SOURCE: FirstCity Financial Corporation

November 08, 2006 07:30 ET

FirstCity Financial (NASDAQ: FCFC) Reports Third Quarter 2006 Earnings

WACO, TX -- (MARKET WIRE) -- November 8, 2006 -- FirstCity Financial (NASDAQ: FCFC)

Highlights:

--  FirstCity (NASDAQ: FCFC) reports 3rd quarter 2006 earnings of
    $4,967,535 or $.42 per diluted share.
--  FirstCity invested $35.2 million for the quarter.
--  FirstCity increased line of credit to $175 million.
    
Components of the quarterly results are detailed below (dollars in thousands except per share data):
                                    Three Months Ended  Nine Months Ended
                                      September 30,       September 30,
                                    ------------------  ------------------
                                      2006      2005      2006      2005
                                    --------  --------  --------  --------
                                        (unaudited)         (unaudited)
Portfolio Asset Acquisition and
 Resolution                         $  6,218  $  2,020  $ 12,095  $ 10,263
Corporate overhead                    (1,251)   (1,328)   (3,768)   (4,202)
                                    --------  --------  --------  --------
Earnings from continuing operations    4,967       692     8,327     6,061
Earnings (loss) from discontinued
 operations, net of taxes                 --       319       (75)      222
                                    --------  --------  --------  --------
Net earnings to common stockholders $  4,967  $  1,011  $  8,252  $  6,283
                                    ========  ========  ========  ========
Diluted earnings per common share   $   0.42  $   0.08  $   0.69  $   0.52
                                    ========  ========  ========  ========
James T. Sartain, President and CEO said, "We were pleased with the strong earnings and acquisitions and equity investments in the third quarter. Our pipeline is strong and we are currently evaluating 33 different transactions representing over $3 billion in face value of assets. In addition we have increased our line of credit to $175 million with our lenders giving us additional liquidity to continue to grow the business."

Portfolio Asset Acquisition and Resolution

FirstCity purchased $91.5 million in portfolio assets during the third quarter of 2006 and invested equity in these portfolios of $31.5 million. These purchases consisted of eight portfolios -- six in the United States and two in Latin America. Additionally, the Company made investments of $1.4 million into current partnerships in Europe and invested $2.3 million in the form of a loan to a Canadian real estate development company.

Investments are detailed below (in millions):

                            Portfolio Purchases
                            -------------------
                                                                  FirstCity
                                                        FirstCity Investme-
                                      Latin             Investme-    nt
                Domestic   Europe    America    Total      nt     in Other
                ========= ========= ========= ========= ========= =========
      2006
3rd Quarter     $    35.4 $      -- $    56.1 $    91.5 $    31.5 $     3.7
2nd Quarter          24.2       1.0        --      25.2      19.0       7.0
1st  Quarter         42.4        --        --      42.4      23.3       0.7
                --------- --------- --------- --------- --------- ---------
    YTD 2006    $   102.0 $     1.0 $    56.1 $   159.1 $    73.8 $   11.4*
                ========= ========= ========= ========= ========= =========
      2005
4th Quarter     $    32.9 $    37.2 $    12.6 $    82.7 $    35.0 $     1.2
3rd Quarter          32.3        --       0.6      32.9      18.1        --
2nd Quarter          16.1        --        --      16.1      16.1        --
1st  Quarter         12.1        --       2.8      14.9       2.2       2.0
                --------- --------- --------- --------- --------- ---------
Total Year 2005 $    93.4 $    37.2 $    16.0 $   146.6 $    71.4 $    3.2*
                ========= ========= ========= ========= ========= =========
Total Year 2004 $    91.2 $     9.8 $    73.1 $   174.1 $    59.8 $      --
                ========= ========= ========= ========= ========= =========
Total Year 2003 $    92.6 $    31.2 $     5.4 $   129.2 $    22.9 $    3.4*
                ========= ========= ========= ========= ========= =========

                  Total
                =========
      2006
3rd Quarter     $    35.2
2nd Quarter          26.0
1st  Quarter         24.0
                ---------
    YTD 2006    $    85.2
                =========
      2005
4th Quarter     $    36.2
3rd Quarter          18.1
2nd Quarter          16.1
1st  Quarter          4.2
                ---------
Total Year 2005 $    74.6
                =========
Total Year 2004 $    59.8
                =========
Total Year 2003 $    22.9
                =========
*FirstCity's Investment in Other for the quarter included $1.4 million in existing partnerships and $2.3 million the form of a loan to a Canadian real estate development company.

