U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549

FORM 10-QSB

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934   

   

For the quarter ended       June 30, 2001              Commission file number        0-5559           

    

| FIRST FINANCIAL CORPORATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 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| (Exact name of registrant as specified in its charter)
   

   

   

   

                  Texas              

 74-1502313           

 (State or other jurisdiction of    

 (I.R.S. Employer Identification               No.) 

     incorporation or organization)   

                    

   

   

   

   

     800 Washington Avenue, Waco, Texas                      

      76701                   

     (Address of principal executive offices)   

      (Zip Code)

   

   

   

   

Registrant's telephone number, including area code                     

               (254) 757-2424

   

   

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes      X           No               .

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicabledate

 

         Common Stock, No Par Value                      

 173,528                   

                      (Class)   

 (Outstanding at July 31, 2001)

 

 

FORM 10-QSB

FIRST FINANCIAL CORPORATIONJUNE 30, 2001

 

 

INDEX

 

Part I   

 Financial Information

 Page No.

   

Item 1.   Financial Statements   

 

   

                   Consolidated Balance Sheet as of   

 1

   

                   June 30, 2001   

 

   

   

   

   

                   Consolidated Statements of Income   

 2

   

                   for the Three-Months and Six Months   

 

   

                   ended  June 30, 2001 and 2000   

  

   

   

   

    

                   Consolidated Statements of Cash Flow  

  

    

                   for the Six-Months    

  

   

                   ended June 30, 2001 and 2000   

  3

   

   

   

    
                                 Notes to Consolidated Financial   
   

                   Statements   

 4-5

   

   

   

   

Item 2.   Management's Discussion and Analysis   

 

   

                    of Results of Operations and Financial   

 5-7

   

                    Condition   

  

   

   

   

   

   

   

   
Part II   Other Information   
   

   

   

   

Item 1.   Legal Proceedings   

 7

   

   

   

   
Item 4.   Submission of Matters to a Vote   
   

                   Of Security Holders   

 7-8

   

   

   

   
Item 6.   Exhibits and Reports on Form 8-K 
 8

 

 

 

 

 First Financial Corporation     Consolidated Balance Sheet        June 30, 2001     (Unaudited)
   
              Assets 

              ----------- 
Cash and cash equivalents
 $             1,024,490 
Restricted cash        838,506 Accounts receivable     1,551,132 Marketable investment securities        296,405 Real estate held for investment,at cost        444,000 Mortgage loans     26,102,073 Investment in and advances to   affiliated companies        437,792 Property and equipment        743,764 Other assets                  1,113,745 
                  Total Assets 
 $         32,551,907                     Liabilities and Stockholders' Equity                   --------------------------------------------------- Notes on line of credit    25,631,303 Accounts Payable     1,001,608 Estimated reserve for losses under servicing        agreements         236,929 Other liabilities                         697,455 
                  Total Liabilities 
               27,567,295    Minority interest                   1,389,375     Stockholders' equity:        Common stock - no par value; authorized               500,000 shares;issued 183,750 shares,               of which 10,222 shares are held in               treasury shares            1,000   Additonal paid-in capital        518,702   Retained earnings                 3,110,844       3,630,546   Less:Treasury stock - at cost         (35,309)                   Net unrealized loss on marketable                      investment securities                                      -       
                  Total Stockholders' Equity 
                 3,595,237 
                  Total Liabilities and Stockholders' Equity 
 $  32,551,907     See accompanying notes to consolidated financial statements.           
 -1-

 

 

      First Financial Corporation   Consolidated Statements of Income                   Three months and Six months ended June 30, 2001 and 2000     (Unaudited)          
      Three months ended 

