<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 033-19694
FIRSTCITY FINANCIAL CORPORATION
(Exact name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 76-0243729
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.
6400 IMPERIAL DRIVE,
WACO, TX 76712
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(254) 751-1750
(Registrant's Telephone Number, Including Area Code)
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 such 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 [ ]
The number of shares of common stock, par value $.01 per share, outstanding
at November 14, 2000 was 8,365,119.
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<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 9,587 $ 11,263
Portfolio Assets, net....................................... 24,084 39,437
Loans receivable, net....................................... 11,008 30,144
Residual interests in securitizations....................... -- 55,661
Equity investments.......................................... 33,102 31,104
Deferred tax benefit, net................................... 20,101 27,101
Other assets, net........................................... 7,839 15,786
Net assets of discontinued operations....................... 19,918 20,126
-------- --------
Total Assets...................................... $125,639 $230,622
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $ 81,864 $169,792
Other liabilities......................................... 6,059 7,278
-------- --------
Total Liabilities................................. 87,923 177,070
Commitments and contingencies............................... -- --
Redeemable preferred stock:
Adjusting rate preferred stock, including accumulated
dividends in arrears of $3,210 and $1,284, respectively
(par value $.01; redemption value of $21 per share;
2,000,000 shares authorized; 1,222,901 shares issued
and outstanding)....................................... 28,891 26,965
Shareholders' equity:
Optional preferred stock (par value $.01 per share;
98,000,000 shares authorized; no shares issued or
outstanding)........................................... -- --
Common stock (par value $.01 per share; 100,000,000 shares
authorized; issued and outstanding: 8,365,119 and
8,333,300 shares, respectively)........................ 84 83
Paid in capital........................................... 79,629 79,562
Accumulated deficit....................................... (69,978) (52,663)
Accumulated other comprehensive loss...................... (910) (395)
-------- --------
Total Shareholders' Equity........................ 8,825 26,587
-------- --------
Total Liabilities, Redeemable Preferred Stock and
Shareholders' Equity............................ $125,639 $230,622
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
2000 1999 2000 1999
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Servicing fees....................................... $2,553 $ 2,068 $ 9,789 $ 6,346
Gain on resolution of Portfolio Assets............... 993 1,335 2,763 3,382
Equity in earnings of investments.................... 1,570 3,106 5,440 8,548
Interest income...................................... 2,823 6,009 13,887 14,493
Gain on sale of interest in subsidiary............... 8,091 -- 8,091 --
Gain on sale of automobile loans..................... -- -- 2,836 6,445
Other income......................................... 156 571 1,446 1,248
------ -------- -------- ---------
Total revenues............................... 16,186 13,089 44,252 40,462
Expenses:
Interest and fees on notes payable................... 4,350 4,864 16,053 13,461
Salaries and benefits................................ 4,587 3,733 14,201 11,499
Provision for loan and impairment losses............. 89 1,074 3,924 3,036
Occupancy, data processing, communication and
other............................................. 4,198 4,719 14,085 13,140
------ -------- -------- ---------
Total expenses............................... 13,224 14,390 48,263 41,136
Earnings (loss) from continuing operations
before income taxes, minority interest and
accounting change.......................... 2,962 (1,301) (4,011) (674)
Provision for income taxes............................. 94 16 7,415 5,048
------ -------- -------- ---------
Earnings (loss) from continuing operations before
minority interest and accounting change.............. 2,868 (1,317) (11,426) (5,722)
Minority interest...................................... 17 124 204 (486)
Cumulative effect of accounting change................. -- -- -- (765)
------ -------- -------- ---------
Earnings (loss) from continuing operations... 2,885 (1,193) (11,222) (6,973)
Loss from discontinued operations, net of income
taxes................................................ -- (62,734) (5,000) (102,337)
Extraordinary gain, net of income taxes................ 833 -- 833 --
------ -------- -------- ---------
Net earnings (loss).......................... 3,718 (63,927) (15,389) (109,310)
Preferred dividends(1)................................. (642) (642) (1,926) (1,926)
------ -------- -------- ---------
Net earnings (loss) to common shareholders... $3,076 $(64,569) $(17,315) $(111,236)
====== ======== ======== =========
Basic and diluted earnings (loss) per common share are
as follows:
Earnings (loss) from continuing operations before
accounting change per common share................ $ 0.27 $ (0.22) $ (1.57) $ (0.98)
Cumulative effect of accounting change............... -- -- -- (0.09)
Discontinued operations per common share............. -- (7.55) (0.60) (12.33)
Extraordinary gain................................... 0.10 -- 0.10 --
Net earnings (loss) per common share................. $ 0.37 $ (7.77) $ (2.07) $ (13.40)
Weighted average common shares outstanding........... 8,357 8,314 8,346 8,301
</TABLE>
---------------
(1) Includes accumulated dividends in arrears after June 30, 1999.
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER
NUMBER OF EARNINGS COMPREHENSIVE TOTAL
COMMON COMMON PAID IN (ACCUMULATED INCOME SHAREHOLDERS'
SHARES STOCK CAPITAL DEFICIT) (LOSS) EQUITY
--------- ------ ------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31,
1998................... 8,287,959 $83 $78,456 $ 58,061 $ 355 $ 136,955
Purchase of shares
through employee stock
purchase plan.......... 45,341 -- 231 -- -- 231
Issuance of common stock
warrant................ -- -- 875 -- -- 875
Comprehensive loss:
Net loss for 1999...... -- -- -- (108,156) -- (108,156)
Foreign currency
items............... -- -- -- -- (750) (750)
---------
Total comprehensive
loss................... (108,906)
---------
Preferred dividends...... -- -- -- (2,568) -- (2,568)
--------- --- ------- --------- ----- ---------
BALANCES, DECEMBER 31,
1999................... 8,333,300 83 79,562 (52,663) (395) 26,587
Purchase of shares
through employee stock
purchase plan.......... 31,819 1 67 -- -- 68
Comprehensive loss:
Net loss for the first
nine months of
2000................ -- -- -- (15,389) -- (15,389)
Foreign currency
items............... -- -- -- -- (515) (515)
---------
Total comprehensive
loss................... (15,904)
---------
Preferred dividends...... -- -- -- (1,926) -- (1,926)
--------- --- ------- --------- ----- ---------
BALANCES, SEPTEMBER 30,
2000................... 8,365,119 $84 $79,629 $ (69,978) $(910) $ 8,825
========= === ======= ========= ===== =========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 5
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (15,389) $(109,310)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss from discontinued operations...................... 5,000 102,337
Proceeds from resolution of Portfolio Assets........... 11,781 16,985
Gain on resolution of Portfolio Assets................. (2,763) (3,382)
Purchase of Portfolio Assets and loans receivable,
net................................................... (11,512) (281)
Origination of automobile receivables, net of purchase
discount.............................................. (106,311) (131,863)
Provision for loan and impairment losses............... 3,924 3,036
Equity in earnings of investments...................... (5,440) (8,548)
Proceeds from performing Portfolio Assets and loans
receivable, net....................................... 51,716 61,009
Decrease in net deferred tax asset..................... 7,000 5,061
Depreciation and amortization.......................... 1,753 2,125
Increase in other assets............................... 1,114 10,139
Deferred gain from sale of interest in subsidiary...... (4,000) --
Gain on sale of interest in subsidiary................. (8,091) --
Increase (decrease) in other liabilities............... (1,717) 2,379
--------- ---------
Net cash used in operating activities............. (72,935) (50,313)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of interest in subsidiary.............. 15,000 --
Proceeds on notes receivable from sale of interest in
subsidiary............................................. 60,000 --
Property and equipment, net............................... 405 (4,953)
Contributions to Acquisition Partnerships and Servicing
Entities............................................... (3,136) (15,357)
Distributions from Acquisition Partnerships and Servicing
Entities............................................... 7,444 28,370
--------- ---------
Net cash provided by investing activities......... 79,713 8,060
--------- ---------
Cash flows from financing activities:
Borrowings under notes payable............................ 132,627 190,702
Payments of notes payable................................. (136,357) (137,114)
Proceeds from issuance of common stock.................... 68 215
Preferred dividends paid.................................. -- (1,926)
--------- ---------
Net cash provided by (used in) financing
activities...................................... (3,662) 51,877
--------- ---------
Net cash provided by continuing operations........ 3,116 9,624
Net cash used by discontinued operations.......... (4,792) (2,680)
--------- ---------
Net increase (decrease) in cash and cash equivalents........ (1,676) 6,944
Cash and cash equivalents, beginning of period.............. 11,263 5,955
--------- ---------
Cash and cash equivalents, end of period.................... $ 9,587 $ 12,899
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 13,671 $ 11,178
Income taxes........................................... $ 638 $ 53
Non-cash investing activities:
Residual interests received as a result of sales of
loans through securitizations......................... $ 5,713 $ 11,957
Non-cash financing activities:
Dividends accumulated and not paid on preferred
stock................................................. $ 1,926 $ 642
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) BASIS OF PRESENTATION AND EARNINGS (LOSS) PER COMMON SHARE
The unaudited consolidated financial statements of FirstCity Financial
Corporation ("FirstCity" or the "Company") reflect, in the opinion of
management, all adjustments, consisting only of normal and recurring
adjustments, necessary to present fairly FirstCity's financial position at
September 30, 2000, the results of operations for the three-month and nine-month
periods ended September 30, 2000 and 1999, and the cash flows for the nine-month
periods ended September 30, 2000 and 1999.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include the
estimation of future collections on purchased portfolio assets used in the
calculation of net gain on resolution of portfolio assets, interest rate
environments, valuation of the deferred tax asset, and prepayment speeds and
collectibility of loans held in inventory, securitization trusts and for
investment. Actual results could differ materially from those estimates. Certain
amounts in the financial statements for prior periods have been reclassified to
conform with current financial statement presentation.
In the third quarter of 2000, FirstCity Consumer Lending Corporation
("Consumer Corp."), a wholly-owned subsidiary of FirstCity, completed a sale of
a 49% equity interest in its automobile finance operation to IFA Drive GP
Holdings LLC ("IFA-GP") and IFA Drive LP Holdings LLC ("IFA-LP"), wholly-owned
subsidiaries of IFA Incorporated ("IFA"), for a purchase price of $15 million
cash pursuant to the terms of a Securities Purchase Agreement dated as of August
18, 2000 (the "Securities Purchase Agreement"), by and among the Company,
Consumer Corp., FirstCity Funding LP ("Funding LP"), and FirstCity Funding GP
Corp. ("Funding GP"), IFA-GP and IFA-LP (see Note 2 for further discussion). As
a result of this sale, the Company no longer consolidates the financial
statements of its automobile finance operation since August 1, 2000, but instead
records its investment under the equity method of accounting. Certain amounts in
the financial statements related to the automobile finance operation have been
adjusted in order to deconsolidate these amounts for financial statement
presentation. Also, in relation to the sale, the Bank of Scotland forgave a loan
fee in the amount of $2.5 million, which resulted in accrued loan fees of $.8
million owed to the senior lender being recorded as an extraordinary gain in the
consolidated financial statements.
An accounting change due to the adoption of SOP 98-5, which requires
previously capitalized start-up costs including organization costs to be written
off and future costs related to start-up activities be charged to expense as
incurred, resulted in a write-off of $.8 million in previously capitalized
organization costs during the first quarter of 1999 and has been reflected as a
cumulative effect of a change in accounting principle.
The effects of any common stock equivalents are antidilutive for the three
months ended September 30, 1999 and the nine months ended September 30, 2000 and
1999 due to the net loss for the periods; therefore, diluted earnings (loss) per
common share is reported the same as basic earnings (loss) per common share. For
the three months ended September 30, 2000 there were not any common stock
equivalents; therefore, diluted earnings (loss) per common share is reported the
same as basic earnings (loss) per common share.
(2) RESTRUCTURE, LIQUIDITY AND CAPITAL RESOURCES
Generally, the Company requires liquidity to fund its operations, working
capital, payment of debt, equity for acquisition of Portfolio Assets,
investments in and advances to the Acquisition Partnerships, retirement of and
dividends on preferred stock, and other investments by the Company. The
potential sources of liquidity are funds generated from operations, equity
distributions from the Acquisition Partnerships, interest and principal payments
on subordinated intercompany debt and dividends from the Company's subsidiaries,
short-
5
<PAGE> 7
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
term borrowings from revolving lines of credit, proceeds from equity market
transactions, securitization and other structured finance transactions and other
special purpose short-term borrowings.
As stated in Note 1, in the third quarter of 2000, Consumer Corp. completed
the sale of a 49% equity interest in its automobile finance operation to IFA-GP
and IFA-LP. The transaction generated $75 million in cash as described below and
resulted in a gain of $12.1 million. Simultaneously, Bank of Scotland and the
Company completed a debt restructure, which resulted in reduced interest rates
and fees, increased liquidity, and an extended maturity. Additionally, this
transaction brought FirstCity into compliance under its lending covenants and
cured any defaults that may have existed prior to the restructure.
The new entity formed to facilitate the transaction is Drive Financial
Services LP ("Drive"). IFA, through wholly owned subsidiaries formed for the
purpose of the acquisition, purchased 49% of this newly formed entity for $15
million and IFA provided $60 million in term financing to Drive and its
subsidiary, Drive ABS LP, which was used to repay indebtedness owed to FirstCity
by its automobile finance operation. After taking into effect the sale of the
49% interest to IFA-GP and IFA-LP, the ownership of Drive is allocated as
follows: 49% of Drive is owned (directly and indirectly) by IFA-GP and IFA-LP,
31% of Drive is owned (directly and indirectly) by Consumer Corp., and 20% of
Drive is owned (directly and indirectly) by Thomas R. Brower, Scot A. Foith,
Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves, Stephen H. Trent and Blake
P. Bozman (the "Auto Finance Management Group"). The Auto Finance Management
Group consists of officers and shareholders of Funding GP and limited partners
of Funding LP who indirectly and directly owned the remaining 20% equity
interest in Funding LP. The Company has reflected the Auto Finance Management
Group's 20% equity interest in Funding LP as a minority interest in the
consolidated financial statements. The Company provided a guaranty limited to a
maximum amount of up to $4 million of the $60 million term loan by IFA. The
Company, Consumer Corp. and Funding LP secured the guaranty with a security
interest in their respective ownership interests in Consumer Corp., Funding LP
and Drive. IFA provided a new $100 million warehouse line of credit to Drive.