Operating contribution from the Portfolio Asset Acquisition business for the third quarter was $6.2 million. The earnings were comprised of $7.8 million in revenues, $3.0 million in equity in earnings of investments, gain on sale of investments of $2.4 million and $7.0 million of expenses, including provisions, net of recoveries, for loan losses of $50,000. The business generated 47% of the revenues from domestic investments, 45% from investments in Latin America and 8% from investments in Europe (including equity in earnings of investments and gain on the sale of interest in equity investments). The major components of revenue for the quarter include equity earnings in Acquisition Partnerships and servicing entities of $3.0 million, servicing fees of $4.7 million, income on Portfolio Assets of $2.5 million, and gain on sale of equity investments of $2.4 million. This gain consisted of: 1) one domestic portfolio resulting in a gain of $1.3 million and; 2) an aggregate sale of Latin American portfolios resulting in a gain of $1.1 million.

Operating contribution from the Portfolio Asset Acquisition business for the third quarter includes net foreign currency gains of $945,000, which is comprised of $123,000 of Euro gains, $843,000 in Mexican peso gains, $15,000 in Argentine peso losses and $6,000 in Canadian dollar losses. The Company continued to borrow in Euros to hedge the risk associated with foreign currency exposure.

The following table details the impact of these items on corporate earnings:

                                            Three Months     Nine Months
                                               Ended            Ended
                                            September 30,    September 30,
Illustration of the Effects of Currency     2006     2005    2006     2005
                                           ------   ------  ------   ------
Fluctuations (dollars in thousands)           (unaudited)      (unaudited)
---------------------------------------------------------------------------
Net earnings to Common Stockholders
 as reported                               $4,967   $1,011  $8,252   $6,283
Euro gains                                    123      197     781      691
Mexican Peso gains (losses)                   843       37    (311)     781
Argentine Peso losses                         (15)       —     (59)       —
Canadian Dollar losses                         (6)       —      (6)       —
                                           --------------------------------
Euro exchange rate at valuation date         0.79     0.83
Mexican Peso exchange rate at
 valuation date                             11.02    10.85
Argentine Peso exchange rate at
 valuation date                              3.11      n/a
Canadian Dollar exchange rate at
 valuation date                              1.11      n/a
Restructure of Mexican Investment Platform

During the third quarter FirstCity completed a total restructure of its investments in Mexico in a transaction which aligned FirstCity with American International Group, Inc. FirstCity received a payment of approximately $2 million of consulting fees and recorded a gain on sale of $1.1 million in the third quarter from the sale of certain assets by Cargill Financial Services International, Inc. and FirstCity affiliates as a result of this restructure. The net impact for the quarter from this transaction was $2.2 million net of expenses and intercompany eliminations.

Other Corporate Matters

--  FirstCity announced a repurchase program for shares of its common
    stock in August 2006. Since the program was initiated, the company has
    purchased 530,300 shares at an average cost of $10.51 per share. The stock
    repurchase program remains in effect until August 2007. Share repurchases
    may be made from time to time when and if management feels the repurchase
    of such shares represent the optimum use of FirstCity's resources.
    
--  FirstCity enhanced its liquidity position with the restructure of its
    corporate line of credit subsequent to the third quarter. The lending
    facility was increased to $175 million and the term extended by two years.
    The rate was reduced by 50 basis points.
    
--  The commencement of FirstCity's previously announced SBA lending
    initiative remains subject to approval by the SBA. It is anticipated that
    this approval will be granted during the fourth quarter of 2006.
    
--  The Company's litigation regarding the claim of ownership of
    approximately $18 million representing the proceeds of the sale of
    Prudential stock remains unresolved. In March, FirstCity was granted a
    motion for summary judgment in favor of FirstCity's claim to the
    demutualization proceeds. Currently, the matter is under appeal by other
    interested parties. While no assurances can be given as to the ultimate
    resolution of the matter, FirstCity management remains optimistic that the
    lower courts ruling in favor of FirstCity's claim to the proceeds will
    ultimately be upheld.
    
--  FirstCity's application for an industrial bank charter and deposit
    insurance continues in process in the State of Utah and the FDIC. The FDIC
    has issued a moratorium on applications through January 31, 2007 for
    deposit insurance by Industrial Loan Companies ("ILCs"), as well as on
    notices of change in control for existing ILCs. The FDIC will not make any
    final decisions or accept any future applications for deposit insurance or
    notices of change in control for ILCs during this moratorium. FirstCity and
    Cargill plan to pursue this application through to completion.
    
