SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) July 29, 1998
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FIRSTCITY FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 1-7614 76-0243729
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(STATE OR OTHER JURISDICTION(COMMISSION FILE NUMBER) (IRS EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
6400 Imperial Drive, Waco, TX 76712
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (254) 751-1750
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HOFS02...:\92\54892\0011\1612\FRM7298I.530
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
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Press Release of July 29, 1998.
ITEM 7. EXHIBITS
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Exhibit number Description
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99.1 Press Release of July 29, 1998
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRSTCITY FINANCIAL CORPORATION
By: /s/ Gary H. Miller
---------------------------------------------
Name: Gary H. Miller
Title: Senior Vice President and
Chief Financial Officer
Date: July 29, 1998
3
<PAGE>
EXHIBIT INDEX
Exhibit number Description
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99.1 Press Release of July 29, 1998
4
NEWS RELEASE
FIRSTCITY
FINANCIAL CORPORATION
contact: Suzy W. Taylor
(713) 652-1810
FIRSTCITY FINANCIAL ANNOUNCES SECOND QUARTER 1998 RESULTS
HOUSTON, TEXAS JULY 29, 1998... FirstCity Financial Corporation today
announced earnings for the second quarter and six months ended June 30, 1998 of
$7,853,000 and $13,434,000 respectively. After dividends on the company's
preferred stock and minority interests in subsidiaries, earnings were $6,109,000
and $10,390,000 for the quarter and six months, respectively.
On a fully diluted basis the company earned $ .83 per share for the
quarter ended June 30, 1998 and $1.47 per share for the 1998 six-month period,
as compared to $.44 and $1.58 per share for comparable periods in 1997. The 1997
six-month earnings reflected the positive effect of the $6.8 million, or $1.03
per share, payment from the FirstCity Liquidating Trust in settlement of its
servicing contract with the company.
FirstCity's Mortgage Banking unit experienced record setting
originations of $2.2 billion for the quarter ended June 30, 1998. The activity
outpaced first quarter originations by 16% and more than tripled originations in
1997's comparable quarter. The low interest rate environment as well as expanded
origination channels were major contributors to the strong origination growth
experienced. During the quarter the mortgage servicing portfolio grew 25% to
nearly $9.0 billion, or 48% higher than the June 30, 1997 level. The recorded
value of mortgage servicing rights at June 30, 1998 was $125 million. In
consideration of the uncertainty as to the direction of future interest rates
the company has begun , through periodic provisions, to build a reserve against
future valuation impairments of these mortgage servicing rights. During the
quarter the company added $500,000 to this provision, resulting in a total
reserve of $1,048,000 or .84% of total mortgage servicing rights.
Capital Corp., FirstCity's recently established mortgage conduit,
acquired $69.3 million of home equity loans during the quarter bringing
year-to-date acquisitions to $105.7 million. Capital Corp. completed its first
securitization of home equity loans in June 1998. The AAA rated transaction was
comprised of $121 million of home equity loans and generated a gain of $1.5
million, or 1.2% of the total loans securitized. The calculation of the gain
reflects a level 30% assumed prepayment rate on the $38 million of underlying
adjustable rate loans. On the $83 million of fixed rate loans securitized, the
assumed prepayment rate escalates from 12% to 25% in the first year and remains
at that rate throughout the term of the security. 49% of the securitized loans
have pre-payment penalties. Anticipated net losses over the life of the
securitization are 1.5% of the total amount of loans securitized. The discount
rate applied on the $8.4 million interest only strip retained by Capital Corp.
in connection with this transaction was 15%.
(more)
<PAGE>
(2)
The portfolio asset acquisition and resolution unit purchased $18
million in assets during the quarter, comprised primarily of performing asset
pools purchased from domestic banks. A major focus during the quarter was the
development of a business plan regarding FirstCity's role in the emerging
distressed asset resolution market in Asia. Potential local partners have been
identified and FirstCity is currently in the process of formalizing a structure
which will facilitate active participation in select Asian markets.
FirstCity Funding, the company's auto finance unit, had a very strong
quarter, purchasing auto receivables of $32.2 million. The bulk of the assets
purchased to date were securitized in a transaction completed in June. The
transaction, comprised of $50 million in loans, generated a gain of $2.5 million
or 4.9% of the face value of the underlying loans. The calculation of the
recorded gain was based on assumed losses of 13%, and discount rates at 12% on
the subordinated tranche and 15% on the interest only strip. To date, FirstCity
Funding's assets have been purchased at an average discount to face value of 14%
and carry an average weighted coupon of 19.3%. The defaults to date on assets
acquired through June 30, 1998 have totaled 2.15% of the total loans acquired.