This new warehouse line is in addition to the current $100 million warehouse
line with Enterprise Funding Corporation, an affiliate of Bank of America. The
$4 million guaranty by the Company resulted in a $4 million deferral of the
$12.1 million gain. As a result of this transaction, the net operations of Drive
have been recorded (since August 1, 2000) as equity in earnings of investments.
As a result of the sale of the 49% interest in the automobile finance
operation, the Company reduced the outstanding debt under its senior and
subordinate facilities from $113 million to approximately $44 million. The
Company also retired approximately $6.4 million of debt owed to other lenders.
The Company, the Bank of Scotland, as agent, The Governor and Company of the
Bank of Scotland and IFA (collectively, the "Lenders"), entered into a Second
Amendment to Amended and Restated Loan Agreement dated as of August 18, 2000
(the "Second Amendment") pursuant to which the remaining debt under the
Company's senior and subordinate debt facilities was restructured into a new
loan facility that provides for a maximum aggregate loan amount of $53 million.
The restructured facility is comprised of a $10 million Revolving Line of
Credit, a $31 million Term Loan A and a $12 million Term Loan B. The loans under
the restructured loan facility mature December 31, 2003, and carry pricing of
LIBOR plus 2.5% for the Revolving Line of Credit and Term Loan A and prime rate
for Term Loan B. In the restructure, the Bank of Scotland forgave a fee in the
amount of $2.5 million which resulted in accrued loan fees of $.8 million owed
to the senior lender being recorded as an extraordinary gain in the consolidated
financial statements. The Second Amendment provides for a facility fee of $.5
million and a prepayment fee of $.5 million. The restructured loan facility
requires the consent of the Lenders prior to payment of any common and preferred
dividends. The Company obtained waivers or modifications under the Second
Amendment that bring the Company into compliance under the facility and cured
defaults that existed prior to the restructure.
IFA retained the warrant for the purchase of 425,000 shares of the
Company's voting common stock at $2.3125 per share (the closing price on
December 21, 1999), which was issued in connection with the debt
6
<PAGE> 8
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
restructure in December 1999. In connection with the execution of the Second
Amendment, the Company and IFA amended the option to obtain a warrant for
1,975,000 shares of non-voting stock, which was granted in December 1999 in
connection with the $25 million subordinated debt facility. The option, as
amended, allows IFA to acquire a warrant to acquire 1,975,000 shares of the
Company's non-voting common stock; the option can be exercised after August 31,
2001 if Term Loan B remains outstanding, but not prior to such date. The strike
price of $2.3125 will remain the same. In the event that prior to August 31,
2001 the Company either (a) refinances the $12 million Term Loan B with
subordinated debt, or (b) pays off the balance of Term Loan B from proceeds of
an equity offering, then the option to acquire a warrant for 1,975,000 shares of
non-voting stock will terminate. In the event that Term Loan B is terminated
prior to August 31, 2001 through a transaction involving the issuance of
warrants, IFA is entitled to additional warrants in connection with its existing
warrant for 425,000 shares to retain its ability to acquire approximately 4.86%
of the Company's common stock.
Dividends on outstanding preferred stock of FirstCity will be restricted
until Term Loan B is paid in full. The Company stated previously that it
intended to seek stockholder approval prior to the end of fiscal year 2000 for
the replacement of Term Loan B with a private placement of subordinated debt
provided by certain insiders and other interested investors. At that time it was
contemplated that warrants for common stock would be issued in connection with
the private placement. FirstCity, however, is limited in its ability to issue
common shares and warrants due to change of control issues related to its
substantial net operating loss carryforwards. While the private placement
originally contemplated would allow for the payment of future dividends on the
preferred stock, management believes that a more strategic utilization of its
available common shares and warrants would better serve the long-term interests
of the Company's stockholders. The Company currently does not plan to pursue the
private placement at this time. Management will continue to evaluate
alternatives to repay Term Loan B prior to August 31, 2001 to terminate the
option to obtain warrants to acquire the 1,975,000 shares of the Company's
common stock. This would allow the Company to utilize these shares in a
transaction that the Company believes would maximize long-term stockholder
value.
During the second quarter of 2000, the Portfolio Asset Acquisition and
Resolution group of the Company entered into a $17 million loan facility with
Cargill Financial Services, Inc. ("Cargill"). This facility is being used
exclusively to provide equity in new portfolio acquisitions in partnerships with
Cargill related entities. As of September 30, 2000, the Company has $6 million
of availability under this facility.
Management believes that the IFA debt described above along with the
liquidity from the Cargill line, the related fees generated from the servicing
of assets and equity distributions (totaling approximately $9.2 million for the
first nine months of 2000) from existing Acquisition Partnerships and
wholly-owned portfolios will allow the Company to meet its obligations as they
come due during the next twelve months.
(3) DISCONTINUED OPERATIONS
Effective during the third quarter of 1999, management of the Company
adopted formal plans to discontinue the operations of Harbor Financial Group,
Inc. (formerly known as FirstCity Financial Mortgage Corp.) and its subsidiaries
(collectively referred to as "Mortgage Corp."), and FC Capital Corp. ("Capital
Corp."). These entities comprise the operations that were previously reported as
the Company's residential and commercial mortgage banking business. As formal
termination plans were adopted and historical business operations at each entity
have ceased, the results of operations for 1999 have been reflected as
discontinued operations in the accompanying consolidated statements of
operations. Additionally, the net assets related to the resolution of activity
from the discontinued operations have been reflected in the accompanying
consolidated balance sheets. The results of operations from discontinued
operations for 1999 were composed of an operating loss of $39.1 million, the
Company's write-off of its investment of $50.5 million in Mortgage Corp. and the
write down of its net investment in Capital Corp. by $12.7 million. The
following is a summary of activity related to each of the entities' operations.
7
<PAGE> 9
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage Corp. -- During the third quarter of 1999, Mortgage Corp. incurred
significant losses from operations and the liquidation of certain assets.
Ultimately, on October 14, 1999, Mortgage Corp. filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Northern District of Texas. On December
14, 1999 the bankruptcy proceedings were converted to liquidations under Chapter
7 of the United States Bankruptcy Code. In the filings, the stated assets of
Mortgage Corp. were approximately $95 million and the stated liabilities were
approximately $98 million. Additionally, it is anticipated that the liquidation
of any remaining assets will yield proceeds, which are less than the stated
amount of the assets as listed in the filings. The Company does not guarantee
any of the debt of Mortgage Corp. Furthermore, management of the Company was not
involved in the daily operations of Mortgage Corp. during a significant portion
of the third quarter of 1999 and no longer had access to financial records of
Mortgage Corp.
Based on the above, Mortgage Corp. was deemed insolvent and the Company
wrote off its entire investment in and advances to (collectively referred to as
the Net Investment) Mortgage Corp.
Capital Corp. -- Management of the Company made the decision to completely
exit all mortgage banking activities due to the significant negative impact
realized from Mortgage Corp. The Company ceased acquiring mortgage loans under
Capital Corp.'s platform during the fourth quarter of 1999. At September 30,
2000, Capital Corp. had loans totaling $1.1 million remaining in its inventory,
substantially all of which were sold in October 2000.
It is projected that the only assets remaining from Capital Corp.'s
operations will be the investment securities resulting from the retention of
residual interests in securitization transactions completed by Capital Corp. The
Company has considered the estimated future income from such investment
securities in the computation of the loss from discontinued operations.
The net assets from discontinued operations consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Investment securities, net of valuation allowance........... $24,741 $28,602
Accrual for loss on operations and disposal of discontinued
operations, net........................................... (4,823) (8,476)
------- -------
Net assets of discontinued operations............. $19,918 $20,126
======= =======
</TABLE>
An accrual of $5.0 million for costs to complete the plan of discontinuation was
recorded in the second quarter of 2000. No additional accrual was deemed
necessary by management during the third quarter of 2000.
(4) PORTFOLIO ASSETS
Portfolio Assets are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Non-performing Portfolio Assets............................. $ 68,904 $ 82,291
Performing Portfolio Assets................................. 3,111 7,983
Real estate Portfolios...................................... 4,475 7,663
-------- --------
Total Portfolio Assets............................ 76,490 97,937
Adjusted purchase discount required to reflect Portfolio
Assets at carrying value.................................. (52,406) (58,500)
-------- --------
Portfolio Assets, net............................. $ 24,084 $ 39,437
======== ========
</TABLE>
8
<PAGE> 10
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded an allowance for impairment on a real estate Portfolio
in the amount of $1,604 in the second quarter of 2000, and no additional
impairment was made during the third quarter of 2000 or for the year ending
1999. Portfolio Assets are pledged to secure non-recourse notes payable.
(5) LOANS RECEIVABLE
A significant portion of the automobile loans were transferred to Drive in
connection with the sale of the 49% equity interest in the Company's automobile
finance operation. Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Automobile and consumer finance receivables................. $ 519 $37,718
Other loans held for investment............................. 10,489 883
Allowance for loan losses................................... -- (8,457)
------- -------
Loans receivable, net............................. $11,008 $30,144
======= =======
</TABLE>
The activity in the allowance for loan losses is summarized as follows for
the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
2000 1999
-------- -------
<S> <C> <C>
Balances, beginning of period............................... $ 8,457 $ 5,894
Provision for loan losses................................... 722 52
Discounts acquired.......................................... 18,989 20,650
Allocation of reserves to sold loans........................ (5,606) (7,890)
Charge off activities:
Principal balances charged off............................ (8,941) (2,679)
Recoveries................................................ 1,902 1,518
-------- -------
Net charge offs................................... (7039) (1,161)
Adjustment from sale of interest in Drive................... (15,523) --
-------- -------
Balances, end of period..................................... $ -- $17,545
======== =======
</TABLE>
(6) RESIDUAL INTERESTS IN SECURITIZATIONS
The Company had residual interests in securitizations (which were
transferred to Drive in connection with the Company's sale of the 49% equity
interest in its automobile finance operations) consisting of rated securities,
retained interests, servicing interests and related interest only strips
(collectively referred to as residual interests), which were attributable to
loans sold through securitization transactions by the Company. Residual
interests were comprised of the following as of the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Rated securities............................................ $-- $ 1,313
Residual interests.......................................... -- 62,167
Accrued interest............................................ -- 565
Valuation allowance......................................... -- (8,384)
--- -------
$-- $55,661
=== =======
</TABLE>
9
<PAGE> 11
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The activity related to residual interests for 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Balance, beginning of period................................ $ 55,661 $ 41,849
Residual interests received from securitizations............ 5,713 11,957
Cost allocated from securitizations......................... 1,694 --
Interest accreted........................................... 4,077 4,098
Cash received from trusts................................... (16,919) (11,835)
Provision for permanent impairment of value................. (1,598) (2,984)
Adjustment from sale of interest in Drive................... (48,628) --
-------- --------
Balance, end of period...................................... $ -- $ 43,085
======== ========
</TABLE>
(7) EQUITY INVESTMENTS
The Company has investments in Acquisition Partnerships and their general
partners that are accounted for under the equity method. During 1999, the
Company also acquired investments in Servicing Entities that are accounted for
under the equity method. The condensed combined financial position and results
of operations of the Acquisition Partnerships (excluding Servicing Entities),
which include the domestic and foreign Acquisition Partnerships and their
general partners, are summarized below:
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Assets...................................................... $554,244 $324,954
======== ========
Liabilities................................................. 433,094 210,967
Net equity.................................................. 121,150 113,987
-------- --------
$554,244 $324,954
======== ========
Equity investment in Acquisition Partnerships............... $ 30,347 $ 29,639
Equity investment in Servicing Entities..................... 1,329 1,465
-------- --------
$ 31,676 $ 31,104
======== ========
</TABLE>
CONDENSED COMBINED SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
2000 1999 2000 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Proceeds from resolution of Portfolio Assets........... $30,872 $21,190 $99,193 $88,374
Gain on resolution of Portfolio Assets................. 16,928 10,027 53,740 34,384
Interest income on performing Portfolio Assets......... 4,576 2,838 13,781 9,422
Net earnings........................................... 9,754 6,311 32,585 22,691
======= ======= ======= =======
Equity in earnings of Acquisition Partnerships......... $ 1,540 $ 3,246 $ 5,360 $ 8,710
Equity in earnings (loss) of Servicing Entities........ 118 (140) 168 (162)
------- ------- ------- -------
$ 1,658 $ 3,106 $ 5,528 $ 8,548
======= ======= ======= =======
</TABLE>
10
<PAGE> 12
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note 2, in the third quarter of 2000, the Company completed
the sale of a 49% equity interest in its automobile finance operation to certain
subsidiaries of IFA. As a result of the sale, the net operations of Drive have
been recorded (since August 1, 2000) as equity investments. The Company's
investment in Drive is accounted for under the equity method. The condensed
consolidated financial position and results of operations of Drive are
summarized below:
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------
<S> <C>
Assets...................................................... $185,544
========
Liabilities................................................. 181,826
Net equity.................................................. 3,718
--------
$185,544
========
Equity investment in Drive.................................. $ 1,426
Minority interest......................................... (273)
--------
Net investment in Drive........................... $ 1,153
========
</TABLE>
CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 2000
