**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 June 30, 2003

__        TRANSITIONREPORT UNDER SECTION 13 OR 15(D) ON THE EXCHANGE ACT

                                    For the transition period from_______________ to _______________         

**Commission file number      0-5559     **

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

|            Texas                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |            74-1502313         |
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| (State or other jurisdiction of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |  (I.R.S. Employer Identification                                                                                        |
| incorporation or organization)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                         |
|     800 Washington Avenue, Waco, Texas    
               76701            

(Address of principal executiveoffices) 
(Zip Code)
   
Issuer's telephone number       (254) 757-2424                    

Number of shares of theIssuer's Common stock outstanding on July 31, 2003 was 173,528.

Transitional SmallBusiness Disclosure Format (check one)                    Yes ____         No_X__

            

FORM 10-QSB

FIRST FINANCIAL CORPORATIONJUNE 30, 2003

INDEX
Part I Financial Information
Page No.
   
 
 Item 1. Financial Statements
 
   
 
  ConsolidatedBalance Sheet as of
1
  
June 30, 2003  
    
 
  Consolidated Statements of Income
2
  
forthe Six-Months ended
   
June30, 2003 and 2002
    
 
  
ConsolidatedStatements of Cash Flow
   
for the Six-Months 
   
endedJune 30, 2003 and 2002

3   
 
  Notesto Consolidated Financial Statements
4-5
     Item 2. Management'sDiscussion and Analysis
 
  of Results of Operations and Financial   
5-8
  Condition
 
   
 
 Item 3.Controls and Procedures
8
   
 
Part II Other Information
 
   
 
 Item 1. LegalProceedings
8
   
 
 Item 4.Submission of Matters to a Vote OfSecurity Holders
8-9
     Item 5. OtherInformation
9
   
 
 Item 6. Exhibitsand Reports on Form
 
  8-K
9

 

 First Financial Corporation
Consolidated Balance Sheet
       June 30, 2003
         (Unaudited)              Assets              ------Cash and cash equivalents
 $   3,181,422 Restricted cash
        621,176       Accounts receivable, net of allowance for doubtful
                 -    accounts of $102,477
     1,397,891       Marketable investment securities
          93,904       Restricted marketable investment securities
        613,326 Real estate held for investment,at cost
        444,000       Mortgage loans, net of allowance for loan losses of $665,348
    36,874,592 Property and equipment
        596,085 Other assets
     1,890,935                         Total Assets
 $ 45,713,331 
            Liabilities and Stockholders' Equity       --------------------------------------Notes on line of credit
    36,778,158 Note payable
          50,000 Accounts payable
     1,132,117       Estimated reserve for losses under servicing agreements 
        234,595 Other liabilities
     1,532,117                         Total Liabilities
    39,726,987 Stockholders' equity:       Common stock - no par value; authorized    500,000 shares;issued 183,750 shares,          of which 10,222 shares are held in    treasury shares
            1,000  Additional paid-in capital
        518,702  Retained earnings
     5,461,817        Accumulated other comprehensive income:          Unrealized gain (loss) on marketable securities, net of tax
40,134 
     6,021,653  Less:Treasury stock - at cost
(35,309)                        Total Stockholders' Equity
     5,986,344                         Total Liabilities and Stockholders' Equity
 $ 45,713,331 
         See accompanying notes to consolidated financial statements.
 