Conference Call

A conference call will be held today at 9:00 a.m. Central time to discuss third quarter 2006 results. A question and answer session will follow the prepared remarks. Details to access the call and webcast are as follows:

     Event:         FirstCity Financial Corporation Third Quarter 2006
                    Conference Call
     Date:          Wednesday, November 8, 2006
     Time:          9:00 a.m. Central Time
     Host:          James T. Sartain, FirstCity's President and Chief
                    Executive Officer
     Web Access:    FirstCity's web page -      www.fcfc.com/invest.htm or,
                    CCBN's Investor websites -  www.streetevents.com and,
                                                www.fulldisclosure.com

     Dial In Access:    Domestic        866-510-0711
                        International   617-597-5379
                        Pass code -     79884512

     Replay:            Domestic        888-286-8010
                        International   617-801-6888
                        Pass code -     54157445
The replay will be available until Wednesday November 22, 2006

Forward-Looking Statements

Certain statements in this press release, which are not historical in fact, including, but not limited to, statements relating to future performance, 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.

These factors include, but are not limited to, the performance of the Company's subsidiaries and affiliates, availability of portfolio assets, assumptions underlying portfolio asset performance, risks associated with foreign operations, currency exchange rate fluctuations, interest rate risk, risks of declining value of loans, collateral or assets, the degree to which the Company is leveraged, the Company's continued need for financing, availability of the Company's credit facilities, the impact of certain covenants in loan agreements of the Company and its subsidiaries, the ability of the Company to utilize net operating loss carry forwards, general economic conditions, foreign social and economic conditions, changes (legislative and otherwise) in the asset securitization industry, fluctuation in residential and commercial real estate values, capital markets conditions, including the markets for asset-backed securities, uncertainties of any litigation arising from discontinued operations, factors more fully discussed and identified under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and risk factors and other risks identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2005, filed with the SEC on March 16, 2006, as well as in the Company's other filings with the SEC.

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 release speak only as of the date of this release. 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.

The Company is a diversified financial services company with operations dedicated to portfolio asset acquisition and resolution with offices in the U.S. and with affiliate organizations in France and Mexico. Its common stock is listed on the NASDAQ National Market System under the symbol "FCFC."

                      FirstCity Financial Corporation
                           Summary of Operations
                   (In thousands, except per share data)
                                (Unaudited)

                                    Three Months Ended  Nine Months Ended
                                      September 30,       September 30,
                                      2006      2005      2006      2005
                                    --------- --------  --------  --------
Revenues:
  Servicing fees from affiliates    $   4,679 $  2,891  $ 10,182  $  8,972
  Income from Portfolio Assets          2,547    2,124     7,551     6,269
  Interest income from affiliates         294      420     1,189     1,293
  Interest income from loans
   receivable - other                      17       --        17        --
  Other income                            654      269     1,846     1,079
                                    --------- --------  --------  --------
    Total revenues                      8,191    5,704    20,785    17,613
                                    --------- --------  --------  --------
Expenses:
  Interest and fees on notes
   payable - other                      1,797      909     5,433     2,619
  Interest and fees on notes
   payable to affiliates                    2        9        22        27
  Salaries and benefits                 4,094    3,571    11,110    11,413
  Provision for loan and impairment
   losses                                  50      322       101       436
  Occupancy, data processing,
   communication and other              2,688    1,908     6,165     5,574
                                    --------- --------  --------  --------
    Total expenses                      8,631    6,719    22,831    20,069
                                    --------- --------  --------  --------
    Equity in earnings of
     investments                        3,023    1,783     8,044     8,874
    Gain on sale of interest in
     equity investments                 2,378       --     2,405        --
                                    --------- --------  --------  --------
Earnings from continuing operations
   before income taxes and minority
   interest                             4,961      768     8,403     6,418
 Income taxes                               4      (79)     (140)     (321)
 Minority interest                          2        3        64       (36)
                                    --------- --------  --------  --------
Earnings from continuing operations     4,967      692     8,327     6,061
                                    --------- --------  --------  --------
Discontinued operations
 Loss from operations of
  discontinued components                  --     (281)      (75)     (378)
 Income taxes                              --      600        --       600
                                    --------- --------  --------  --------
 Loss from discontinued operations         --      319       (75)      222
                                    --------- --------  --------  --------
Net earnings                        $   4,967 $  1,011  $  8,252  $  6,283
                                    ========= ========  ========  ========