         Six months ended 
 
            June 30,

            June 30,
 2001200020012000 Revenues:             Loan administration $      2,351,195  $   1,828,881  $   4,515,564  $     2,828,867            Interest income        653,034         307,437      1,054,354         546,402            Other income             259,875          254,714           490,937          444,024                   Total Revenues          3,264,104   2,391,032        6,060,855   3,819,293       Expenses:               Salaries and related expenses     1,629,697      1,327,493      3,137,081      2,352,690            Interest expense        556,128         249,048         939,370         408,553            Provision for losses under servicing                      agreements                 -                    -                    -            (34,000)           Other operating expenses         1,034,721          913,176        1,902,954       1,600,478                   Total Expenses         3,220,546   2,489,717        5,979,405   4,327,721                   Income before income taxes,                             minority interest, equity in earnings                              (loss) of affiliates           43,558          (98,685)          81,450        (508,428)     Federal income taxes                  -                   -                      -                   -                    Income before minority interest          43,558          (98,685)          81,450        (508,428)     Minority interest in net loss (income)          (28,754)          56,444         (64,897)          240,516              Income before equity in earnings (loss) of                   affiliates           14,804          (42,241)          16,553        (267,912)     Equity in earnings (loss) of affiliates           33,489         109,850            7,055          123,226                   Net income           48,293           67,609           23,608        (144,686)     Other comprehensive income:               Unrealized holding gains (losses)           45,030           10,252          40,648              4,378                   Net income  $             93,323  $       77,861  $          64,256  $        (140,308)    Income Per Common Share$0.54 $0.45 $0.37 ($0.81)                 See accompanying notes to consolidated financial statements.                
-2-
 

 

First Financial     Corporation     Consolidated Statements of Cash Flow         
 (Unaudited)
 
Six Months Ended June 30, 
  20012000 Cash flows from operating activities:           Net income (loss) $              64,255  $        (140,308)         Adjustments to reconcile net income(loss) to             net cash used by operating activities:           Depreciation        130,198         142,805          Provision for losses under servicing agreements                 -                 (34,000)         Equity in (income) loss of affiliates           (7,055)       (123,226)         Realized (gains) losses on marketable investment securities           (1,181)           (2,473)         Net (increase) decrease in accounts receivable          15,553        (139,425)         Net (increase) decrease in other assets        235,890          (92,301)         Net increase (decrease) in accounts payable         (90,529)        533,436          Net increase (decrease) in other liabilities         (25,154)       (128,523)         Increase in minority interest          64,868        (240,515)         (Increase) decrease in restricted cash used                   in operating activities - net       (277,982)       (161,951)         Mortgage loans funded (303,225,701) (144,324,698)         Mortgage loans sold  292,960,812   138,131,534          Increase in mortgage loans participations sold                 -             5,941,494          Other                           10,588                     143,963                             Net cash provided (used) for operating activities          (10,145,438)                   (494,188)     Cash flows from investing activities:           Proceeds from sale of marketable investment securities          10,924           10,113          Purchases of marketable investment securities         (32,504)         (78,470)         Unrealized holding (gains) losses                 -                   (4,378)         Purchase of property and equipment         (65,148)       (114,259)         Principal collections on mortgage loans          49,336         129,207          Amortization of discount on mortgage loans purchased                 -                 (12,397)         (Advances to) repayments from affiliates                                                  -                                     99,600                    Net cash provided (used) for investing activities                           (37,392)                              29,416 Cash flows from financing activities:           Payment on notes payable           10,338,494                                                     -                          Net cash used for financing activities           10,338,494                                                     -            Net increase (decrease) in cash and cash equivalents        155,664        (464,772)Cash and cash equivalents at beginning of year                       868,826                1,122,846 Cash and cash equivalents at end of period $   1,024,490  $           658,074    Supplemental Disclosure of Cash Flow Information          Interest Paid $        813,478  $          358,408        See accompanying notes to consolidated financial statements.  
-3- 
 

 

FIRST FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

PART I - FINANCIAL INFORMATION

1 - Basis of Presentation

The financial information included herein for First Financial Corporation, and all of its wholly owned and majority owned subsidiaries (the "Company") is unaudited; however, such unaudited information reflects all adjustments which are, in management's opinion, necessary for a fair presentation of the financial position, results of operations and statement of cash flows for the interim periods. In preparing these financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenue and expense for the period. Actual results could differ significantly from those estimates. Minority interest represents ownership of other entities in the net assets and net earnings of Key Group, Ltd. ("Key Group").

The results of operations and changes in cash flow for the six-month period ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year.

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

2 - Earnings Per Share

Earnings per common share were computed by dividing net income by the weighted average number of shares outstanding. 