1
      First Financial Corporation         Consolidated Statements of Income Three months and Six months ended June 30, 2003 and 2002     (Unaudited)      
Three months ended 
Six months ended
June 30, 
June 30, 
2003 
2002 
2003 
2002   Revenues:          Loan administration
 $ 3,722,957  
 $  1,672,366  
 $  6,931,276  
 $   2,886,704        Interest income
      777,947  
        381,897  
     1,448,497  
        877,625  Other income
      284,939  
        330,424  
        676,689  
        606,353            Total Revenues
   4,785,843  
     2,384,687  
     9,056,462  
     4,370,682    Expenses:          Salaries and related expenses
   2,056,463  
     1,392,446  
     3,683,645  
     2,719,543        Interest expense
      650,999  
        250,992  
     1,188,928  
        528,761        Other operating expenses
   1,662,144  
     1,097,276  
     3,063,506  
     1,895,044            Total Expenses
   4,369,606  
     2,740,714  
     7,936,079  
     5,143,348            Income before income taxes,               minority interest, equity in earnings                (loss) of affiliates 
      416,237  
       (356,027) 
     1,120,383  
       (772,666)         Federal income taxes
               -    
                -    
                -    
                 -              Income before minority interest
      416,237  
       (356,027) 
     1,120,383  
       (772,666)         Minority interest in net loss (income)
               -    
        184,247  
                -    
        419,991            Income before equity in earnings (loss) of               affiliates 
      416,237  
       (171,780) 
     1,120,383  
       (352,675)         Equity in earnings (loss) of affiliates
               -    
           7,411  
                -    
             (206)           Net income (loss)
      416,237  
       (164,369) 
     1,120,383  
       (352,881)         Other comprehensive income:          Unrealized holding gains (losses)
        12,595  
          (8,620) 
          14,337  
         (36,692)           Comprehensive income (loss) 
 $   428,832  
 $    (172,989) 
 $  1,134,720  
 $    (389,573)             Income Per Common Share
$2.47  
($1.00) 
$6.54  
($2.25)                
      See accompanying notes to consolidated financial statements.
 

2

First Financial Corporation      Consolidated Statement of Cash Flows 
(Unaudited)
Six Months Ended June 30,
2003 
2002       Cash flows from operating activities:          Net income (loss)
$1,120,382  
 $    (352,881)         Adjustments to reconcile net income(loss) to           net cash used by operating activities:    Depreciation
        118,408  
          89,177          Provision for loan losses
        571,230  
                -            Equity in (income) loss of affiliates
                -    
              206          Realized (gains) losses on marketable investment securities
                -    
         (18,752)         Net (increase) decrease in accounts receivable
       (126,178) 
        289,774          Net (increase) decrease in other assets
          17,048  
       (216,178)         Net increase (decrease) in accounts payable
         (65,604) 
        314,490          Net increase (decrease) in other liabilities
        119,756  
          62,918          Increase in minority interest
                -    
       (419,795)         (Increase) decrease in restricted cash used             in operating activities - net
          84,498  
        418,859          Mortgage loans funded
 (409,543,239) 
 (254,241,336)         Mortgage loans sold
  413,770,331  
  268,004,088          Increase (decrease) in mortgage loans participations sold
     1,195,969  
                -      Other
       (132,718) 
          22,138               Net cash provided (used) for operating activities
     7,129,882  
   13,952,708        Cash flows from investing activities:          Proceeds from sale of marketable investment securities
                -    
        181,858          Purchases of marketable investment securities
         (24,536) 
         (19,521)         Purchases of restricted marketable investment securities
                -    
       (560,991)         Unrealized holding gain (loss)
          14,337  
         (36,692)         Purchase of property and equipment
         (50,177) 
       (216,562)         Principal collections on mortgage loans
          22,769  
          24,553          (Increase) decrease in deferred gain on sale of property & equipment
          87,559  
          12,945               Net cash provided (used) for investing activities
          49,952  
       (614,411)      Cash flows from financing activities:          Net change in short-term borrowings
    (5,384,935) 
  (13,674,404)              Net cash used for financing activities
    (5,384,935) 
  (13,674,404)       Net increase (decrease) in cash and cash equivalents
     1,794,899  
       (336,106)      Cash and cash equivalents at beginning of year
     1,386,523  
     1,060,879       Cash and cash equivalents at end of period
 $  3,181,422  
 $     724,773          Supplemental Disclosure of Cash Flow Information          Interest Paid
 $  1,201,867  
 $     599,115        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,necessary for a fair presentation of the financial position, results ofoperations and statement of cash flows for the interim periods. In preparingthese financial statements, management is required to make estimates andassumptions that affect the reported amounts of assets and liabilities as ofthe date of the balance sheet and revenue and expense for the period. Actualresults could differ significantly from those estimates. 