Through timely resolution of the defaulted contracts, actual losses to date have
totaled 12.2% of the loan balances at the time of default, well below the
average 14% purchase discount on the original loan amount. Delinquencies at
quarter-end were 2.8% of the total serviced portfolio of FirstCity Funding
acquired loans.
During the second quarter, FirstCity completed the sale of 1,201,150
shares of common stock for $30.75 per share, generating net proceeds to the
company of $34.2 million. Separately, as of quarter-end, 96% of the company's
outstanding warrants to purchase its common stock were exercised following
notification to holders of the warrants by the company of its intent to
repurchase unexercised warrants for $1.00 each. As a result, the company issued
471,380 additional shares of common stock for an aggregate warrant purchase
price of $11.8 million. Common shares outstanding at quarter end were 8,260,491.
This press release contains forward-looking statements. These
statements are generally identified by the use of words or phrases such as
"expect", "anticipate", "should", etc. The forward looking statements are based
on FirstCity's current expectations and are dependent upon a number of
uncertainties that could cause the actual results to differ materially from
those implied, projected or predicted in the forward looking statements. The
Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
such forward-looking statements. Factors which may affect actual results include
FirstCity's ability to continue to grow its earnings base, its access to public
markets to sell assets as well as the overall interest rate environment and
other factors. In addition to the factors listed in this press release, please
refer to the Company's public documents filed with the SEC for a more in depth
discussion of risks and risk factors.
FirstCity is a diversified financial services company with operations dedicated
to mortgage lending, portfolio asset acquisition and resolution and consumer
lending through over 90 offices in the US and with affiliate organizations in
Europe and Mexico. Its common (FCFC) and preferred (FCFCP and FCFCO) stocks are
listed on the NASDAQ National Market System.
<PAGE>
FIRSTCITY FINANCIAL CORPORATION
EARNINGS SUMMARY
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
QUARTER ENDED: SIX MONTHS ENDED:
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of mortgage loans $ 28,303 $ 7,999 $ 48,572 $ 13,320
Gain on sale of automobile loans 2,434 2,434 -
Net mortgage warehouse income 2,395 526 4,117 1,292
Gain on sale of mortgage servicing rights - 2,263 - 4,529
Servicing fees:
Mortgage 5,588 3,414 10,282 6,985
Other 1,250 1,660 2,363 9,522(1)
Gain on resolution of Portfolio Assets 2,839 4,891 5,936 10,192
Equity earnings of Acquisition Partnerships 1,523 2,772 4,737 4,313
Rental income on real estate Portfolios 75 87 156 157
Interest income 2,898 3,449 6,697 6,228
Other income 2,239 2,409 6,276 3,570
Interest income on Class "A" Certificate - 1,515 - 3,174
------------- ------------- ------------- -------------
Total revenues 49,544 30,985 91,570 63,282
Expenses:
Interest on notes payable 3,304 3,650 6,722 6,512
Salaries and benefits 20,447 10,293 36,464 19,284
Amortization:
Mortgage servicing rights 4,126 1,596 7,302 3,143
Other 373 812 805 1,765
Provision for loan losses 575 1,357 2,927 2,155
Provision for valuation of mortgage servicing rights 500 - 500 -
Occupancy, data processing and other 13,121 8,608 24,812 16,185
------------- ------------- ------------- -------------
Total expenses 42,446 26,316 79,532 49,044
Net earnings before minority interest,
preferred dividends and income taxes 7,098 4,669 12,038 14,238
Benefit (provision) for income taxes 755 (230) 1,396 (582)
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Net earnings before minority interest
and preferred dividends 7,853 4,439 13,434 13,656
Minority interest 229 69 14 69
Preferred dividends 1,515 1,515 3,030 3,174
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Net earnings to common shareholders $ 6,109 $ 2,855 $ 10,390 $ 10,413
============= ============= ============= =============
Net earnings per common share - basic $ 0.84 $ 0.44 $ 1.51 $ 1.60
Net earnings per common share - diluted $ 0.83 $ 0.44 $ 1.47 $ 1.58
Wtd. avg. common shares outstanding - basic 7,243 6,517 6,889 6,517
Wtd. avg. common shares outstanding - diluted 7,401 6,549 7,045 6,575
</TABLE>
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(1) - Includes $6,800 received as a result of terminating the Investment
Management Agreement with the FirstCity Liquidating Trust in the first quarter
of 1997.