3 - Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of the loan loss reserve for financial and income tax reporting.  The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.  Deferred taxes also are recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future federal income taxes.  The Company has approximately $5,900,000 in available net operating loss carryforward benefits for financial statement purposes to offset future income, if any.

4

 

4 - Contingencies

Substantially all of the conventional pools of manufactured home loans serviced by the Company, approximately $438,000 at June 30, 2001, were sold to investors with recourse.  The recourse provisions typically require the Company to repurchase delinquent loans at the unpaid balances plus accrued interest, or replace delinquent loans with another loan which is current.  Further, several of the agreements require the Company to establish and maintain cash reserve accounts.  Deposits are periodically made to the accounts equal to a specified percent of the outstanding loans. The accounts may be used to cover deficiencies from foreclosure and liquidation of delinquent pooled mortgage loans.  Such cash reserve accounts totaled $10,495 and are included in restricted cash at June 30, 2001.

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

Results of Operations

The Company had net income  of $64,256 for the six months ended June 30, 2001 compared to net loss of $140,308 for the same period in 2000.  Loan administration revenues were $4,515,564 for the first six months of 2001 compared to $2,828,867 for the same period of 2000.  The increase in loan administration revenues is primarily due to increased loan origination fees from the Company's residential mortgage loan operations. During the six months ended June 30, 2001, First Preference Mortgage Corp.("FPMC"), a third tier subsidiary of Key Group, funded approximately $303.2 million in new residential mortgage loans compared to approximately $144.3 million during the same period in 2000. The increase in mortgage loan fundings is primarily due to decreases in the residential mortgage interest rates during the six months ended June 30, 2001.

For the six months ended June 30, 2001, Key Group had a net income of $137,890 compared to a net loss of  ($511,041) for the same period in 2000. This significant improvement by Key Group is primarily due the increase in residential mortgage loan originations as discussed above. The minority interest in the net income of Key Group amounted to ($64,897) for the six months ended June 30, 2001 compared to a minority interest in the net loss of $240,516 for the comparable period in 2000.  The minority interest represents the ownership of other entities in the Key Group net income or net loss. The Company's share of the net income (loss) of Key Group was $73,000 and ($270,525) for the six months ended June 30, 2001 and 2000, respectively.

Interest income for the six months ended June 30, 2001 amounted to $1,054,354 compared to $546,402 for the same period in 2000.  This increase is primarily due to the significant increase in new residential mortgage loans originated during the first six months of 2001 as compared to 2000 as discussed above.  FPMC earns interest from the date the mortgage loan is closed until the date the mortgage loan is sold to investors.

Salaries and related expenses decreased to $3,137,081 for the six months ended June 30, 2001, compared to $2,352,690 for the same period in 2000. This increase is primarily due to an increase in the amount of commission expense resulting from the increased retail residential mortgage loan originations. Four new retail branches were acquired during the second quarter of 2000. During the six months ended June 30, 2001, retail mortgage loan originations amounted to approximately $77.5 million compared to $51.6 for the same period in 2000.

5

 

For the six months ended June 30, 2001, interest expense amounted to $939,370 compared to $408,553 for the same period in 2000.  The significant increase in interest expense for the six months ended June 30, 2001 is primarily due to increased utilization of the Company's mortgage warehouse line of credit resulting from the approximately 210% increase in new residential loan originations for the six months ended June 30, 2001 as discussed above. In addition, the weighted average interest rate for the six months ended June 30, 2001 was approximately 6.75% compared to 7.15% for the same period in 2000.

During the six months ended June 30, 2001, the provision for losses under servicing agreements was ($0) resulting in a balance in the reserve for losses under servicing agreements of $236,929 at June 30, 2001.  For the six months ended June 30, 2000, the Company had a negative provision for losses under servicing agreements of ($34,000) which resulted in a balance in the reserve for losses under servicing agreements of $235,998 at June 30, 2000.  As previously discussed, under the terms of certain of its servicing agreements, the Company is at risk for any credit losses and costs of foreclosure, net of credit insurance proceeds, if any, sustained on default of the borrower. The Company has analyzed its servicing portfolio characteristics, including servicing portfolio balance, loss experience, maturity and aging of the loans and the credit insurance coverage on the loans. Based on this analysis, it is the Company's belief that its reserve for losses under servicing agreements is adequate for potential losses attributable to the servicing agreements.