As more fully discussed inthe Annual Report Form 10-KSB for the year ended December 31, 2002, effectiveJuly 31, 2002, the Company acquired all of the outstanding common stock ofFirst Preference Mortgage Corp. ("FPMC") so that the Company directly owns 100%of the capital stock of FPMC. FPMC was a third-tier subsidiary of Key Group,Ltd. ("Key Group"), a Texas Limited Partnership, which the Company owned an approximately53% interest. The Company's consolidated statements of income include therevenue and expense of Key Group for the period January 1, 2002 to June 30,2002 and the revenue and expense of FPMC for the period January 1, 2003 to June30, 2003. The minority interest in net loss for the six months ended June 30,2002 represents the ownership of other entities in the net loss of Key Group.

The results of operationsand changes in cash flow for the six-month period ended June 30, 2003 are notnecessarily indicative of the results to be expected for the full year or anyfuture 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. 

 

4

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 $6,000,000 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 - Contingencies

Substantially all of theconventional pools of manufactured home loans serviced by the Company,approximately $315,000 at June 30, 2003, were sold to investors with recourse. The recourse provisions typically require the Company to repurchase delinquent loansat the unpaid balances plus accrued interest, or replace delinquent loans withanother loan which is current.  Further, several of the agreements require theCompany to establish and maintain cash reserve accounts.  Deposits areperiodically made to the accounts equal to a specified percent of theoutstanding loans. The accounts may be used to cover deficiencies fromforeclosure and liquidation of delinquent pooled mortgage loans.  Such cashreserve accounts totaled $4,495 and are included in restricted cash at June 30,2003.

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

Results of Operations

The Company had net incomeof $1,120,383 for the six months ended June 30, 2003 compared to a net loss of($352,881) for the same period in 2002.  Loan administration revenues were$6,931,276 for the first six months for 2003 compared to $2,886,704 for thesame period of 2002.  The increase in loan administration revenues is theresult of increased loan origination fees from the Company's residentialmortgage loan operations. During the six months ended June 30, 2003, FPMCfunded approximately $409.5 million in new residential mortgage loans comparedto approximately $254.2 million during the same period in 2002. In addition,the revenues from the sale of the mortgage loans to governmental and privateinvestors increased by approximately $2.8 million for the six  months endedJune 30, 2003 compared to the same period in 2002. This increase is due to asignificant improvement in the net margins realized on the sale of thesemortgage loans and a $145.1 million increase in the amount of mortgage loanssold during the period. The net margins realized during the first quarter of2002 were decreased due to the unstable market conditions that prevailed duringthe period.

For the six months endedJune 30, 2002, Key Group had a net loss of ($892,477). The Company's share ofthe net loss of Key Group was ($472,442) for the six months ended June 30,2002. The minority interest in the net loss of Key Group amounted to $419,991for the six months ended June 30, 2002. The minority interest represents theownership of other entities in the Key Group net  loss. As a result oftransactions previously discussed that took place in July 2002, Key Group wasdissolved and FPMC is now 100% directly owned by the Company.

 

5

For the six months endedJune 30, 2003, FPMC had net income of $710,211 resulting from loan originationsfees and revenues from the sale of mortgage loans for the six months ended June30, 2003 as described above.

Interest income for thesix months ended June 30, 2003 amounted to $1,448,497 compared to $877,625 forthe same period in 2002.  This increase is primarily due to the approximate$155.3 million increase in loan originations from 2003 to 2002, as discussedabove. FPMC earns interest from the date the mortgage loan is closed until thedate the mortgage loan is sold to investors.