------------------ -----------------
<S> <C> <C>
Revenues.......................................... $6,429 $6,429
Expenses.......................................... 6,618 6,618
------ ------
Net loss.......................................... $ (189) $ (189)
====== ======
Equity in loss of Drive........................... $ (88) $ (88)
Minority interest............................... 29 29
------ ------
Net equity in loss of Drive............. $ (59) $ (59)
====== ======
</TABLE>
11
<PAGE> 13
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) SEGMENT REPORTING
The Company is engaged in two reportable segments (i) portfolio asset
acquisition and resolution; and (ii) consumer lending. These segments have been
segregated based on products and services offered by each. As a result of the
sale of a 49% equity interest in the Company's automobile finance operation, the
net operations of Drive have been recorded (since August 1, 2000) as equity in
earnings of investments. The following is a summary of results of operations for
each of the segments and a reconciliation to earnings (loss) from continuing
operations for the quarters and nine months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2000 1999 2000 1999
------- -------- -------- -------
<S> <C> <C> <C> <C>
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Servicing fees.......................................... $1,975 $ 900 $ 5,902 $ 2,657
Gain on resolution of Portfolio Assets.................. 993 1,335 2,763 3,382
Equity in earnings of investments....................... 1,658 3,106 5,528 8,548
Other................................................... 312 1,061 1,950 3,244
------ ------- -------- -------
Total.............................................. 4,938 6,402 16,143 17,831
Expenses:
Interest and fees on notes payable...................... 796 1,118 2,187 3,390
Salaries and benefits................................... 1,365 1,107 4,088 3,731
Provision for loan and impairment losses................ -- -- 1,604 --
Occupancy, data processing and other.................... 1,597 1,356 5,053 4,318
------ ------- -------- -------
Total.............................................. 3,758 3,581 12,932 11,439
------ ------- -------- -------
Operating contribution before income taxes................ $1,180 $ 2,821 $ 3,211 $ 6,392
====== ======= ======== =======
Operating contribution , net of income taxes.............. $1,086 $ 2,805 $ 3,099 $ 6,347
====== ======= ======== =======
CONSUMER LENDING:
Revenues:
Servicing fees.......................................... $ 578 $ 1,168 $ 3,887 $ 3,689
Equity in loss of investment............................ (88) -- (88) --
Interest income......................................... 2,604 5,451 12,880 12,301
Gain on sale of interest in subsidiary.................. 8,091 -- 8,091 --
Gain on sale of automobile loans........................ -- -- 2,836 6,445
Other................................................... 15 43 92 112
------ ------- -------- -------
Total.............................................. 11,200 6,662 27,698 22,547
Expenses:
Interest and fees on notes payable...................... 649 1,415 3,217 3,061
Salaries and benefits................................... 2,122 1,808 7,316 5,008
Provision for loan and impairment losses................ 89 1,074 2,320 3,036
Occupancy, data processing and other.................... 1,577 2,502 6,138 7,356
------ ------- -------- -------
Total.............................................. 4,437 6,799 18,991 18,461
------ ------- -------- -------
Operating contribution (loss) before income taxes......... $6,763 $ (137) $ 8,707 $ 4,086
====== ======= ======== =======
Operating contribution (loss), net of income taxes........ $6,763 $ (137) $ 8,699 $ 4,086
====== ======= ======== =======
Total operating contribution, net of direct
taxes............................................ $7,849 $ 2,668 $ 11,798 $10,433
====== ======= ======== =======
CORPORATE OVERHEAD:
Corporate interest expense................................ $2,905 $ 2,331 $ 10,649 $ 7,010
Salaries and benefits, occupancy, professional and other
income and expenses, net................................ 2,059 1,530 5,371 5,526
Deferred tax valuation allowance.......................... -- -- 7,000 5,000
------ ------- -------- -------
Earnings (loss) from continuing operations................ $2,885 $(1,193) $(11,222) $(6,973)
====== ======= ======== =======
</TABLE>
12
<PAGE> 14
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total assets for each of the segments and a reconciliation to total assets
is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Portfolio acquisition and resolution assets................. $ 66,202 $ 71,479
Consumer assets............................................. 1,945 85,261
Deferred tax benefit, net................................... 20,101 27,101
Other assets, net........................................... 17,473 26,655
Net assets of discontinued operations....................... 19,918 20,126
-------- --------
Total assets...................................... $125,639 $230,622
======== ========
</TABLE>
(9) PREFERRED STOCK AND SHAREHOLDERS' EQUITY
In the third quarter of 1999, dividends on the Company's adjusting rate
preferred stock were suspended. At September 30, 2000, accumulated dividends in
arrears on such preferred stock totaled $3.2 million, or $2.625 per share. If
the Company fails to pay quarterly dividends for any six consecutive or
non-consecutive quarters, the holders of adjusting rate preferred stock may be
entitled to elect two directors to the Company's Board until cumulative
dividends have been paid in full.
In connection with the issuance of senior subordinated notes in December
1999, the Company issued an option to the holder of the senior subordinated
notes allowing it to acquire a warrant for 1,975,000 shares of the Company's
non-voting common stock. As discussed in Note 2, in the third quarter of 2000,
the Company restructured its remaining debt into a new facility provided solely
by Bank of Scotland and IFA. IFA will retain its option to acquire warrants for
1,975,000 shares of the Company's common stock. The strike price of $2.3125 will
remain the same, but the initial date upon which the option can be exercised has
been extended to August 31, 2001. The option can be exercised after August 31,
2001 if Term Loan B remains outstanding, but not prior to such date. In the
event that prior to August 31, 2001 the Company either (a) refinances the $12
million Term Loan B with subordinated debt, or (b) pays off the balance of Term
Loan B from proceeds of an equity offering, then the option to acquire a warrant
for 1,975,000 shares of non-voting common stock will terminate. In the event
that Term Loan B is terminated prior to August 31, 2001 through a transaction
involving the issuance of warrants, IFA is entitled to additional warrants in
connection with its existing warrant for 425,000 shares to retain its ability to
acquire approximately 4.86% of the Company's common stock.
(10) INCOME TAXES
Federal income taxes are provided at a 35% rate. The Company has
substantial federal net operating loss carryforwards ("NOLs"), which can be used
to offset the tax liability associated with the Company's pre-tax earnings until
the earlier of the expiration or utilization of such NOLs. The Company accounts
for the benefit of the NOLs by recording the benefit as an asset and then
establishing an allowance to value the net deferred tax asset at a value
commensurate with the Company's expectation of being able to utilize the
recognized benefit in the foreseeable future. Such estimates are reevaluated on
a quarterly basis with the adjustment to the allowance recorded as an adjustment
to the income tax expense generated by the quarterly operating results.
Significant events that change the Company's view of its currently estimated
ability to utilize the tax benefits result in substantial changes to the
estimated allowance required to value the deferred tax benefits recognized in
the Company's periodic financial statements. The Company's analysis for the
quarters ended June 30, 2000 and 1999, resulted in an increase in the valuation
allowance of $7.0 million and $5.0 million, respectively. During the quarters
ended September 30, 2000 and 1999, management deemed that an adjustment to the
valuation allowance was not necessary. Additional events could occur in the
future that may impact the quarterly recognition of the Company's estimate of
the required valuation allowance associated with its NOLs. Although realization
is not assured, management believes it is more likely than not that all of the
recorded deferred tax asset will be realized.
13
<PAGE> 15
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) COMMITMENTS AND CONTINGENCIES
The Company and Harbor Financial Group, Inc. (formerly known as FirstCity
Financial Mortgage Corporation) filed suit in the Federal District Court for the
Western District of Texas, Waco Division, against Chase Bank of Texas, N.A. and
Chase Securities, Inc. in September 1999 seeking damages resulting from alleged
violations by the defendants of the Bank Holding Company Act and from civil
conspiracy engaged in by the defendants, and injunctive relief, arising from an
engagement letter entered into between the Company and Chase Securities, Inc.
relating to the sale assets or securities of Harbor Financial Group, Inc.,
Harbor Financial Mortgage Corporation and their subsidiaries (collectively
"Harbor"). The Company alleges that Chase Bank of Texas, N.A. conditioned its
extension of credit to Harbor on the retention of Chase Securities, Inc. by the
Company and Harbor in violation of the Bank Holding Company Act. The Company
has, in its First Amended Original Complaint filed in November 1999, sought a
judicial declaration that the plaintiffs are not obligated to pay any commission
to Chase Securities, Inc. under the engagement letter. The actual damages sought
by the Company are in excess of $200 million. The Company also seeks recovery of
three times its damages pursuant to the Bank Holding Company Act and recovery of
its costs of court, including reasonable attorneys fees. A motion to dismiss the
Texas suit was granted based upon a provision in the engagement letter that
provided that any suit arising from the engagement letter would be pursued in
the State of New York. The Company is appealing the order granting the dismissal
of the suit.
On October 4, 1999, Chase Securities, Inc. filed suit against the Company
before the Supreme Court for the State of New York, County of New York:
Commercial Part seeking recovery of $2.4 million as the balance of a transaction
fee allegedly due it under the terms of the engagement letter, expenses, and
other just and proper relief. The Company denies that it has any liability to
Chase Securities, Inc. and intends to vigorously defend the suit. The Company
has asserted as a defense to this action the violations of the Bank Holding
Company Act asserted in the litigation pending before the Federal District Court
for the Western District of Texas. The Company will amend its answer in the suit
to include a counterclaim against Chase Securities, Inc. and an action against
Chase Bank of Texas, N.A. under the Bank Holding Company Act as is asserted in
the Texas suit.
On October 14, 1999, Mortgage Corp. filed voluntary petitions under Chapter
11 of the United States Bankruptcy Code before the United States Bankruptcy
Court for the Northern District of Texas, Dallas Division. In a motion filed in
those proceedings requesting the appointment of a Chapter 11 Trustee, the
debtors state that they were reviewing pre-petition transfers to the Company to
determine if those transfers are avoidable. On December 14, 1999, the bankruptcy
proceedings were converted to liquidations under Chapter 7 of the United States
Bankruptcy Code. The Company believes that it has valid defenses to any
allegations that might be made to avoid any pre-petition transfers in connection
with the Mortgage Corp. bankruptcy proceedings.
The Company is involved in various other legal proceedings in the ordinary
course of business. In the opinion of management, the resolution of such matters
will not have a material adverse impact on the consolidated financial condition,
results of operations or liquidity of the Company.
The Company is a 50% owner in an entity that is obligated to advance up to
$2.5 million toward the acquisition of Portfolio Assets from financial
institutions in California. At September 30, 2000, advances of $2.3 million had
been made under the obligation.
In connection with the transactions contemplated by the Securities Purchase
Agreement, Consumer Corp. and Funding LP contributed all of the assets utilized
in the operations of the automobile finance operation to Drive pursuant to the
terms of a Contribution and Assumption Agreement dated as of August 18, 2000, by
and between Consumer Corp. and Drive, and a Contribution and Assumption
Agreement dated as of August 18, 2000, by and between Funding LP and Drive
(collectively, the "Contribution Agreements").
14
<PAGE> 16
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Drive assumed substantially all of the liabilities of the automobile finance
operation as set forth in the Contribution Agreements.
In addition, in the Securities Purchase Agreement, the Company, Consumer
Corp., Funding LP and Funding GP made various representations and warranties
concerning (i) their respective organizations, (ii) the automobile finance
operation conducted by Consumer Corp. and Funding LP, and (iii) the assets
transferred by Consumer Corp. and Funding LP to Drive. The Company, Consumer
Corp., Funding LP and Funding GP also agreed to indemnify IFA, IFA-GP and IFA-LP
from damages resulting from a breach of any representation or warranty contained
in the Securities Purchase Agreement or otherwise made by the Company, Consumer
Corp. or Funding LP in connection with the transaction. The indemnity obligation
under the Securities Purchase Agreement survives for a period of seven (7) years
from August 25, 2000 (the "Closing Date") with respect to tax-related
representations and warranties and for thirty (30) months from the Closing Date
with respect to all other representations and warranties. None of the Company,
Consumer Corp., Funding LP, or Funding GP is required to make any payments as a
result of the indemnity provided under the Securities Purchase Agreement until
the aggregate amount payable exceeds $.25 million, and then only for the amount
in excess of $.25 million in the aggregate; however certain representations and
warranties are not subject to this $.25 million threshold. Pursuant to the terms
of the Contribution Agreements, Consumer Corp. and Funding LP have agreed to
indemnify Drive from any damages resulting in a material adverse effect on Drive
resulting from breaches of representations or warranties, failure to perform,
pay or discharge liabilities other than the assumed liabilities, or claims,
lawsuits or proceedings resulting from the transactions contemplated by the
Contribution Agreements. Pursuant to the terms of the Contribution Agreements,
Drive has agreed to indemnify Consumer Corp. and Funding LP for any breach of
any representation or warranty by Drive, the failure of Drive to discharge any
assumed liability, or any claims arising out of any failure by Drive to properly
service receivables after August 1, 2000. Liability for indemnification pursuant
to the terms of the Contribution Agreements will not arise until the total of
all losses with respect to such matters exceeds $.25 million and then only for
the amount by which such losses exceed $.25 million; however this limitation
will not apply to any breach of which the party had knowledge at the time of the
Closing Date or any intentional breach by a party of any covenant or obligation
under the Contribution Agreements.
15
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company is a diversified financial services company engaged in
Portfolio Asset acquisition and resolution ("Commercial Corp.") and consumer
lending through Consumer Corp. The Portfolio Asset acquisition and resolution
business involves acquiring Portfolio Assets at a discount to face value and
servicing and resolving such portfolios in an effort to maximize the present
value of the ultimate cash recoveries. The Company also seeks opportunities to
originate and retain high yield commercial loans to businesses and to finance
real estate projects that are unable to access traditional lending sources. The
consumer lending business involves the acquisition, origination, warehousing,
securitization and servicing of consumer receivables. The Company's current
consumer lending operations are focused on the acquisition of sub-prime
automobile receivables.
