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) August 28, 1998
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FIRSTCITY FINANCIAL CORPORATION
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(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\0013\1848\FRM8278U.54A
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
Consistent with the stated business strategy of FirstCity Financial
Corporation (the "Company") to remain a diversified financial services company,
the Company has completed an internal review of the level of its capital
commitment to FirstCity Financial Mortgage Corporation ("FC Mortgage"), its
conventional mortgage banking subsidiary. Since the Company acquired FC Mortgage
in 1997, the Company has invested over $100 million in capital to fund the
successful expansion of FC Mortgage's asset base and production levels. Over the
past year, FC Mortgage's owned residential servicing portfolio has grown from
approximately $3.2 billion to over $7.0 billion as a result of its strategy of
retaining the servicing rights to substantially all of its loan production
generated during the period. Spurred by the favorable interest rate environment,
FC Mortgage's 1998 residential loan origination volumes have almost tripled from
the levels during 1997. To accommodate this increase, FC Mortgage has increased
significantly its borrowings under its warehouse credit facilities. The growth
in the residential servicing portfolio combined with the increased warehouse
credit facilities required a significant capital commitment by the Company to FC
Mortgage since its acquisition in 1997.
Based upon its internal review, the Company concluded that it should
reduce its overall level of capital commitment to FC Mortgage to ensure that
appropriate and adequate levels of capital resources from the Company remain
available to support each of the Company's operating subsidiaries. In order to
permit the Company to make such reduction, FC Mortgage is implementing a
strategy to sell up to $3 billion of its owned residential servicing rights. To
manage the capital required to support its future loan production, FC Mortgage
anticipates that it will sell, periodically, a portion of the servicing rights
related to future loan production. Additionally, the Company has concluded that
continuation of FC Mortgage's GNMA loan buy-back program is not consistent with
its current business strategy. Accordingly, FC Mortgage has determined not to
continue this program and the underlying assets will be managed in an orderly
fashion to maximize their realizable value.
The Company believes that the actions described in the preceding
paragraph will result in a reduction in FC Mortgage's owned residential
servicing portfolio from approximately $7 billion at June 30, 1998 to
approximately $4 to $5 billion. Consequently, the Company expects a reduction in
FC Mortgage's aggregate investment in mortgage servicing rights from
approximately $124 million at June 30, 1998 to approximately $70 million.
Overall, the Company expects that its capital committed to FC Mortgage will be
reduced from the current level of over $100 million to approximately $50 to $70
million over
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a six to nine month time frame. FC Mortgage expects to sustain its current
levels of residential loan origination volume in light of the current favorable
interest rate environment for its mortgage products. FC Mortgage believes that
it will be able to operate without the need for increased capital commitments
from the Company as it continues to assess its other lines of business, its
channels of distribution and other strategic matters to permit it to focus on
its core business strengths.
The Company does not expect that the results of these specific
actions will have a material impact on its or FC Mortgage's financial condition
or results of operations. The Company, however, cannot predict the future effect
on its financial condition and results of operations of market conditions, the
direction and relative levels of interest rates and the effects of other market
factors.
This Current Report on Form 8-K contains forward-looking statements
that 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. When any such forward-looking statement includes a
statement of the assumptions or bases underlying such forward-looking statement,
the Company cautions that, while such assumptions or bases are believed to be
reasonable and are made in good faith, assumed facts or bases almost always vary
from actual results, and the differences between assumed facts or bases and
actual results can be material, depending upon the circumstances. When, in any
forward-looking statement, the Company, or its management, expresses an
expectation or belief as to future results, such expectation or belief is
expressed in good faith and is believed to have a reasonable basis, but there
can be no assurance that the statement of expectation or belief will result or
be achieved or accomplished. The words "believe," "expect," "estimate,"
"project," "anticipate" and similar expressions identify forward-looking
statements.
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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/ Matt A. Landry, Jr.
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Name: Matt A. Landry, Jr.
Title: Executive Vice President and Chief
Administrative Officer
Date: August 28, 1998
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