Other income for the sixmonths ended June 30, 2003 amounted to $676,689 compared to $606,353 for thesame period in 2002. This increase is primarily due to increased fees earnedunder fronting and reinsurance agreements

Salaries and relatedexpenses increased to $3,683,645 for the six months ended June 30, 2003,compared to $2,719,543 for the six months ended June 30, 2002. This increase isprimarily due to the overall increase in the volume of new residential mortgageloans originated during the six months ended June 30, 2003 compared to the sameperiod in 2002 as previously discussed.

For the six months endedJune 30, 2003, interest expense amounted to $1,188,928 compared to $528,761 forthe same period in 2002.  The significant increase in interest expense for thesix months ended June 30, 2003 is primarily the result of increased utilizationof the warehouse line of credit and loan participation agreements due to thepreviously discussed increase in loan origination volume. During this period,the weighted average interest rate on the Company's financing of its mortgagelending activities increased to approximately 4.62% compared to approximately4.41% for the same period in 2002.

Other operating expensesfor the six months ended June 30, 2003 were $3,063,506 compared to $1,895,044for the same period in 2002. This increase is primarily due to the overallincrease in the volume of new residential mortgage loans originated during thesix months ended June 30, 2003 compared to the same period in 2002 aspreviously discussed.

The consolidatedstatements of income for the six months ended June 30, 2002 reflect equity inthe net loss of affiliates of ($206). As more fully discussed in the AnnualReport Form 10-KSB for the year ended December 31, 2002, the Company exchangedits interest in affiliates in acquiring all of the outstanding common stock ofFPMC effective July 31, 2002.  

Other comprehensive incomeconsists of unrealized holding gains (losses) on marketable investmentsecurities net of income taxes. For the six months ended June 30, 2003,unrealized holding gains amounted to $14,337 compared to unrealized holdinglosses of ($36,692) for the six months ended June 30, 2002.

 

6

Financial Condition

At June 30, 2003, theCompany's total assets were $45,713,331 compared to $37,474,947 at June    30, 2002.  Included in the Company's total assets at June 30, 2002, are theassets of Key Group which amounted to $34,454,284. The Key Group assets at June30, 2002 consisted primarily of cash and cash equivalents of $470,454, mortgageloans of $31,063,915, property and equipment of $965,426 and accounts receivable,prepaid expenses and other assets of $1,954,489.  The minority interest in thenet assets of Key Group at June 30, 2002 amounted to $1,151,549. 

On consolidated basis,cash and cash equivalents (including restricted cash) were $3,802,598 at June30, 2003.  Included therein was cash and cash equivalents of Apex LloydsInsurance Company of $856,171 and First Apex Re of $395,923.  The cash flow ofApex Lloyds Insurance Company and First Apex Re are only available to theCompany as allowed by state insurance regulations.

As more fully discussed inthe Annual Report Form 10-KSB for the year ended December 31, 2002, FPMC has amortgage warehouse line of credit with a financial institution totaling$45,000,000 which expired April 30, 2003. On April 9, 2003, the maturity datewas extended to May 31, 2003. On April 30, 2003, the maturity date was extendedto July 31, 2003 and the amount of the line of credit increased to $50,000,000.On July 31, 2003, the maturity date was extended to August 31, 2003. Thisagreement includes certain financial covenants including requirements tomaintain FPMC stockholders' equity above $3,600,000 and adjusted-tangible-networth above $3,400,000. Also, FPMC's total liabilities to adjusted tangible networth may never exceed 15 to 1. On June 9, 2003, FPMC entered into a loanparticipation agreement in the amount of $10,000,000 with this financialinstitution. Under this agreement, the financial institution has the option topurchase an undivided interest in the residential mortgage loans originated byFPMC. When the subject mortgage is sold in the secondary market, the financialinstitution recoups its investment plus a specified yield on its investment. AtJune 30, 2003, no participations were outstanding under this agreement. 