1
<PAGE>
FIRSTCITY FINANCIAL CORPORATION
SELECTED BALANCE SHEET DATA
<TABLE>
<CAPTION>
(Amounts in thousands) June 30, 1998 Dec. 31, 1997
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<S> <C> <C>
Mortgage assets $ 1,223,991 $ 650,775
Portfolio acquisition and resolution assets 106,111 125,480
Consumer assets 52,727 61,135
Deferred tax asset 32,185 30,614
Total assets 1,510,039 940,119
Notes payable 1,227,966 750,781
Preferred stock 41,908 41,908
Total common shareholders' equity 172,001 112,758
</TABLE>
SUMMARY INCOME STATEMENT DATA FOR EACH BUSINESS
<TABLE>
<CAPTION>
QUARTER ENDED: SIX MONTHS ENDED:
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June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
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<S> <C> <C> <C> <C>
Mortgage Banking:
Revenues $ 37,838 $ 15,712 $ 66,527 $ 28,445
Expenses 31,738 14,434 56,454 26,121
--------------- --------------- --------------- ----------------
Operating contribution before direct taxes $ 6,100 $ 1,278 $ 10,073 $ 2,324
=============== =============== =============== ================
Operating contribution, net of direct taxes $ 6,100 $ 833 $ 9,984 $ 1,491
=============== =============== =============== ================
Portfolio Asset Acquisition and Resolution:
Revenues (1) $ 5,540 $ 10,414 $ 14,578 $ 26,199
Expenses 4,322 5,920 9,177 12,240
--------------- --------------- --------------- ----------------
Operating contribution before direct taxes $ 1,218 $ 4,494 $ 5,401 $ 13,959
=============== =============== =============== ================
Operating contribution, net of direct taxes $ 1,223 $ 4,489 $ 5,392 $ 13,854
=============== =============== =============== ================
Consumer Lending:
Revenues $ 5,746 $ 2,767 $ 8,702 $ 4,824
Expenses 4,389 3,768 9,840 6,571
--------------- --------------- --------------- ----------------
Operating contribution before direct taxes $ 1,357 $ (1,001) $ (1,138) $ (1,747)
=============== =============== =============== ================
Operating contribution, net of direct taxes $ 1,357 $ (1,003) $ (1,138) $ (1,750)
=============== =============== =============== ================
</TABLE>
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(1) - Includes $6,800 received as a result of terminating the Investment
Management Agreement with the FirstCity Liquidating Trust in the first quarter
of 1997.
2
<PAGE>
FIRSTCITY FINANCIAL CORPORATION
SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
(Dollars in thousands) QUARTER ENDED: SIX MONTHS ENDED:
-------------- -----------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
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<S> <C> <C> <C> <C>
MORTGAGE:
Origination:
Direct Retail Residential:
Conventional $ 159,030 $ 43,809 $ 261,524 $ 74,166
FHA/VA/FHMA 149,239 64,006 266,709 112,138
Home Improvement - 109 - 109
Brokered 37,075 16,126 56,987 24,029
Broker Retail Residential:
Conventional 1,425,697 422,447 2,684,068 802,186
FHA/VA/FHMA 228,125 54,054 441,883 89,153
Home Equity 89,022 48,477 147,284 59,522
Commercial:
Correspondent 67,985 42,474 181,250 42,474
Construction 12,767 15,623 28,363 26,380
Acquisition of Home Equity 69,312 - 105,728 -
--------------- --------------- --------------- ----------------
Total Mortgage Production 2,238,252 707,125 4,173,796 1,230,157
=============== =============== =============== ================
Servicing portfolio (at period end):
Conventional 6,290,568 3,672,608
Agency 1,300,907 534,474
Other 21,844 33,600
Commercial 1,374,339 1,816,581
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Total Mortgage Servicing portfolio 8,987,658 6,057,263
=============== ===============
Selected other data:
Net warehouse income 2,395 526 4,117 1,292
Net margin on warehouse balances 1.28% 1.15% 0.91% 1.14%
Gain on loans sold ($):
Residential 24,397 7,138 42,389 11,961
Home Equity 2,403 1,279 4,680 1,778
Securitized Home Equity 1,503 - 1,503 -