The Company reported net earnings for the quarter ended September 30, 2000
of $3.7 million. After accrued dividends on the Company's preferred stock, net
earnings to common stockholders were $3.1 million or $ .37 per share on a
diluted basis. On a year-to-date basis, the Company reported a net loss to
common stockholders of $17.3 million or $2.07 per share on a diluted basis.
The Company's financial results are affected by many factors including
levels of and fluctuations in interest rates, fluctuations in the underlying
values of real estate and other assets, and the availability and prices for
loans and assets acquired in all of the Company's businesses. The Company's
business and results of operations are also affected by the availability of
financing with terms acceptable to the Company and the Company's access to
capital markets, including the securitization markets.
As a result of the significant period to period fluctuations in the
revenues and earnings or losses of the Company's Portfolio Asset acquisition and
resolution business, the sale of interest in the automobile finance operation,
and the timing of securitization transactions of Consumer Corp., period to
period comparisons of the Company's results of continuing operations may not be
meaningful.
The quarterly results reflect the previously announced sale of 49% of the
Company's automobile finance operation and the related reduction and restructure
of the Company's corporate debt with its senior lenders.
Components of the quarterly profits are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
INCOME/(LOSS) CONTRIBUTION SEPTEMBER 30, 2000
-------------------------- ------------------
(IN THOUSANDS)
<S> <C>
Portfolio Asset Acquisition and Resolution........ $ 1,086
Consumer:
Gain on sale of automobile finance operation.... 12,091
Deferred portion of Gain........................ (4,000)
-------
Net Gain................................ 8,091
Additional costs related to automobile finance
operation....................................... (1,707)
-------
Net profit from sale of automobile
finance operation..................... 6,384
Operating contribution from Consumer.... 379
-------
Total Contribution from Consumer........ 6,763
Corporate interest................................ (2,905)
Corporate overhead................................ (2,059)
Extraordinary gain (early extinguishment of
debt)........................................... 833
Accrued preferred dividends....................... (642)
-------
Net earnings to common shareholders............... $ 3,076
=======
</TABLE>
The quarterly results reflect two months of the higher corporate debt load,
which existed prior to the debt reduction and restructure, as well as additional
costs associated with the automobile finance operation.
16
<PAGE> 18
Sale of 49% of Automobile Finance Operation and Corporate Debt Restructure
In the third quarter of 2000, the Company completed a major transaction
that generated significant cash to allow the Company to return to its emphasis
in the Portfolio Asset Acquisition and Resolution business. The Company sold a
49% equity interest in its automobile finance operation to certain subsidiaries
of IFA Incorporated (IFA), a wholly-owned subsidiary of Bank of Scotland. The
transaction generated $75 million in cash as described below and resulted in a
gain of $12.1 million. Simultaneously, Bank of Scotland and the Company
completed a debt reduction and restructure, which resulted in reduced interest
rates and fees, increased liquidity, and an extended maturity. Additionally,
this transaction brought the Company into compliance under its lending covenants
and cured defaults that may have existed prior to the restructure.
The new entity formed to facilitate the transaction is Drive Financial
Services LP ("Drive"). Drive assumed the entire operations of the former
FirstCity Funding platform created and developed by FirstCity and the Auto
Finance Management Group in September of 1997. The platform will continue to be
headquartered in Dallas, Texas. IFA, through its wholly-owned subsidiaries
IFA-GP and IFA-LP, purchased 49% of this newly formed entity for $15 million,
and Bank of Scotland provided $60 million to Drive and its subsidiary, Drive ABS
LP, in term financing which was used to repay indebtedness owed to FirstCity by
its automobile finance operation. After taking into effect the sale of the 49%
interest to IFA-GP and IFA-LP, the ownership of Drive is allocated as follows:
49% of Drive is owned (directly and indirectly) by IFA-GP and IFA-LP, 31% of
Drive is owned (directly and indirectly) by Consumer Corp., and 20% of Drive is
owned (directly and indirectly) by the Auto Finance Management Group. Bank of
Scotland also provided a new $100 million warehouse line of credit to Drive.
This new warehouse line is in addition to the current $100 million warehouse
line with an affiliate of Bank of America. The Company believes that additional
funding along with improved capital markets execution should provide the needed
liquidity to allow this business model to mature with planned, controlled
growth. The Company provided a guaranty limited to a maximum amount of up to $4
million of the $60 million term loan by IFA. The Company, Consumer Corp. and
Funding LP secured the guaranty with a security interest in their respective
ownership interests in Consumer Corp., Funding LP and Drive. The $4 million
guaranty by the Company resulted in a $4 million deferral of the $12.1 million
gain. As a result of this transaction, the net operations of Drive have been
recorded (since August 1, 2000) as equity in earnings of investments.
As a result of the sale of the 49% interest in the automobile finance
operation, the Company reduced the outstanding debt under its senior and
subordinate facilities from $113 million to approximately $44.3 million. The
Company also retired approximately $6.4 million of debt owed to other lenders.
The Lenders entered into a Second Amendment pursuant to which the remaining debt
under the Company's senior and subordinate debt facilities was restructured into
a new loan facility that provides for a maximum aggregate loan amount of $53
million. The restructured facility is comprised of a $10 million Revolving Line
of Credit, a $31 million Term Loan A and a $12 million Term Loan B. The loans
under the restructured loan facility mature December 31, 2003, and carry pricing
of LIBOR plus 2.5% for the Revolving Line of Credit and Term Loan A and prime
rate for Term Loan B. In the restructure, the Bank of Scotland forgave a fee in
the amount of $2.5 million which resulted in accrued loan fees of $.8 million
owed to the senior lender being recorded as an extraordinary gain in the
consolidated financial statements. The Second Amendment provides for a facility
fee of $.5 million and a prepayment fee of $.5 million. The restructured loan
facility requires the consent of the Lenders prior to payment of any common and
preferred dividends. The Company obtained waivers or modifications under the
Second Amendment that bring the Company into compliance under the facility and
cured defaults that existed prior to the restructure.
IFA retained the warrant for the purchase of 425,000 shares of the
Company's voting common stock at $2.3125 per share (the closing price on
December 21, 1999), which was issued in connection with the debt restructure in
December 1999. In connection with the execution of the Second Amendment, the
Company and IFA amended the option to obtain a warrant for 1,975,000 shares of
non-voting stock, which was granted in December 1999 in connection with the $25
million subordinated debt facility. The option, as amended, allows IFA to
acquire a warrant to acquire 1,975,000 shares of the Company's non-voting common
stock; the option can be exercised after August 31, 2001 if Term Loan B remains
outstanding, but not prior to such date. The strike price of $2.3125 will remain
the same. In the event that prior to August 31, 2001 the Company
17
<PAGE> 19
either (a) refinances the $12 million Term Loan B with subordinated debt, or (b)
pays off the balance of Term Loan B from proceeds of an equity offering, then
the option to acquire a warrant for 1,975,000 shares of non-voting stock will
terminate. In the event that Term Loan B is terminated prior to August 31, 2001
through a transaction involving the issuance of warrants, IFA is entitled to
additional warrants in connection with its existing warrant for 425,000 shares
to retain its ability to acquire approximately 4.86% of the Company's common
stock.
Dividends on Preferred Stock
Currently, FirstCity has approximately 1.2 million preferred shares
outstanding with accrued and unpaid dividends of approximately $3.2 million.
Term Loan B, which resulted from the corporate debt restructure completed in
August of this year, restricts the payment of dividends on these shares until it
is repaid in full.
The Company stated previously that it intended to seek stockholder approval
prior to the end of fiscal year 2000 for the replacement of Term Loan B with a
private placement of subordinated debt provided by certain insiders and other
interested investors. At that time it was contemplated that warrants for common
stock would be issued in connection with the private placement. FirstCity,
however, is limited in its ability to issue common shares and warrants due to
change of control issues related to its substantial net operating loss
carryforwards. While the private placement originally contemplated would allow
for the payment of future dividends on the preferred stock, management believes
that a more strategic utilization of its available common shares and warrants
would better serve the long-term interests of the Company's stockholders. The
Company currently does not plan to pursue the private placement at this time.
Management will continue to evaluate alternatives to repay Term Loan B prior to
August 31, 2001 to terminate the option to obtain warrants to acquire the
1,975,000 shares of the Company's common stock. This would allow the Company to
utilize these shares in a transaction that the Company believes would maximize
long-term stockholder value.
ANALYSIS OF REVENUES AND EXPENSES
FirstCity reported net earnings to common stockholders for the quarter
ended September 30, 2000 of $3.1 million. As a result of the sale of interest in
the automobile finance operation, the net operations of Drive have been recorded
(since August 1, 2000) as equity in earnings of investments.
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
Acquisitions for the quarter were comprised of two portfolios, with a total
purchase price of $127 million. FirstCity invested approximately $6 million in
these two portfolios. These acquisitions bring the total invested capital for
the year to $12.8 million. Management believes FirstCity is on track to meet the
annual investment goal of $22.5 million, with approximately half of the
remaining investment dollars being allocated to Mexico.
Aggregate acquisitions by the Company (including acquisitions for
Acquisition Partnerships) for the year are as follows (dollars in thousands):
<TABLE>
<CAPTION>
FIRSTCITY
PURCHASE INVESTED NUMBER
2000 PRICE EQUITY OF ASSETS
---- -------- --------- ---------
<S> <C> <C> <C>
1st Quarter............................................ $ 13,629 $ 1,836 69
2nd Quarter............................................ 154,398 4,941 20,846
3rd Quarter............................................ 126,914 6,012 8,280
-------- ------- ------
Total YTD.............................................. $294,941 $12,789 29,195
======== ======= ======
</TABLE>
18
<PAGE> 20
During the quarter, collections were $35.8 million, principally coming from
Acquisition Partnerships. Management believes that investment and servicing
opportunities worldwide continue to be strong and the Company continues to
expand its platform into foreign markets. Correspondingly, management believes
that European investments have performed well and the Company believes that
prospects for future expansion and investment remain strong. The pipeline for
domestic product is growing and our expectation is for the growth to accelerate
in the year 2001.
The following table presents selected information regarding the revenues
and expenses of the Company's Portfolio Asset acquisition and resolution
business.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
2000 1999 2000 1999
-------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GAIN ON RESOLUTION OF PORTFOLIO ASSETS:
Average investment:
Nonperforming Portfolios..................... $19,179 $26,370 $23,034 $30,209
Performing Portfolios........................ 9,852 12,050 7,782 16,571
Real estate Portfolios....................... 4,607 8,514 6,017 9,375
Gain on resolution of Portfolio Assets:
Nonperforming Portfolios..................... 746 1,027 2,086 2,466
Performing Portfolios........................ 185 -- 185 --
Real estate Portfolios....................... 62 308 492 916
------- ------- ------- -------
Total................................ $ 993 $ 1,335 $ 2,763 $ 3,382
Interest income on performing Portfolios....... $ 371 $ 467 $ 1,031 $ 1,954
Gross profit percentage on resolution of
Portfolio Assets:
Nonperforming Portfolios..................... 19.35% 21.55% 23.30% 18.81%
Performing Portfolios........................ 24.58% -- 24.58% --
Real estate Portfolios....................... 17.89% 25.76% 23.72% 23.63%
Weighted average gross profit percentage..... 20.04% 22.37% 23.45% 19.91%
Interest yield on performing Portfolios
(annualized)................................. 15.08% 15.51% 17.67% 15.72%
Servicing fee revenues......................... $ 1,975 $ 900 $ 5,902 $ 2,657
PERSONNEL:
Personnel expenses............................. $ 1,365 $ 1,107 $ 4,088 $ 3,731
Number of personnel (at period end):
Production................................... 21 10
Servicing.................................... 75 64
INTEREST EXPENSE:
Average debt................................... $29,260 $45,417 $30,388 $53,216
Interest expense............................... 796 1,118 2,187 3,390
Average cost (annualized)...................... 10.88% 9.85% 9.60% 8.49%
</TABLE>
19
<PAGE> 21
The following table presents selected information regarding the revenues
and expenses of the Acquisition Partnerships.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
ACQUISITION PARTNERSHIPS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
2000 1999 2000 1999
-------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Gain on resolution of Portfolio Assets............... $16,928 $10,027 $53,740 $34,384
Gross profit percentage on resolution of Portfolio
Assets............................................ 54.83% 47.32% 54.18% 38.91%
Interest income...................................... $ 4,576 $ 2,838 $13,781 $ 9,422
Other income......................................... 381 495 1,520 1,634
Interest expense:
Interest expense..................................... $ 8,763 $ 4,570 $24,175 $10,425
Average cost (annualized)............................ 10.55% 10.09% 9.82% 10.58%
Other expenses:
Servicing fees....................................... $ 2,462 $ 1,395 $ 5,908 $ 3,904
Legal................................................ 815 272 2,325 1,491
Property protection.................................. 1,095 85 3,164 2,115
Other................................................ (1,004) 727 884 4,814
------- ------- ------- -------
Total other expenses......................... 3,368 2,479 12,281 12,324
------- ------- ------- -------
Net earnings................................. $ 9,754 $ 6,311 $32,585 $22,691
======= ======= ======= =======
Equity in earnings of Acquisition Partnerships......... $ 1,540 $ 3,246 $ 5,360 $ 8,710
Equity in earnings (loss) of Servicing Entities........ 118 (140) 168 (162)
------- ------- ------- -------
$ 1,658 $ 3,106 $ 5,528 $ 8,548
======= ======= ======= =======
</TABLE>
20
<PAGE> 22
CONSUMER LENDING
As noted above, the Company sold a 49% equity interest in its interest in
the automobile finance operation (conducted through Drive) effective August 1,
2000. As a result, the majority of operations reported in the Consumer Lending
segment are for activity prior to August 1, 2000. Therefore, period-to-period
comparisons of Consumer Corp.'s results of operations may not be meaningful. The
following chart presents selected information regarding the revenues and
expenses of Consumer Corp.'s consumer lending business.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
CONSUMER LENDING
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
2000 1999 2000 1999
-------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Average loans and investments:
Auto......................................... $28,833 $79,330 $45,635 $48,175
Investments.................................. 17,074 42,521 43,885 41,405
Interest income:
Auto......................................... 1,746 3,945 8,230 7,843
Residual interests........................... 537 1,396 4,077 4,099
Average yield (annualized):
Auto......................................... 24.22% 19.89% 24.05% 21.71%
Investments.................................. 12.58% 13.13% 12.39% 13.20%
Servicing fee revenues......................... $ 578 $ 1,168 $ 3,887 $ 3,689
PERSONNEL:
Personnel expenses............................. $ 2,122 $ 1,808 $ 7,316 $ 5,008
Number of personnel (at period end):
Production................................... 144 126
Servicing.................................... 238 155
INTEREST EXPENSE:
Average debt................................... $27,983 $64,117 $44,890 $46,871
Interest expense............................... 649 1,415 3,217 3,061
Average cost (annualized)...................... 9.27% 8.83% 9.56% 8.71%
</TABLE>
PROVISION FOR INCOME TAXES
The Company has substantial federal net operating loss carryforwards
("NOLs"), which expire periodically through the year 2019. These NOLs can be
used to offset the tax liability associated with the Company's pre-tax earnings
until the earlier of the expiration or utilization of such NOLs. The Company
accounts for the benefit of the NOLs by recording the benefit as an asset and
then establishing an allowance to value the net deferred tax asset at a value
commensurate with the Company's expectation of being able to utilize the
recognized benefit in the foreseeable future. Such estimates are reevaluated on
a quarterly basis with the adjustment to the allowance recorded as an adjustment
to the income tax expense generated by the quarterly operating results.