The consolidated statements of income for the six month ended June 30, 2001 reflect equity in the net income of affiliates of $7,055 compared to net income of $123,226 for the same period in 2000. During 2000, the  affiliates realized gains on the sale of  certain real estate.  

Other comprehensive income consists of unrealized holding gains (losses) on marketable investment securities net of income taxes. For the six months ended June 30, 2001, unrealized holding gains amounted to $40,648 compared to unrealized holding gains of $4,378 for the six months ended June 30, 2000.

Financial Condition

At June 30, 2001, the Company's total assets were $32,551,907 compared to $6,649,048 at June 30, 2000.  Included in the Company's total assets are the assets of Key Group which amounted to $29,553,076 and $3,822,352 at June 30, 2001 and 2000, respectively.  The Key Group assets at June 30, 2001 consisted primarily of cash and cash equivalents of $976,413, mortgage loans of $26,021,420, property and equipment of $919,419 and accounts receivable, prepaid expenses and other assets of $1,635,824.  The minority interest in the net assets of Key Group at June 30, 2001 amounted to $1,389,375 compared to $1,425,136 at June 30, 2000. At June 30, 2000, FPMC financed its mortgage lending activities using a loan participation financing structure under which the financial institution would purchase a 98% participation in the mortgage loans funded by FPMC. Under this arrangement, FPMC's balance sheet reflected net mortgage loans held for sale of $309,273 and the $15,547,487 in participations sold was carried as an off balance sheet item. At June 30, 2001, FPMC financed its mortgage lending activities using a line of credit financing structure under which the financial institution would advance up to 99% of the amount to be paid by the investor, but not to exceed the unpaid principal of the loan. Under this arrangement, FPMC's balance sheet includes net mortgages held of sale of $25,901,021 and loans under the line of credit of $25,631,303.

6

 

On consolidated basis, cash and cash equivalents (including restricted cash) were $1,862,996 at June 30, 2001.  Included therein was cash and cash equivalents for Key Group of $976,413 and Apex Lloyds Insurance Company of $840,667.  The cash flow of Key Group is only available to the Company to the extent that cash is received in the form of partnership distributions. The cash flow of Apex Lloyds Insurance Company is only available to the Company as allowed by state insurance regulations.

As more fully discussed in the Annual Report Form 10-KSB for the year ended December 31, 2000, FPMC has a mortgage warehouse line of credit with a financial institution totaling $50,000,000 which expired June 30, 2001. This agreement was extended until August 31, 2001. This agreement includes certain financial covenants including requirements to maintain FPMC stockholders' equity above $2,700,000 and adjusted-tangible-net worth above $2.5 million. Also, FPMC's total liabilities to adjusted tangible net worth may never exceed 15 to 1. First Preference Mortgage Corp. is in the process negotiating a renewal of this agreement which expires August 31, 2001.

 

PART II - OTHER INFORMATION

 

Item 1.   Legal Proceedings

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

 

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

The annual meeting of the shareholders was held on May 15, 2001, pursuant to an information statement dated April 17, 2001, furnished by the Board of Directors to the Shareholders of Record.

At the meeting, the following were elected to the Board of Directors: John Carl Hauser, David W. Mann, Robert A. Mann, Walter J. Rusek, Mary Hyden Mann Hunter, Allen B. Mann, James Lee Motheral and Joseph Edward Walker.

7

 

In other matters, the shareholders approved the selection of Pattillo, Brown & Hill, Certified Public Accountants, as auditors for the fiscal year ended December 31, 2001 and ratified and approved all actions taken by the Company's directors and management during the preceeding year. No other matters were voted upon.

Item 6.   Exhibits and Reports on Form 8-K

No Form 8-K was filed during the quarter ended June 30, 2001.

8

 

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

First Financial Corporation

 

 

Date                August 14, 2001                

                /s/  David W. Mann                   
David W. MannPresidentDuly Authorized Officer andPrincipal Financial Officer  Date                 August 14, 2001                         /s/ Annie Laurie Miller                                                       Annie Laurie MillerExecutive Vice President andPrincipal Accounting Officer    |