Basic earnings per common share are
 as follows:
   Earnings from continuing
    operations                      $    0.45 $   0.06  $   0.74  $   0.54
   Discontinued operations          $      -- $   0.03  $  (0.01) $   0.02
   Net earnings per common share    $    0.45 $   0.09  $   0.73  $   0.56
   Wtd. avg. common shares
    outstanding                        11,104   11,298    11,239    11,278

Diluted earnings per common share
 are as follows:
   Earnings from continuing
    operations                      $    0.42 $   0.05  $   0.70  $   0.50
   Discontinued operations          $      -- $   0.03  $  (0.01) $   0.02
   Net earnings per common share    $    0.42 $   0.08  $   0.69  $   0.52
   Wtd. avg. common shares
    outstanding                        11,711   12,008    11,875    12,012


                  Selected Unaudited Balance Sheet Data

                                               September 30,  December 31,
                                                   2006           2005
                                               -------------  -------------
Cash                                           $      13,036  $      12,901
Portfolio Assets, net                                 78,908         49,346
Loans receivable                                       9,436         19,606
Equity investments                                    84,853         83,785
Deferred tax asset, net                               20,101         20,101
Service fees receivable and other assets               7,021          8,973
Discontinued mortgage assets held for sale               103            157
                                               -------------  -------------
 Total assets                                  $     213,458  $     194,869
                                               =============  =============

Notes payable - other                          $     105,963  $      89,653
Notes payable to affiliates                               --            606
Minority interest and other liabilities                5,774          5,578
Liabilities from discontinued consumer
 operations                                               72            121
                                               -------------  -------------
 Total liabilities                                   111,809         95,958
 Total equity                                        101,649         98,911
                                               -------------  -------------
 Total liabilities and equity                  $     213,458  $     194,869
                                               =============  =============

                     FirstCity Financial Corporation
                         Supplemental Information
                          (Dollars in thousands)
                               (Unaudited)

                                 Three Months Ended     Nine Months Ended
                                    September 30,         September 30,
                                  2006       2005       2006       2005
                                ---------  ---------  ---------  ---------
Portfolio Asset Acquisition and
 Resolution:
 Summary Operating Statement
  Data
   Revenues                     $   7,818  $   5,576  $  20,052  $  17,252
   Equity in earnings of
    investments                     3,023      1,783      8,044      8,874
   Gain on sale of interest in
    equity investments              2,378         --      2,405         --
   Expenses                        (6,951)    (5,017)   (18,305)   (15,427)
                                ---------  ---------  ---------  ---------
   Operating contribution
    before provision for
    loan and impairment losses      6,268      2,342     12,196     10,699
   Provision for loan and
    impairment losses                  50        322        101        436
                                ---------  ---------  ---------  ---------
    Operating contribution, net
     of direct taxes            $   6,218  $   2,020  $  12,095  $  10,263
                                =========  =========  =========  =========

 Aggregate purchase price of
  portfolios acquired:
  Acquisition partnerships
   Domestic                     $  35,416  $  32,299  $ 101,943  $  60,481
   Latin America                   56,104        625     56,104      3,388
   Europe                              --         --      1,026         --
                                ---------  ---------  ---------  ---------
    Total                       $  91,520  $  32,924  $ 159,073  $  63,869
                                =========  =========  =========  =========

                                                  Purchase     FirstCity's
Historical Acquisitions - Annual:                   Price      Investment
                                                ------------- -------------
  2006                                          $     159,073 $      73,781
  2005                                                146,581        71,405
  2004                                                174,139        59,762
  2003                                                129,192        22,944
  2002                                                171,769        16,717

                                                September 30,  December 31,
                                                     2006          2005
                                                ------------- -------------
Portfolio acquisition and resolution assets by
 region:
  Domestic                                      $     115,349 $     105,938
  Canada                                                2,292            --
  Latin America                                        28,220        19,764
  Europe                                               27,463        27,699
                                                ------------- -------------
   Total                                        $     173,324 $     153,401
                                                ============= =============

                                 Three Months Ended     Nine Months Ended
                                    September 30,         September 30,
                                   2006       2005       2006       2005
                                 ---------  ---------  ---------  ---------
 Revenues and equity in
  earnings of investments by
  region:
   Domestic                      $   4,953  $   4,692  $  16,344  $  15,418
   Canada                               17         --         17         --
   Latin America                     4,761      2,088      7,902      7,458
   Europe                            1,110        579      3,833      3,250
                                 ---------  ---------  ---------  ---------
    Total                        $  10,841  $   7,359  $  28,096  $  26,126
                                 =========  =========  =========  =========