Significant events that change the Company's view of its currently estimated
ability to utilize the tax benefits result in substantial changes to the
estimated allowance required to value the deferred tax benefits recognized in
the Company's periodic financial statements. The Company's analysis for the
quarters ended June 30, 2000 and 1999 resulted in an increase in the valuation
allowance of $7.0 million and $5.0 million, respectively. During the quarters
ended September 30, 2000 and 1999, management deemed that an adjustment to the
valuation allowance was not necessary. Additional events could occur in the
future, that may impact the quarterly recognition of the Company's estimate of
the required valuation allowance associated with its NOLs. Although realization
is not assured, management believes it is more likely than not that all of the
recorded deferred tax asset will be realized.
21
<PAGE> 23
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements of the Company (including the Notes
thereto) included elsewhere in this Quarterly Report on Form 10-Q.
THIRD QUARTER 2000 COMPARED TO THIRD QUARTER 1999
The Company reported earnings from continuing operations of $2.9 million in
2000 (including an $8.1 million gain on the sale of the Company's interest in
the automobile finance operation). Net earnings to common stockholders were $3.1
million in 2000 compared to a loss of $64.6 million in 1999. On a per share
basis, basic and diluted net earnings attributable to common stockholders were
$.37 in 2000 compared to a loss of $7.77 in 1999.
Portfolio Asset Acquisition and Resolution
The operating contribution of $1.1 million in the third quarter of 2000
declined by $1.7 million, or 61%, compared with the third quarter of 1999.
Commercial Corp. purchased $127 million of Portfolio Assets during 2000 through
the Acquisition Partnerships compared to $141 million in acquisitions in 1999.
Commercial Corp.'s quarter end investment in Portfolio Assets decreased to $24.1
million in 2000 from $42.0 million in 1999. Commercial Corp. invested $6.0
million in equity in Portfolio Assets in 2000 compared to $3.8 million in 1999.
Servicing fee revenues. Servicing fees increased by 119% to $2.0 million
in 2000 from $.9 million in 1999 primarily as a result of increased operations
from Acquisition Partnerships in Mexico formed during 2000 and 1999. The service
fees for the Mexico Acquisition Partnerships are based on operating expenses,
unlike the Acquisition Partnerships in the United States and France, which are
based on collections.
Gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets decreased by 17% to $5.0 million in 2000 from $6.0 million in
1999. The net gain on resolution of Portfolio Assets decreased 26% or $.3
million, primarily as a result of the decreased proceeds. The weighted average
gross profit percentage on the resolution of Portfolio Assets in 2000 was 20.0%
as compared to 22.4% in 1999.
Equity in earnings of investments. Commercial Corp.'s equity in earnings
of Acquisition Partnerships declined 53% to $1.5 million in 2000 compared to
$3.2 million in 1999. Proceeds from the resolution of Portfolio Assets received
by the Acquisition Partnerships increased by 46% to $30.9 million in 2000 from
$21.2 million in 1999. The result was an overall increase in net income of the
Acquisition Partnerships of $3.4 million or 55%. However, a Mexican Acquisition
Partnership, of which the Company owns less than 5%, generated the majority of
the increase in net income. The primary reason for the decline in the equity
earnings of Acquisition Partnerships reflected by the Company is the decline in
net income of the domestic Acquisition Partnerships of $1.1 million or 59%. This
decline is primarily a result of the timing of the resolution of the assets held
by the domestic Acquisition Partnerships and is not necessarily an indication of
future results. Equity in earnings of Servicing Entities was not significant.
Other revenues. Other revenues declined $.7 million or 71% primarily due
to a gain on sale of other assets of $.4 million which was recorded in the third
quarter of 1999.
Operating expenses. Operating expenses were relatively flat from period to
period.
Interest and fees on notes payable declined $.3 million or 29% due to
average debt for the quarter declining to $29.3 million in 2000 from $45.4
million in 1999. The decline in average debt was partially offset by increased
average costs of borrowing, which were 10.88% in 2000 compared to 9.85% in 1999.
Salaries and benefits increased 23% to $1.4 million due to higher number of
employees required to support the growth in the acquisition and servicing of
loan portfolios in Mexico.
Occupancy, data processing and other expenses increased $.2 million or 18%
due to increased operations in Mexico.
22
<PAGE> 24
Consumer Lending
The operating contribution of $6.8 million in the third quarter of 2000
increased by $6.9 million compared with the third quarter of 1999 due
principally to the sale of 49% of the Company's equity interest in the
automobile finance operation.
Service fees. Service fee income decreased due to the sale of 49% of the
Company's equity interest in the automobile finance operation.
Equity in loss of investment. As a result of the sale of 49% of the equity
interest in the Company's automobile finance operation, the Company's interest
in the net operations of Drive was recorded (since August 1, 2000) as equity in
earnings of investments.
Interest income. Interest income on consumer loans decreased by 52% to
$2.6 million in 2000 from $5.5 million in 1999, also reflecting the sale of 49%
of the Company's equity interest in its automobile finance operation.
Gain on sale of interest in subsidiary. A gain of $8.1 million was
recorded in the third quarter of 2000 as a result of the sale of 49% of the
Company's equity interest in its automobile finance operation.
Operating expenses. Total operating expenses declined primarily as a
result of the sale of 49% of the Company's equity interest in its automobile
finance operation.
Interest and fees on notes payable decreased as a result of the sale of 49%
of the Company's equity interest in its automobile finance operation.
Salaries and benefits increased by $.3 million or 17% as a result of
additional compensation expense paid to the Auto Finance Management Group prior
to the sale of 49% of the Company's equity interest in its automobile finance
operation.
Provision for loan losses on automobile receivables and impairment of
residual interests decreased by $1.0 million from 1999 as a result of the sale
of 49% of the Company's equity interest in its automobile finance operation.
Significant impairments on the residuals were provided for in 1999 and were not
deemed necessary in 2000 through the date of the sale of such interest.
Occupancy, data processing and other expenses declined from 1999 due to the
sale of 49% of the Company's equity interest in its automobile finance
operation.
Other Items Affecting Operations
The following items affect the Company's overall results of operations and
are not directly related to any one of the Company's businesses discussed above.
Corporate overhead. Company level interest expense increased by 25% to
$2.9 million in 2000 from $2.3 million in 1999 as a result of higher levels of
debt associated with the equity required to purchase Portfolio Assets, equity
interests in Acquisition Partnerships, and capital support to operating
subsidiaries and discontinued operations. Other corporate overhead expenses
increased $.5 million or 35% principally due to increased amortization, legal
and professional fees in association with restructuring the Company. Management
continues to review corporate expenses and anticipates interest and other fees
to decline in the fourth quarter of 2000.
Income taxes. Federal income taxes are provided at a 35% rate applied to
taxable income or loss and are offset by NOLs that the Company believes are
available. The tax benefit of the NOLs is recorded in the period during which
the benefit is realized. The Company recorded no deferred tax provision in 2000
and 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
The Company reported a loss from continuing operations of $11.2 million in
2000 (including a gain of $8.1 million on sale of interest in Consumer Corp.)
compared to a loss of $7.0 million in 1999. The loss from discontinued
operations totaled $5.0 million in 2000 and $102.3 million in 1999. Net loss to
common
23
<PAGE> 25
stockholders was $17.3 million in 2000 compared to $111.2 million in 1999. On a
per share basis, basic and diluted net loss attributable to common stockholders
was $2.07 in 2000 compared to $13.40 in 1999. An accounting change related to
SOP 98-5 resulted in a loss of $.8 million in the first quarter of 1999 or $0.09
per share.
Portfolio Asset Acquisition and Resolution
The operating contribution of $3.1 million in the first nine months of 2000
declined by $3.2 million, or 51%, compared with the first nine months of 1999.
Commercial Corp. purchased $295 million of Portfolio Assets during 2000 through
the Acquisition Partnerships compared to $209 million in acquisitions in 1999.
Commercial Corp.'s quarter end investment in Portfolio Assets decreased to $24.1
million in 2000 from $42.0 million in 1999. Commercial Corp. invested $12.8
million in equity in Portfolio Assets in 2000 compared to $10.8 million in 1999.
Servicing fee revenues. Servicing fees increased by 122% to $5.9 million
in 2000 from $2.7 million in 1999 primarily as a result of increased operations
from Acquisition Partnerships in Mexico formed during 2000 and 1999. The service
fees for the Mexico Acquisition Partnerships are based on operating expenses,
unlike the Acquisition Partnerships in the United States and France, which are
based on collections.
Gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets decreased by 31% to $11.8 million in 2000 from $17.0 million in
1999. The net gain on resolution of Portfolio Assets decreased by 18% to $2.8
million in 2000 from $3.4 million in 1999 as the result of decreased proceeds.
The weighted average gross profit percentage on the resolution of Portfolio
Assets in 2000 was 23.5% as compared to 19.9% in 1999.
Equity in earnings of Investments. Proceeds from the resolution of
Portfolio Assets for the Acquisition Partnerships increased 12% to $99.2 million
in 2000 from $88.4 million in 1999 while the gross profit percentage increased
to 54.2% in 2000 from 38.9% in 1999. The net result was an overall increase in
the net income of the Acquisition Partnerships of 44% to $32.6 million in 2000
from $22.7 million in 1999. However, Commercial Corp.'s equity earnings from
Acquisition Partnerships declined 38% to $5.4 million in 2000 from $8.7 million
in 1999 due to smaller equity investments in recent partnership acquisitions.
Equity in earnings of Servicing Entities was not significant.
Other revenues. Other revenues decreased by 40% to $2.0 million in 2000
compared to $3.2 million in 1999 principally as a result of lower interest
income on performing portfolios.
Operating expenses. Operating expenses increased 13% to $12.9 million in
2000 from $11.4 million in 1999 primarily as a result of a provision for loan
and impairment losses.
Interest and fees on notes payable declined $1.2 million or 35% due to
average debt for the nine months declining to $30.4 million in 2000 from $53.2
million in 1999. The decline in average debt was partially offset by increased
interest rates, which were 9.60% in 2000 compared to 8.49% in 1999.
Salaries and benefits were relatively level from period to period.
The provision for loan and impairment losses totaled $1.6 million and can
be attributed to the write-down in estimated fair value on one of the Portfolio
Asset pools.
Occupancy, data processing and other expenses increased $.7 million or 17%
from period to period due to increased operations in Mexico.
Consumer Lending
The operating contribution of $8.7 million in the first nine months of 2000
increased by $4.6 million or 113% compared with the first nine months of 1999
due principally to the sale of 49% of the Company's equity interest in its
automobile finance operation.
Service fees. Service fee income was relatively flat from period to
period.
24
<PAGE> 26
Equity in loss of investment. As a result of the sale of interest in the
automobile finance operation, the Company's interest in the net operations of
Drive was recorded (since August 1, 2000) as equity in earnings of investments.
Interest income. Interest income on consumer loans was relatively flat
from period to period.
Gain on sale of interest in subsidiary. A gain of $8.1 million was
recorded in the third quarter of 2000 as a result of the sale of 49% of the
Company's equity interest in its automobile finance operation.
Gain on sale of automobile loans. A gain of $2.8 million or 6.9% resulted
from the securitization of automobile loans totaling $41 million in 2000 as
compared to $6.4 million or 11.5% on the sale of $56 million in automobile loans
in 1999. The percentage gain on sale of automobile loans decreased primarily due
to a 9.9% weighted average coupon on the bonds created in the 2000
securitization compared to 5.8% on the bonds created in the 1999 securitization.
Operating expenses. Operating expenses were relatively flat from period to
period.
Interest expense was relatively flat from period to period.
Salaries and benefits increased by $2.3 million or 46% as a result of the
higher number of employees required to support the growth in the servicing
portfolio between periods combined with additional compensation paid to the Auto
Finance Management Group during the third quarter of 2000.
Provision for loan losses on automobile receivables and impairment of
residual interests decreased by $.7 million from 1999 primarily due to the sale
of interest in the automobile finance operation. The Company held loans
receivable and residual interests for seven months of 2000 compared to nine
months of 1999.
Other expenses for 2000 declined by 17% from 1999 due to the sale of 49% of
the Company's equity interest in its automobile finance operation.
Other Items Affecting Operations
The following items affect the Company's overall results of operations and
are not directly related to any one of the Company's businesses discussed above.