In addition, FPMC has aloan participation agreement with another financial institution, which is arelated party by common ownership, amounting to $17,500,000. Under thisagreement, the financial institution has the option to purchase an undividedinterest in the residential mortgage loans originated by FPMC. When the subjectmortgage loan is sold in the secondary market, the financial institutionrecoups its investment plus a specified yield on its investment. At June 30,2003, $14,710,657 in participations were outstanding under this agreement.

Item 3. Controls and Procedures

Within the 90 days prior to the filing of this report,the Company evaluated the effectiveness of the design and operation of itsdisclosure controls and procedures. The evaluation was carried out under thesupervision and with the participation of the Company's management, includingthe Company's Chief Executive Officer and Chief Financial Officer. Based on andas of the date of the evaluation, the Chief Executive Officer and the ChiefFinancial Officer concluded that the Company's disclosure controls andprocedures are effective in timely alerting them to material informationrelating to the Company, including it consolidated subsidiaries, required to beincluded in reports the Company files with or submits to the Securities andExchange Commission under the Securities Exchange Act of 1934. There have beenno significant changes in the Company's internal controls or in other factorsthat could significantly affect the Company's internal controls subsequent tothe date of the evaluation.

 

7

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 this financial position of the Company.

Item 4. Submission of Matters to a Vote of Security Holders

The annual meeting of the shareholders was held on May15, 2003, pursuant to an information statement dated April 21, 2003, furnishedby the Board of Directors to the Shareholders of Record.

At the meeting, thefollowing were elected to the Board of Directors: David W. Mann, Walter J.Rusek, Mary Hyden Mann Hunter, Allen B. Mann, James Lee Motheral, Joseph EdwardWalker and Dr. Raymond A. Parker.

In other matters, theshareholders approved the selection of Pattillo, Brown & Hill, CertifiedPublic Accountants, as auditors for the fiscal year ended December 31, 2003 andratified and approved all actions taken by the Company's directors andmanagement during the preceding year. No other matters were voted upon.

Item 5. Other Information

This report on Form 10-Q is accompanied by a statement ofthe Chief Executive Officer and the Chief Financial Officer of the registrantmaking certain certifications as to the contents hereof, as required by Section906 of the Sarbanes-Oxley Act of 2002.

Item 6. Exhibits andReports on Form 8-K

No Form 8-K was filedduring the quarter ended June 30, 2003.

 

8

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                August13, 2003        
   /s/  David W.Mann                                              
 DavidW. Mann 
President
 DulyAuthorized Officer and   
PrincipalFinancial Officer
      Date                 August13, 2003       
  /s/ Robert L.Harris                                              RobertL. Harris
 
VicePresident and
 
PrincipalAccounting Officer

(Remainder of pagepurposely left blank.)

 

 

9

Annual and Quarterly CertificationsPursuant to Section 302 of theSarbanes-Oxley Act of 2002 

I, David W. Mann, certify that:

1.         I have reviewed this quarterly report on Form 10-Q ofFirst Financial Corporation;

2.         Based on my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report; 

3.         Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report; 

4.        The registrant's other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

a)         designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisquarterly report is being prepared;

b)        evaluated the effectivenessof the registrant's disclosure controls and procedures as of a date within 90days prior to the filing date of this quarterly report (the "Evaluation Date");and

c)         presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

5.        The registrant's other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant's auditors and the audit committee of registrant's board ofdirectors (or persons performing the equivalent function):

a)        all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant's ability to record, process, summarize andreport financial data and have identified for the registrant's auditors anymaterial weaknesses in internal controls; and

b)         any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant's internal controls; and

6.        The registrant's other certifyingofficers and I have indicated in this quarterly report whether or not therewere significant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

Date:August 13, 2003  

/s/David W. MannDavidW. MannChiefExecutive Officer and Chief Financial Officer

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