Loans sold ($):
Residential 2,117,892 553,689 3,375,181 1,023,885
Home Equity 54,201 28,795 101,978 42,292
Securitized Home Equity 121,038 - 121,038 -
Gain on loans sold (%):
Residential 1.15% 1.29% 1.26% 1.17%
Home Equity 4.43% 4.44% 4.59% 4.20%
Securitized Home Equity 1.24% - 1.24% -
OMSR income as a percent of loans sold 1.78% 1.68% 1.80% 1.72%
Servicing revenues:
Residential 5,123 2,991 9,407 6,323
Commercial 247 210 485 253
Sub-serviced 218 213 390 409
--------------- --------------- --------------- ----------------
5,588 3,414 10,282 6,985
=============== =============== =============== ================
Number of personnel at period end:
Production 511 313
Servicing 146 120
Other 710 338
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Total personnel 1,367 771
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3
<PAGE>
FIRSTCITY FINANCIAL CORPORATION
SUPPLEMENTAL INFORMATION
(Dollars in thousands) QUARTER ENDED: SIX MONTHS ENDED:
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
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PORTFOLIO ACQUISITION AND RESOLUTION:
Aggregate purchase price of portfolios acquired:
Wholly owned $ 6,781 $ 5,457 $ 7,890 $ 5,457
Acquisition partnerships 11,088 5,492 61,950 52,730
--------------- --------------- --------------- ----------------
17,869 10,949 69,840 58,187
=============== =============== =============== ================
Collections:
Wholly owned 13,056 15,280 30,032 30,122
Acquisition partnerships (1) 30,070 91,068 87,628 115,652
43,126 106,348 117,660 145,774
=============== =============== =============== ================
Average investment in Portfolio Assets:
Nonperforming 42,201 57,445 46,005 51,667
Performing 13,177 8,335 14,956 8,314
Real estate 17,639 21,773 18,053 22,810
Average investment in acquisitioin partnerships 37,074 26,668 36,399 25,568
Servicing portfolio (face value) 856,784 774,776
Selected other data:
Servicing fees:
Acquisition partnerships 648 1,510 1,308 2,383
Other 18 44 87 6,999
Gain on resolution of Portfolio Assets:
Nonperforming 1,626 4,057 3,889 8,029
Performing - - 299 -
Real estate 1,213 834 1,748 2,163
--------------- --------------- --------------- ----------------
2,839 4,891 5,936 10,192
=============== =============== =============== ================
Gross profit margin on Portfolio Assets:
Nonperforming 20.37% 32.05% 21.97% 34.47%
Performing - - 7.99% -
Real estate 22.26% 31.82% 20.35% 31.67%
Acquisition Partnerships 30.30% 13.02% 31.55% 16.91%
Interest yield on performing Portfolio Assets 13.81% 27.40% 15.86% 25.52%
Number of personnel at period end:
Production 11 11
Servicing 70 92
--------------- ---------------
Total personnel 81 103
=============== ===============
CONSUMER LENDING:
Automobile and other consumer loans acquired:
FirstCity Funding $ 32,150 $ - $ 50,682 $ -
National Auto Funding - 20,296 13,407 50,071
Other 1,105 1,684 2,541 3,033
Origination characteristics (FirstCity Funding only):
Face value to wholesale value 99.31% na 99.29% na
Weighted average coupon 19.21% na 19.28% na
Purchase discount (% of face value) 14.02% na 13.78% na
Servicing portfolio (face value) 137,439 73,643
Selected other data:
Interest income 2,614 2,768 5,161 4,858
Gain on sale of automobile loans ($) 2,434 32 2,434 32
Automobile loans sold ($) 50,001 35,001 100,059 35,001
Gain on sale of automobile loans (%) 4.87% 0.09% 2.43% 0.09%
Servicing fees 584 106 968 140
Number of personnel at period end:
Production 67 45
Servicing 97 20
--------------- --------------- --------------- ----------------
Total personnel 164 65
=============== =============== =============== ================
</TABLE>
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(1) Collections of Acquisition Partnerships include approximately $51 million
of collections derived from a sale of assets to an affiliate. The gain on this
sale was deferred until the ultimate disposition of the assets.
4