Corporate overhead. Company level interest expense increased by 52% to
$10.6 million in 2000 from $7.0 million in 1999 as a result of higher volumes of
debt associated with the equity required to purchase Portfolio Assets, equity
interests in Acquisition Partnerships and capital support to operating
subsidiaries and discontinued operations. Other corporate overhead was level
from period to period.
Income taxes. Federal income taxes are provided at a 35% rate applied to
taxable income or loss and are offset by NOLs that the Company believes are
available. The tax benefit of the NOLs is recorded in the period during which
the benefit is realized. The Company recorded a deferred tax provision of $7.0
million in 2000 and $5.0 million in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Generally, the Company requires liquidity to fund its operations, working
capital, payment of debt, equity for acquisition of Portfolio Assets,
investments in and advances to the Acquisition Partnerships, retirement of and
dividends on preferred stock, and other investments by the Company. The
potential sources of liquidity are funds generated from operations, equity
distributions from the Acquisition Partnerships, interest and principal payments
on subordinated intercompany debt and dividends from the Company's subsidiaries,
short-term borrowings from revolving lines of credit, proceeds from equity
market transactions, securitization and other structured finance transactions
and other special purpose short-term borrowings.
As a result of the sale of the 49% interest in the automobile finance
operation, the Company reduced the outstanding debt under its senior and
subordinate facilities from $113 million to $44.3 million. The Company also
retired $6.4 million of debt owed to other lenders. The Lenders entered into a
Second Amendment to Amended and Restated Loan Agreement dated as of August 18,
2000 (the "Second Amendment") pursuant
25
<PAGE> 27
to which the remaining debt under the Company's senior and subordinate debt
facilities was restructured into a new loan facility that provides for a maximum
aggregate loan amount of $53 million. The restructured facility is comprised of
a $10 million Revolving Line of Credit, a $31 million Term Loan A and a $12
million Term Loan B. The loans under the restructured loan facility mature
December 31, 2003, and carry pricing of LIBOR plus 2.5% for the Revolving Line
of Credit and Term Loan A and prime rate for Term Loan B. In the restructure,
the Bank of Scotland forgave a fee in the amount of $2.5 million which resulted
in accrued loan fees of $.8 million owed to the senior lender being recorded as
an extraordinary gain in the consolidated financial statements. The Second
Amendment provides for a facility fee of $.5 million and a prepayment fee of $.5
million. The restructured loan facility requires the consent of the Lenders
prior to payment of any common and preferred dividends. The Company obtained
waivers or modifications under the Second Amendment that bring the Company into
compliance under the facility and cured defaults that existed prior to the
restructure.
Currently, FirstCity has approximately 1.2 million preferred shares
outstanding with accrued and unpaid dividends of approximately $3.2 million.
Term Loan B, which resulted from the corporate debt restructure completed in
August of this year restricts the payment of dividends on these shares until it
is repaid in full.
The Company stated previously that it intended to seek shareholder approval
prior to year end 2000 for the replacement of Term Loan B with a private
placement of subordinated debt provided by certain insiders and other interested
investors. At that time it was contemplated that warrants for common stock would
be issued in connection with the private placement. FirstCity, however, is
limited in its ability to issue common shares and warrants due to change of
control issues related to its substantial net operating loss carryforwards.
While the private placement originally contemplated would allow for the payment
of future dividends on the preferred stock, management believes that a more
strategic utilization of its available common shares and warrants would better
serve the long-term interests of the Company's stockholders. The Company
currently does not plan to pursue the private placement at this time. Management
will continue to evaluate alternatives to repay Term Loan B prior to August 31,
2001 to terminate the option to obtain warrants to acquire the 1,975,000 shares
of the Company's common stock. This would allow the Company to utilize these
shares in a transaction that the Company believes would maximize long-term
stockholder value.
The Company and each of its major operating subsidiaries have entered into
one or more credit facilities to finance their respective operations. Each of
the operating subsidiary credit facilities is nonrecourse to the Company, except
as described herein. The Company has guaranteed obligations of FC Capital Corp.
to Lehman Commercial Paper, Inc. ($.9 million as of September 30, 2000), limited
to an amount of up to $1.0 million, plus interest accruing after demand and
collection costs under the guaranty, which arise out of or are related to that
certain Master Repurchase Agreement Governing Purchases and Sales of Mortgage
Loans dated as of March 31, 1998 between Lehman and FC Capital Corp., including
the September 29, 1999 and December 8, 1999 letter agreements. The Company and
Funding LP are parties to an Insurance Agreement and Letter Agreement related to
the FCAR LLC Retail Automobile Installment Loan Agreement Financing Facility
provided by Enterprise Funding Corporation (the "Enterprise Facility"). These
agreements require the Company and Funding LP, as servicer and seller, to (i)
purchase nonconforming contracts in the event that the seller, the servicer, or
the related originator fails to repurchase any contract which is required to be
repurchased, (ii) pay certain premiums and other expenses, and (iii) indemnify
Enterprise Funding Corporation, the collateral agent, and the insurance
provider. Additionally, the Company, pursuant to the terms of the Letter
Agreement, has agreed to make certain secondary servicer advances.
26
<PAGE> 28
Excluding the term acquisition facilities of the unconsolidated Acquisition
Partnerships and the term and warehouse facilities of Drive, as of September 30,
2000, the Company and its subsidiaries had credit facilities providing for
borrowings in an aggregate principal amount of $96 million and outstanding
borrowings of $82 million. The following table summarizes the material terms of
the credit facilities to which the Company, its major operating subsidiaries and
the Acquisition Partnerships were parties to as of November 14, 2000 and the
outstanding borrowings under such facilities as of September 30, 2000.
CREDIT FACILITIES
<TABLE>
<CAPTION>
FUNDED AND
UNFUNDED OUTSTANDING
COMMITMENT BORROWINGS
AMOUNT AS OF AS OF
NOVEMBER 14, SEPTEMBER 30,
2000 2000 INTEREST RATE OTHER TERMS AND CONDITIONS
------------ ------------- ------------- --------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
FIRSTCITY
Company Senior Facility......
Secured by the assets of the Company,
Revolving Line of Credit... $ 10 $ 2 LIBOR + 2.5% matures December 31, 2003
Term Loan A................ 31 31 LIBOR + 2.5%
Term Loan B................ 12 12 Prime
Term credit facility......... 8 8 LIBOR + 5.0% Secured by ownership interests in
certain acquisition partnerships
matures November 27, 2000
COMMERCIAL CORP.
Acquisition facility......... 2 2 LIBOR + 4.0% Secured by existing Portfolio Assets,
matures June 15, 2001
Term facilities.............. 16 16 Fixed at 7.00% to Secured by Portfolio Assets, matures
7.66% June 5, 2002 and November 7, 2002
Equity investment facility... 17 11 LIBOR + 4.5% Acquisition facility for the
investment in future acquisition
partnerships, matures March 31,
2001
---- ----
Total................ $ 96 $ 82
==== ====
Unconsolidated Acquisition
Partnerships term
Facilities(1).............. $156 $156 Fixed at 8.5% to Secured by Portfolio Assets, various
==== ==== 13%, LIBOR + 2% maturities
to 4% and Prime +
1%
Unconsolidated Drive
$100 $ 80 LIBOR + 1% Secured by warehouse inventory,
Warehouse Facility......... Commitment Termination Date matures
August 17, 2001; Final Scheduled
Payment Date matures 72 months
after Commitment Termination Date
100 32 Rate based on Secured by warehouse inventory,
Warehouse Facility......... commercial paper matures November 30, 2000
rates combined
with certain
facility fees
Term Facility.............. 60260 59171 LIBOR Secured by residual interests,
---- ---- matures August 18, 2003
$ $
==== ====
</TABLE>
---------------
(1) In addition to the term acquisition facilities of the unconsolidated
Acquisition Partnerships, the Mexican Acquisition Partnerships also have
term debt of approximately $243 million outstanding as of September 30, 2000
owed to affiliates of the investor groups. Of this amount, the Company has
recorded approximately $9 million as Loans Receivable on the Consolidated
Balance Sheets.
27
<PAGE> 29
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q or
incorporated by reference from time to time, including, but not limited to,
statements relating to the Company's strategic objectives and future
performance, which are not historical fact, may be deemed to be forward-looking
statements under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, any statement that may
project, indicate or imply future results, performance or achievements, and may
contain the words "expect," "intend," "plan," "estimate," "believe," "will be,"
"will continue," "will likely result," and similar expressions. Such statements
inherently are subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those projected. There are many
important factors that could cause the Company's actual results to differ
materially from those indicated in the forward-looking statements. Such factors
include, but are not limited to, the performance of the Company's subsidiaries
and affiliates, availability of Portfolio Assets, assumptions underlying asset
performance; the impact of certain covenants in loan agreements of the Company
and its subsidiaries; continued availability of the Company's credit facilities;
the degree to which the Company is leveraged; the ability of the Company to
utilize NOLs; the interest rate risk; prepayment speeds; delinquency and default
rates; credit loss rates; changes (legislative and otherwise) in the asset
securitization industry; demand for the Company's services; fluctuations in
residential and commercial real estate values; risk of declining value of
collateral; capital market conditions, including the markets for asset-backed
securities; risks associated with foreign operations; currency exchange rate
fluctuations; general economic conditions; changes in foreign political, social
and economic conditions; regulatory initiatives and compliance with governmental
regulations; the ability to attract and retain qualified personnel;
uncertainties of any litigation that might arise in a bankruptcy proceeding;
factors more fully discussed and identified in the Company's Annual Report on
Form 10-K, filed April 6, 2000, and amended on May 1, 2000 (including those
discussed under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations"), as well as other Securities and Exchange
Commission filings. Many of these factors are beyond the Company's control. In
addition, it should be noted that past financial and operational performance of
the Company is not necessarily indicative of future financial and operational
performance. Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements. The forward-looking statements in
this Form 10-Q speak only as of the date of this Form 10-Q. The Company
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statement to reflect any change in
the Company's expectations with regard thereto or any change in events,
conditions or circumstances on which any forward-looking statement is based.
FirstCity is a diversified financial services Company with operations dedicated
to portfolio asset acquisition and resolution and consumer lending with offices
in the US and with affiliate organizations in France and Mexico.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's operations are materially impacted by net gains on
sales of loans and net interest margins. The level of gains from loan sales the
Company achieves is dependent on demand for the products originated. Net
interest margins are dependent on the Company to maintain the spread or interest
differential between the interest it charges the customer for loans and the
interest the Company is charged for the financing of those loans. The following
describes each component of interest bearing assets held by the Company and how
each could be affected by changes in interest rates.
Portfolio assets consist of investments in pools of non-homogenous assets
that predominantly consist of loan and real estate assets. Earnings from these
assets are based on the estimated future cash flows from such assets and
recorded when those cash flows occur. The underlying loans within these pools
bear both fixed and variable rates. Due to the non-performing nature and history
of these loans, changes in prevailing bench-mark rates (such as the prime rate
or LIBOR) generally have a nominal effect on the ultimate future cash flow to be
realized from the loan assets. Furthermore, these pools of assets are held for
sale, not for investment; therefore, the disposition strategy is to liquidate
these assets as quickly as possible.
28
<PAGE> 30
The sub-prime loans the Company sells generally are included in asset
backed securities the investor or purchaser issues. These securities are priced
at spreads over the LIBOR or an equivalent term treasury security. These spreads
are determined by demand for the security. Demand is affected by the perception
of credit quality and prepayment risk associated with the loans the Company
originates and sells. Interest rates offered to customers also affect prices
paid for loans. These rates are determined by review of competitors rate
offerings to the public and current prices being paid to the Company for the
products. The Company does not hedge these price risks.
The Company's residual interests in securitizations represent the present
value of the excess cash flows the Company expects to receive over the life of
the underlying sub-prime automobile loans. The sub-prime automobile residual
interests are affected less by prepayment speeds due to the shorter term of the
underlying assets and the fact that the loans are fixed rate, generally at the
highest rate allowable by law.
Additionally the Company has various sources of financing which have been
previously described in the Liquidity and Capital Resources section of Item 2.
In summary, the Company would be negatively impacted by rising interest
rates and declining prices for its sub-prime loans. Rising interest rates would
negatively impact the value of residual interests in securitizations and costs
of borrowings. Declining prices for the Company's sub-prime loans would
adversely effect the levels of gains achieved upon the sale of those loans.
There have been no material changes in the quantitative and qualitative risks of
the Company since December 31, 1999.
29
<PAGE> 31
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and Harbor Financial Group, Inc. (formerly known as FirstCity
Financial Mortgage Corporation) filed suit in the Federal District Court for the
Western District of Texas, Waco Division, against Chase Bank of Texas, N.A. and
Chase Securities, Inc. in September 1999 seeking damages resulting from alleged
violations by the defendants of the Bank Holding Company Act and from civil
conspiracy engaged in by the defendants, and injunctive relief, arising from an
engagement letter entered into between the Company and Chase Securities, Inc.
relating to the sale assets or securities of Harbor Financial Group, Inc.,
Harbor Financial Mortgage Corporation and their subsidiaries (collectively
"Harbor"). The Company alleges that Chase Bank of Texas, N.A. conditioned its
extension of credit to Harbor on the retention of Chase Securities, Inc. by the
Company and Harbor in violation of the Bank Holding Company Act. The Company
has, in its First Amended Original Complaint filed in November 1999, sought a
judicial declaration that the plaintiffs are not obligated to pay any commission
to Chase Securities, Inc. under the engagement letter. The actual damages sought
by the Company are in excess of $200,000,000. The Company also seeks recovery of
three times its damages pursuant to the Bank Holding Company Act and recovery of
its costs of court, including reasonable attorneys fees. A motion to dismiss the
Texas suit was granted based upon a provision in the engagement letter that
provided that any suit arising from the engagement letter would be pursued in
the State of New York. The Company is appealing the order granting dismissal of
the suit.
