreements for manufacturedhome loans of $234,595 to cover credit losses and costs of foreclosure, net ofcredit insurance proceeds sustained on default of the borrower.  Due to theuncollectability of the servicing assets, the Company charged off all of theseassets against this reserve.  As of September 30, 2005, the Company no longermaintains a reserve for losses under servicing agreements.

Other comprehensive incomeconsists of unrealized holding gains (losses) on marketable investmentsecurities net of income taxes. For the nine months ended September 30, 2005,unrealized holding losses amounted to $(16,955) compared to unrealized holdinglosses of $(650) for the same period in 2004.

Financial Condition

At September 30, 2005, theCompany's total assets were $18,416,008 compared to $29,498,363 at September30, 2004.  Included in the total assets at September 30, 2004, are the totalassets of Apex Lloyds and FAR amounting to $3,567,347. The decrease in thetotal assets is primarily due to the reduction in the residential mortgage loanproduction during the nine months ended September 30, 2005 as previouslydiscussed. As reflected in the financial statements, the stockholders' deficitof the Company was $(1,133,218) at September 30, 2005 and the stockholders'equity was $5,420,405 at September 30, 2004.

Liquidity and Capital Resources

The Company's primarysources of liquidity are proceeds from the sale of mortgage loans, net interestincome, fees earned from originating mortgage loans and borrowings under theCompany's warehouse credit facilities. The Company's use of cash include thefunding of mortgage loans prior to their sale, payment of interest, repaymentof amounts borrowed pursuant to warehouse lines of credit, loan repurchase andindemnity obligations, operating and general and administrative expenses andcapital expenditures. On consolidated basis, cash and cash equivalents were$1,113,735 at September 30, 2005

7

As more fully discussed inthe Annual Report Form 10-KSB for the year ended December 31, 2004, FPMC had amortgage warehouse line of credit with a financial institution totaling$25,000,000 which expired on June 30, 2005. This maturity date of thisagreement was extended to September 30, 2005. On September 28, 2005 thisagreement was amended to a maximum principal amount of $5,000,000 with ascheduled maturity date of December 31, 2005. This agreement includes certainfinancial covenants including requirements that FPMC maintainadjusted-tangible-net worth above $833,000 and that FPMC's total liabilities toadjusted tangible net worth does not exceed 12 to 1. The obligations under thisagreement are guaranteed under an Unlimited Continuing Guaranty Agreementexecuted by David W. Mann.  The company is seeking to obtain additional fundingin the form of convertible debt from its controlling shareholder or relatedparties.  Management expects that the Company will do so and, as a result, willbe able to renew or replace its mortgage warehouse line of credit.  If,however, the Company is unable to renew its mortgage warehouse line of creditor obtain an alternative funding source, its ability to maintain its level ofoperations would be reduced.  The ability of the company to continue in thelong term will be dependent on obtaining future profitability.

FPMC has a loanparticipation agreement in the amount of $10,000,000 with its line of creditlender. Under this agreement, the financial institution has the option topurchase an undivided interest in the residential mortgage loans originated byFPMC. When a subject mortgage loan is sold in the secondary market, thefinancial institution recoups its investment plus a specified yield on itsinvestment. At September 30, 2005, no participations were outstanding underthis agreement.

In addition, effectiveSeptember 26, 2005, FPMC established a temporary loan participation agreementwith another financial institution, which is a related party by common ownership.Under this agreement, the financial institution has the option to purchase anundivided interest in residential mortgage loans originated by FPMC and thatmeet the underwriting criteria of the financial institution, at its solediscretion.  When the subject mortgage loan is sold in the secondary market,the financial institution recoups its investment plus a specified yield on itsinvestment. At September 30, 2005, no participations were outstanding underthis agreement.  Also effective September 26, 2005, the FPMC entered into anAmended and Restated Tri-Party Agreement with this financial institutionrelated by common ownership and its line of credit lender in which the line ofcredit lender will act as administrator for loan fundings in which the financialinstitution related by common ownership has purchased a participation interestfrom FPMC.

Item 3. Controls and Procedures

The Company evaluated the effectiveness of the design andoperation of its disclosure controls and procedures as of September 30, 2005.The evaluation was carried out under the supervision and with the participationof the Company's management, including the Company's Chief Executive Officerand Chief Financial Officer. Based on the evaluation, the Chief ExecutiveOfficer and the Chief Financial Officer concluded that the Company's disclosurecontrols and procedures are effective in timely alerting them to materialinformation relating to the Company, including it consolidated subsidiaries,required to be included in reports the Company files with or submits to theSecurities and Exchange Commission under the Securities Exchange Act of 1934.There have been no changes during the fiscal quarter ended September 30, 2005in the Company's internal controls over financial reporting that havematerially affected, or are reasonably likely to materially affect theCompany's internal control over financial reporting

8

PART II -OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved inroutine litigation incidental to its business, both as a plaintiff and adefendant. Management of the Company, after consulting with legal counsel,feels that liability resulting from the litigation, if any, will no have amaterial effect on the financial position of the Company.

Item 6. Exhibits

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

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

 

 

 

 

9

                                                                                                                                    

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                November14, 2005        
/s/  David W.Mann                                             DavidW. Mann
 
President
 DulyAuthorized Officer and   
PrincipalFinancial Officer

(Remainder of pagepurposely left blank.)

 

 

 

 

 

 

10 |