 Revenues and equity in
  earnings of investments by
  source:
   Equity earnings               $   3,023  $   1,783  $   8,044  $   8,874
   Servicing fees                    4,679      2,891     10,182      8,972
   Interest income from
    affiliates                         294        420      1,189      1,293
   Income from Portfolio Assets      2,547      2,124      7,551      6,269
   Interest income from loans
    receivable - other                  17         --         17         --
   Other                               281        141      1,113        718
                                 ---------  ---------  ---------  ---------
    Total                        $  10,841  $   7,359  $  28,096  $  26,126
                                 =========  =========  =========  =========

                      FirstCity Financial Corporation
                         Supplemental Information
                          (Dollars in thousands)
                                (Unaudited)


                                 Three Months Ended     Nine Months Ended
                                    September 30,         September 30,
                                  2006       2005       2006       2005
                                ---------  ---------  ---------  ---------
Analysis of Equity Investments
FirstCity's Average investment
  Domestic                      $  38,993  $  37,384  $  47,792  $  36,716
  Latin America                    16,901      1,893      8,636      1,725
  Europe                           24,205     16,822     24,661     18,016
                                ---------  ---------  ---------  ---------
   Total                        $  80,099  $  56,099  $  81,089  $  56,457
                                =========  =========  =========  =========

FirstCity Share of Equity
 Earnings:
  Domestic                      $   1,282  $   1,784  $   5,136  $   6,008
  Latin America                       779       (478)      (516)        (8)
  Europe                              962        477      3,424      2,874
                                ---------  ---------  ---------  ---------
   Total                        $   3,023  $   1,783  $   8,044  $   8,874
                                =========  =========  =========  =========

Selected other data:
Average investment in wholly
 owned portfolio assets
 and loans receivable:
  Domestic                      $  64,192  $  44,568  $  56,172  $  40,305
  Canada                              573         --        229         --
  Latin America                     6,519     17,766     12,774     18,548
  Europe                            2,645        509      2,158        517
                                ---------  ---------  ---------  ---------
   Total                        $  73,929  $  62,843  $  71,333  $  59,370
                                =========  =========  =========  =========

Income from wholly owned
 portfolio assets and loans
 receivable:
  Domestic                      $   2,640  $   2,189  $   7,797  $   6,445
  Canada                               17         --         17         --
  Latin America                       155        349        834      1,096
  Europe                               46          7        109         22
                                ---------  ---------  ---------  ---------
   Total                        $   2,858  $   2,545  $   8,757  $   7,563
                                =========  =========  =========  =========

Servicing fee revenues:
  Domestic partnerships:
   Servicing fee revenue        $     825  $     751  $   2,798  $   2,725
   Average servicing fee %            3.0%       3.8%       2.9%       3.8%
  Latin American partnerships:
   Servicing fee revenue        $   1,883  $   2,039  $   5,243  $   5,935
   Average servicing fee %            6.6%      13.8%       9.1%      12.1%
  Incentive service fees        $   1,971  $     101  $   2,141  $     312
  Total Service Fees:
   Servicing fee revenue        $   4,679  $   2,891  $  10,182  $   8,972
   Average servicing fee %            8.3%       8.4%       6.7%       7.4%

Collections:
  Domestic                      $  27,898  $  19,781  $  95,007  $  72,008
  Latin America                    28,325     14,749     57,529     48,924
  Europe                           11,049     12,477     40,164     41,463
                                ---------  ---------  ---------  ---------
   Subtotal                        67,272     47,007    192,700    162,395
  Wholly-owned                      8,823      5,804     30,970     19,735
                                ---------  ---------  ---------  ---------
          Total                 $  76,095  $  52,811  $ 223,670  $ 182,130
                                =========  =========  =========  =========

Servicing portfolio (face value)
  Domestic                      $  541,116 $  508,891
  Latin America                  1,634,816  1,421,124
  Europe                           824,031    808,568
                                ---------- ----------
          Total                 $2,999,963 $2,738,583
                                ========== ==========

Number of personnel at period
 end:
  Domestic                              58         65
  Latin America                        118        137
  Corporate                             32         33
                                ---------- ----------
   Total personnel                     208        235
                                ========== ==========

Contact Information

  • Contact:
    Suzy W. Taylor
    866-652-1810