On October 4, 1999, Chase Securities, Inc. filed suit against the Company
before the Supreme Court for the State of New York, County of New York:
Commercial Part seeking recovery of $2,400,000 as the balance of a transaction
fee allegedly due it under the terms of the engagement letter, expenses of
approximately $3,900, and other just and proper relief. The Company denies that
it has any liability to Chase Securities, Inc. and intends to vigorously defend
the suit. The Company has asserted as a defense to this action the violations of
the Bank Holding Company Act asserted in the litigation pending before the
Federal District Court for the Western District of Texas. The Company will amend
its answer in the suit to include a counterclaim against Chase Securities, Inc.
and an action against Chase Bank of Texas, N.A. under the Bank Holding Company
Act as is asserted in the Texas suit.
On October 14, 1999, Mortgage Corp. filed voluntary petitions under Chapter
11 of the United States Bankruptcy Code before the United States Bankruptcy
Court for the Northern District of Texas, Dallas Division. In a motion filed in
those proceedings requesting the appointment of a Chapter 11 Trustee, the
debtors state that they were reviewing pre-petition transfers to the Company to
determine if those transfers are avoidable. On December 14, 1999, the bankruptcy
proceedings were converted to liquidations under Chapter 7 of the United States
Bankruptcy Code. The Company believes that it has valid defenses to any
allegations that might be made to avoid any pre-petition transfers in connection
with the Mortgage Corp. bankruptcy proceedings.
The Company is involved in various other legal proceedings in the ordinary
course of business. In the opinion of management, the resolution of such matters
will not have a material adverse impact on the consolidated financial condition,
results of operations or liquidity of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In the third quarter of 1999, dividends on the Company's adjusting rate
preferred stock were suspended. At September 30, 2000, accumulated dividends in
arrears on such preferred stock totaled $3.2 million, or $2.625 per share.
30
<PAGE> 32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Joint Plan of Reorganization by First City Bancorporation
of Texas, Inc., Official Committee of Equity Security
Holders and J-Hawk Corporation, with the Participation of
Cargill Financial Services Corporation, Under Chapter 11
of the United States Bankruptcy Code, Case No.
392-39474-HCA-11 (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
2.2 -- Agreement and Plan of Merger, dated as of July 3, 1995,
by and between First City Bancorporation of Texas, Inc.
and J-Hawk Corporation (incorporated herein by reference
to Exhibit 2.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
3.1 -- Amended and Restated Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.1
of the Company's Current Report on Form 8-K dated July 3,
1995 filed with the Commission on July 18, 1995).
3.2 -- Bylaws of the Company (incorporated herein by reference
to Exhibit 3.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
4.1 -- Certificate of Designations of the New Preferred Stock
($0.01 par value) of the Company. (incorporated herein by
reference to Exhibit 4.1 to the Company's Current Report
on Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).
4.2 -- Warrant Agreement, dated July 3, 1995, by and between the
Company and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to
Exhibit 4.2 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
4.3 -- Registration Rights Agreement, dated July 1, 1997, among
the Company, Richard J. Gillen, Bernice J. Gillen, Harbor
Financial Mortgage Company Employees Pension Plan,
Lindsey Capital Corporation, Ed Smith and Thomas E.
Smith. (incorporated herein by reference to Exhibit 4.3
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission on March 26, 1998).
4.4 -- Stock Purchase Agreement, dated March 24, 1998, between
the Company and Texas Commerce Shareholders Company.
(incorporated herein by reference to Exhibit 4.4 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).
4.5 -- Registration Rights Agreement, dated March 24, 1998,
between the Company and Texas Commerce Shareholders
Company. (incorporated herein by reference to Exhibit 4.5
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission on March 24, 1998).
10.1 -- Trust Agreement of FirstCity Liquidating Trust, dated
July 3, 1995 (incorporated herein by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K dated
July 3, 1995 filed with the Commission on July 18, 1995).
10.2 -- Investment Management Agreement, dated July 3, 1995,
between the Company and FirstCity Liquidating Trust
(incorporated herein by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995).
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3 -- Lock-Box Agreement, dated July 11, 1995, among the
Company, NationsBank of Texas, N.A., as lock-box agent,
FirstCity Liquidating Trust, FCLT Loans, L.P., and the
other Trust-Owned Affiliates signatory thereto, and each
of NationsBank of Texas, N.A. and Fleet National Bank, as
co-lenders (incorporated herein by reference to Exhibit
10.3 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.4 -- Custodial Agreement, dated July 11, 1995, among Fleet
National Bank, as custodian, Fleet National Bank, as
agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and
the Company (incorporated herein by reference to Exhibit
10.4 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.5 -- Tier 3 Custodial Agreement, dated July 11, 1995, among
the Company, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company, as servicer (incorporated herein by reference to
Exhibit 10.5 of the Company's Form 8-A/A dated August 25,
1995 filed with the Commission on August 25, 1995).
10.6 -- 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other
warehouse lenders party thereto. (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.7 -- Modification Agreement, dated January 26, 1998, to the
Amended and Restated Facilities Agreement, dated as of
December 3, 1997, among Harbor Financial Mortgage
Corporation, New America Financial, Inc. and Chase Bank
of Texas, National Association (formerly known as Texas
Commerce Bank National Association). (incorporated herein
by reference to Exhibit 10.7 of the company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.8 -- $50,000,000 3/98 Chase Texas Temporary Additional
Warehouse Note, dated March 17, 1998, by Harbor Financial
Mortgage Corporation and New America Financial, Inc., in
favor of Chase Bank of Texas, National Association.
(incorporated herein by reference to Exhibit 10.8 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.9 -- Employment Agreement, dated as of July 1, 1997, by and
between Harbor Financial Mortgage Corporation and Richard
J. Gillen. (incorporated herein by reference to Exhibit
10.9 of the Company's 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.10 -- Employment Agreement, dated as of September 8, 1997, by
and between FirstCity Funding Corporation and Thomas R.
Brower, with similar agreements between FC Capital Corp.
and each of James H. Aronoff and Christopher J.
Morrissey. (incorporated herein by reference to Exhibit
10.10 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.11 -- Shareholder Agreement, dated as of September 8, 1997,
among FirstCity Funding Corporation, FirstCity Consumer
Lending Corporation, Thomas R. Brower, Scot A. Foith,
Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves,
Stephen H. Trent and Blake P. Bozman. (incorporated
herein by reference to Exhibit 10.11 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
</TABLE>
32
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 -- Revolving Credit Loan Agreement, dated as of March 20,
1998, by and between FC Properties, Ltd. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.12 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.13 -- Revolving Credit Loan Agreement, dated as of February 27,
1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.13 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.14 -- Note Agreement, dated as of June 6, 1997, among Bosque
Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque
Investment Realty Partners, L.P. and Bankers Trust
Company of California, N.A. (incorporated herein by
reference to Exhibit 10.14 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation
in favor of the Bank of Scotland. (incorporated herein by
reference to Exhibit 10.15 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.16 -- Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation. (incorporated herein reference to Exhibit
10.16 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.17 -- Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk (incorporated herein by reference to Exhibit 10.17
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.18 -- Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland. (incorporated herein by reference to Exhibit
10.18 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation. (incorporated
herein by reference to Exhibit 10.19 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
10.20 -- Funding Commitment, dated as of May 17, 1996 by and
between ContiTrade Services L.L.C. and The Company.
(incorporated herein by reference to Exhibit 10.20 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.21 -- Revolving Credit Agreement, dated as of December 29,
1995, by and between the Company and Cargill Financial
Services Corporation, as amended by the Eighth Amendment
to Revolving Credit Agreement dated February 1998.
(incorporated herein by reference to Exhibit 10.21 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.22 -- Master Repurchase Agreement Governing Purchased and Sales
of Mortgage Loans, dated as of July 1998, between Lehman
Commercial Paper Inc. and FHB Funding Corp. (incorporated
herein by reference to Exhibit 10.1 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 18, 1998).
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.23 -- Warehouse Credit Agreement, dated as of April 30, 1998
among ContiTrade Services, L.L.C., FirstCity Consumer
Lending Corporation, FirstCity Auto Receivables L.L.C.
and FirstCity Financial Corporation. (incorporated herein
by reference to Exhibit 10.2 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission August
16, 1998).
10.24 -- Servicing Agreement, dated as of April 30, 1998 among
FirstCity Auto Receivables L.L.C. , FirstCity Servicing
Corporation of California, FirstCity Consumer Lending
Corporation and ContiTrade Services L.L.C. (incorporated
herein by reference to Exhibit 10.3 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 16, 1998).
10.25 -- Security and Collateral Agreement, dated as of April 30,
1998 among FirstCity Auto Receivables L.L.C., ContiTrade
Services L.L.C. and Chase Bank of Texas, National
Association. (incorporated herein by reference to Exhibit
10.4 of the Company's Form 10-Q dated August 14, 1998,
filed with the Commission August 16, 1998).
10.26 -- Loan Agreement, dated as of July 24, 1998, between
FirstCity Commercial Corporation and CFSC Capital Corp.
XXX (incorporated herein by reference Exhibit 10.5 of the
Company's Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).
10.27 -- Loan Agreement, dated April 8, 1998 between Bank of
Scotland and the Company (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission on
August 18, 1998).
10.28 -- First Amendment to Loan Agreement, dated July 20, 1998,
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.7 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission on
August 18, 1998).
10.29 -- Employment Agreement, dated October 1, 1998, by and
between FirstCity. Financial Mortgage Corporation, and
Buddy L. Terrell (incorporated herein by reference to
Exhibit 10.29 of the Company's Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).
10.30 -- Security Agreement, dated as of April 30, 1998 among
Enterprise Funding Corporation, FCAR Receivables L.L.C.,
MBIA Insurance Corporation, FirstCity Funding
Corporation, NationsBank N.A. and CSC Logic/MSA LLP d/b/a
Loan Servicing enterprise (incorporated herein by
reference to Exhibit 10.30 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.31 -- Note purchase agreement, dated March 30, 1999 among
Enterprise Funding Corporation, FCAR Receivables, L.L.C.
and NationsBank, N.A. (incorporated herein by reference
to Exhibit 10.31 of the Company's Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).
10.32 -- Custodian Agreement, dated March 30, 1999, among FCAR
Receivables L.L.C., FirstCity Funding Corporation,
NationsBank, N.A., Enterprise Funding Corporation and
Chase Bank of Texas, N.A. (incorporated herein by
reference to Exhibit 10.32 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.33 -- 100,000,000 dollar form of note, dated March 30, 1999
among FCAR Receivables LLC, Enterprise Funding
Corporation and NationsBank, N.A. (incorporated herein by
reference to Exhibit 10.33 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.33 -- Credit agreement dated effective as of May 28, 1999 made
by and among Harbor Financial Mortgage, New America
Financial, Inc., FirstCity Financial Mortgage
Corporation, and Guaranty Federal Bank F.S.B. as
Administrative Agent and Bank One, Texas, N.A. as
Collateral Agent (incorporated herein by reference to
Exhibit 10.33 of the Company's Form 10-Q dated August 16,
1999, filed with the commission on August 16, 1999).
10.34 -- Tenth Amendment to Loan Agreement, dated August 11, 1999
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.34 of the Company's
Form 10-Q dated August 16, 1999, filed with the
Commission on August 16, 1999).
10.35 -- Amended and Restated Loan Agreement, dated December 20,
1999, by and among FirstCity Financial Corporation as
Borrower and The Lenders Named Herein, as Lenders and
Bank of Scotland as Agent (incorporated herein by
reference to Exhibit 10.1 of the Company's Form 8-K dated
December 22, 1999, filed with the commission on December
28, 1999).
10.36 -- Subordinated Secured Senior Note Purchase Agreement,
dated December 20, 1999, between FirstCity Financial
Corporation, as Issuer and IFA Corporation, as Purchaser
(incorporated herein by reference to Exhibit 10.2 of the
Company's Form 8-K dated December 22, 1999, filed with
the commission on December 28, 1999).
10.37 -- Employment Agreement, dated October 1, 1999, by and
between FirstCity Commercial Corporation and Terry R.
DeWitt. (incorporated herein by reference to Exhibit
10.37 of the Company's Form 10-K dated February 8, 2000,
filed with the commission on February 8, 2000).
10.38 -- Employment Agreement, dated October 1, 1999, by and
between FirstCity Commercial Corporation and G. Stephen
Fillip. (incorporated herein by reference to Exhibit
10.38 of the Company's Form 10-K dated February 8, 2000,
filed with the commission on February 8, 2000).
10.39 -- Shareholder Agreement, dated October 1, 1999, by and
among FirstCity Holdings Corporation, FirstCity
Commercial Corporation, Terry R. DeWitt, G. Stephen
Fillip and James C. Holmes. (incorporated herein by
reference to Exhibit 10.39 of the Company's Form 10-K
dated February 8, 2000, filed with the commission on
February 8, 2000).
10.40 -- Securities Purchase Agreement, dated as of August 18,
2000, by and among the Company, Consumer Corp., Funding
LP, Funding GP, IFA-GP and IFA-LP. (incorporated herein
by reference to Exhibit 10.40 of the Company's Form 8-K
dated August 25, 2000, filed with the commission on
September 11, 2000).
10.41 -- Contribution and Assumption Agreement by and between
Consumer Corp. and Drive dated as of August 18, 2000.
(incorporated herein by reference to Exhibit 10.41 of the
Company's Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.42 -- Contribution and Assumption Agreement by and between
Funding LP and Drive dated as of August 18, 2000.
(incorporated herein by reference to Exhibit 10.42 of the
Company's Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).
10.43 -- Second Amendment to Amended and Restated Loan Agreement,
dated December 20, 1999, by and among the Company, as
borrower, and the Lenders, as lenders, and Bank of
Scotland, as Agent. (incorporated herein by reference to
Exhibit 10.43 of the Company's Form 8-K dated August 25,
2000, filed with the commission on September 11, 2000).
27.1 -- Financial Data Schedule. (Exhibit 27.1 is being submitted
as an exhibit only in the electronic format of this
Quarterly Report on Form 10-Q being submitted to the
Securities and Exchange Commission. Exhibit 27.1 shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933, Section 18 of the Securities Act
of 1934, as amended, or Section 323 of the Trust
Indenture Act of 1939, as amended, or otherwise be
subject to the liabilities of such sections, nor shall it
be deemed a part of any registration statement to which
it relates.)
</TABLE>
(b) Reports on Form 8-K. A report on Form 8-K dated August 25, 2000 was
filed by the Registrant with the Securities and Exchange Commission on September
11, 2000 concerning the sale of a 49% equity interest in the Company's
automobile finance operation.
36
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRSTCITY FINANCIAL CORPORATION
By: /s/ JAMES T. SARTAIN
----------------------------------
James T. Sartain
President and Chief Operating
Officer and Director
(Duly authorized officer of the
Registrant)
By: /s/ J. BRYAN BAKER
--------------------------------
J. Bryan Baker
Senior Vice President and Chief
Financial Officer
(Duly authorized officer and
principal financial and
accounting
officer of the Registrant)
Dated: November 14, 2000
37
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Joint Plan of Reorganization by First City Bancorporation
of Texas, Inc., Official Committee of Equity Security
Holders and J-Hawk Corporation, with the Participation of
Cargill Financial Services Corporation, Under Chapter 11
of the United States Bankruptcy Code, Case No.
392-39474-HCA-11 (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
2.2 -- Agreement and Plan of Merger, dated as of July 3, 1995,
by and between First City Bancorporation of Texas, Inc.
and J-Hawk Corporation (incorporated herein by reference
to Exhibit 2.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
3.1 -- Amended and Restated Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.1
of the Company's Current Report on Form 8-K dated July 3,
1995 filed with the Commission on July 18, 1995).
3.2 -- Bylaws of the Company (incorporated herein by reference
to Exhibit 3.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
4.1 -- Certificate of Designations of the New Preferred Stock
($0.01 par value) of the Company. (incorporated herein by
reference to Exhibit 4.1 to the Company's Current Report
on Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).
4.2 -- Warrant Agreement, dated July 3, 1995, by and between the
Company and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to
Exhibit 4.2 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
4.3 -- Registration Rights Agreement, dated July 1, 1997, among
the Company, Richard J. Gillen, Bernice J. Gillen, Harbor
Financial Mortgage Company Employees Pension Plan,
Lindsey Capital Corporation, Ed Smith and Thomas E.
Smith. (incorporated herein by reference to Exhibit 4.3
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission on March 26, 1998).
4.4 -- Stock Purchase Agreement, dated March 24, 1998, between
the Company and Texas Commerce Shareholders Company.
(incorporated herein by reference to Exhibit 4.4 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).
4.5 -- Registration Rights Agreement, dated March 24, 1998,
between the Company and Texas Commerce Shareholders
Company. (incorporated herein by reference to Exhibit 4.5
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission on March 24, 1998).
10.1 -- Trust Agreement of FirstCity Liquidating Trust, dated
July 3, 1995 (incorporated herein by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K dated
July 3, 1995 filed with the Commission on July 18, 1995).
10.2 -- Investment Management Agreement, dated July 3, 1995,
between the Company and FirstCity Liquidating Trust
(incorporated herein by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995).
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10.3 -- Lock-Box Agreement, dated July 11, 1995, among the
Company, NationsBank of Texas, N.A., as lock-box agent,
FirstCity Liquidating Trust, FCLT Loans, L.P., and the
other Trust-Owned Affiliates signatory thereto, and each
of NationsBank of Texas, N.A. and Fleet National Bank, as
co-lenders (incorporated herein by reference to Exhibit
10.3 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.4 -- Custodial Agreement, dated July 11, 1995, among Fleet
National Bank, as custodian, Fleet National Bank, as
agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and
the Company (incorporated herein by reference to Exhibit
10.4 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.5 -- Tier 3 Custodial Agreement, dated July 11, 1995, among
the Company, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company, as servicer (incorporated herein by reference to
Exhibit 10.5 of the Company's Form 8-A/A dated August 25,
1995 filed with the Commission on August 25, 1995).
10.6 -- 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other
warehouse lenders party thereto. (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.7 -- Modification Agreement, dated January 26, 1998, to the
Amended and Restated Facilities Agreement, dated as of
December 3, 1997, among Harbor Financial Mortgage
Corporation, New America Financial, Inc. and Chase Bank
of Texas, National Association (formerly known as Texas
Commerce Bank National Association). (incorporated herein
by reference to Exhibit 10.7 of the company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.8 -- $50,000,000 3/98 Chase Texas Temporary Additional
Warehouse Note, dated March 17, 1998, by Harbor Financial
Mortgage Corporation and New America Financial, Inc., in
favor of Chase Bank of Texas, National Association.
(incorporated herein by reference to Exhibit 10.8 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.9 -- Employment Agreement, dated as of July 1, 1997, by and
between Harbor Financial Mortgage Corporation and Richard
J. Gillen. (incorporated herein by reference to Exhibit
10.9 of the Company's 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.10 -- Employment Agreement, dated as of September 8, 1997, by
and between FirstCity Funding Corporation and Thomas R.
Brower, with similar agreements between FC Capital Corp.
and each of James H. Aronoff and Christopher J.
Morrissey. (incorporated herein by reference to Exhibit
10.10 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.11 -- Shareholder Agreement, dated as of September 8, 1997,
among FirstCity Funding Corporation, FirstCity Consumer
Lending Corporation, Thomas R. Brower, Scot A. Foith,
Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves,
Stephen H. Trent and Blake P. Bozman. (incorporated
herein by reference to Exhibit 10.11 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
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10.12 -- Revolving Credit Loan Agreement, dated as of March 20,
1998, by and between FC Properties, Ltd. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.12 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.13 -- Revolving Credit Loan Agreement, dated as of February 27,
1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.13 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.14 -- Note Agreement, dated as of June 6, 1997, among Bosque
Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque
Investment Realty Partners, L.P. and Bankers Trust
Company of California, N.A. (incorporated herein by
reference to Exhibit 10.14 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation
in favor of the Bank of Scotland. (incorporated herein by
reference to Exhibit 10.15 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.16 -- Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation. (incorporated herein reference to Exhibit
10.16 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.17 -- Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk (incorporated herein by reference to Exhibit 10.17
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.18 -- Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland. (incorporated herein by reference to Exhibit
10.18 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation. (incorporated
herein by reference to Exhibit 10.19 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
10.20 -- Funding Commitment, dated as of May 17, 1996 by and
between ContiTrade Services L.L.C. and The Company.
(incorporated herein by reference to Exhibit 10.20 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.21 -- Revolving Credit Agreement, dated as of December 29,
1995, by and between the Company and Cargill Financial
Services Corporation, as amended by the Eighth Amendment
to Revolving Credit Agreement dated February 1998.
(incorporated herein by reference to Exhibit 10.21 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.22 -- Master Repurchase Agreement Governing Purchased and Sales
of Mortgage Loans, dated as of July 1998, between Lehman
Commercial Paper Inc. and FHB Funding Corp. (incorporated
herein by reference to Exhibit 10.1 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 18, 1998).
10.23 -- Warehouse Credit Agreement, dated as of April 30, 1998
among ContiTrade Services, L.L.C., FirstCity Consumer
Lending Corporation, FirstCity Auto Receivables L.L.C.
and FirstCity Financial Corporation. (incorporated herein
by reference to Exhibit 10.2 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission August
16, 1998).
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10.24 -- Servicing Agreement, dated as of April 30, 1998 among
FirstCity Auto Receivables L.L.C. , FirstCity Servicing
Corporation of California, FirstCity Consumer Lending
Corporation and ContiTrade Services L.L.C. (incorporated
herein by reference to Exhibit 10.3 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 16, 1998).
10.25 -- Security and Collateral Agreement, dated as of April 30,
1998 among FirstCity Auto Receivables L.L.C., ContiTrade
Services L.L.C. and Chase Bank of Texas, National
Association. (incorporated herein by reference to Exhibit
10.4 of the Company's Form 10-Q dated August 14, 1998,
filed with the Commission August 16, 1998).
10.26 -- Loan Agreement, dated as of July 24, 1998, between
FirstCity Commercial Corporation and CFSC Capital Corp.
XXX (incorporated herein by reference Exhibit 10.5 of the
Company's Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).
10.27 -- Loan Agreement, dated April 8, 1998 between Bank of
Scotland and the Company (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission on
August 18, 1998).
10.28 -- First Amendment to Loan Agreement, dated July 20, 1998,
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.7 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission on
August 18, 1998).
10.29 -- Employment Agreement, dated October 1, 1998, by and
between FirstCity. Financial Mortgage Corporation, and
Buddy L. Terrell (incorporated herein by reference to
Exhibit 10.29 of the Company's Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).
10.30 -- Security Agreement, dated as of April 30, 1998 among
Enterprise Funding Corporation, FCAR Receivables L.L.C.,
MBIA Insurance Corporation, FirstCity Funding
Corporation, NationsBank N.A. and CSC Logic/MSA LLP d/b/a
Loan Servicing enterprise (incorporated herein by
reference to Exhibit 10.30 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.31 -- Note purchase agreement, dated March 30, 1999 among
Enterprise Funding Corporation, FCAR Receivables, L.L.C.
and NationsBank, N.A. (incorporated herein by reference
to Exhibit 10.31 of the Company's Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).
10.32 -- Custodian Agreement, dated March 30, 1999, among FCAR
Receivables L.L.C., FirstCity Funding Corporation,
NationsBank, N.A., Enterprise Funding Corporation and
Chase Bank of Texas, N.A. (incorporated herein by
reference to Exhibit 10.32 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.33 -- 100,000,000 dollar form of note, dated March 30, 1999
among FCAR Receivables LLC, Enterprise Funding
Corporation and NationsBank, N.A. (incorporated herein by
reference to Exhibit 10.33 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.33 -- Credit agreement dated effective as of May 28, 1999 made
by and among Harbor Financial Mortgage, New America
Financial, Inc., FirstCity Financial Mortgage
Corporation, and Guaranty Federal Bank F.S.B. as
Administrative Agent and Bank One, Texas, N.A. as
Collateral Agent (incorporated herein by reference to
Exhibit 10.33 of the Company's Form 10-Q dated August 16,
1999, filed with the commission on August 16, 1999).
</TABLE>
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10.34 -- Tenth Amendment to Loan Agreement, dated August 11, 1999
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.34 of the Company's
Form 10-Q dated August 16, 1999, filed with the
Commission on August 16, 1999).
10.35 -- Amended and Restated Loan Agreement, dated December 20,
1999, by and among FirstCity Financial Corporation as
Borrower and The Lenders Named Herein, as Lenders and
Bank of Scotland as Agent (incorporated herein by
reference to Exhibit 10.1 of the Company's Form 8-K dated
December 22, 1999, filed with the commission on December
28, 1999).
10.36 -- Subordinated Secured Senior Note Purchase Agreement,
dated December 20, 1999, between FirstCity Financial
Corporation, as Issuer and IFA Corporation, as Purchaser
(incorporated herein by reference to Exhibit 10.2 of the
Company's Form 8-K dated December 22, 1999, filed with
the commission on December 28, 1999).
10.37 -- Employment Agreement, dated October 1, 1999, by and
between FirstCity Commercial Corporation and Terry R.
DeWitt. (incorporated herein by reference to Exhibit
10.37 of the Company's Form 10-K dated February 8, 2000,
filed with the commission on February 8, 2000).
10.38 -- Employment Agreement, dated October 1, 1999, by and
between FirstCity Commercial Corporation and G. Stephen
Fillip. (incorporated herein by reference to Exhibit
10.38 of the Company's Form 10-K dated February 8, 2000,
filed with the commission on February 8, 2000).
10.39 -- Shareholder Agreement, dated October 1, 1999, by and
among FirstCity Holdings Corporation, FirstCity
Commercial Corporation, Terry R. DeWitt, G. Stephen
Fillip and James C. Holmes. (incorporated herein by
reference to Exhibit 10.39 of the Company's Form 10-K
dated February 8, 2000, filed with the commission on
February 8, 2000).
10.40 -- Securities Purchase Agreement, dated as of August 18,
2000, by and among the Company, Consumer Corp., Funding
LP, Funding GP, IFA-GP and IFA-LP. (incorporated herein
by reference to Exhibit 10.40 of the Company's Form 8-K
dated August 25, 2000, filed with the commission on
September 11, 2000).
10.41 -- Contribution and Assumption Agreement by and between
Consumer Corp. and Drive dated as of August 18, 2000.
(incorporated herein by reference to Exhibit 10.41 of the
Company's Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).
10.42 -- Contribution and Assumption Agreement by and between
Funding LP and Drive dated as of August 18, 2000.
(incorporated herein by reference to Exhibit 10.42 of the
Company's Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).
10.43 -- Second Amendment to Amended and Restated Loan Agreement,
dated December 20, 1999, by and among the Company, as
borrower, and the Lenders, as lenders, and Bank of
Scotland, as Agent. (incorporated herein by reference to
Exhibit 10.43 of the Company's Form 8-K dated August 25,
2000, filed with the commission on September 11, 2000).
</TABLE>
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27.1 -- Financial Data Schedule. (Exhibit 27.1 is being submitted
as an exhibit only in the electronic format of this
Quarterly Report on Form 10-Q being submitted to the
Securities and Exchange Commission. Exhibit 27.1 shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933, Section 18 of the Securities Act
of 1934, as amended, or Section 323 of the Trust
Indenture Act of 1939, as amended, or otherwise be
subject to the liabilities of such sections, nor shall it
be deemed a part of any registration statement to which
it relates.)
</TABLE>
