SOURCE: FirstCity Financial Corporation

August 10, 2007 08:00 ET

FirstCity Financial Reports Second Quarter 2007 Results

WACO, TX--(Marketwire - August 10, 2007) - FirstCity Financial Corporation (NASDAQ: FCFC)

Highlights:

Second Quarter 2007 Results

--  FirstCity reports 2nd quarter 2007 earnings of $1,806,142 or $.16 per
    diluted share.
--  FirstCity invested $25.2 million in portfolio acquisitions for the 2nd
    quarter 2007.
    

Components of the quarterly results are detailed below (dollars in thousands except per share data):

                                    Three Months Ended   Six Months Ended
                                         June 30,            June 30,
                                    ------------------  ------------------
                                      2007      2006      2007      2006
                                    --------  --------  --------  --------
                                        (unaudited)         (unaudited)
Portfolio Asset Acquisition and
 Resolution                         $  4,313  $  2,549  $  6,183  $  5,877
Corporate overhead *                  (2,507)   (1,286)   (5,292)   (2,517)
                                    --------  --------  --------  --------
Earnings from continuing operations    1,806     1,263       891     3,360
Loss from discontinued operations,
 net of taxes                             --        --        --       (75)
                                    --------  --------  --------  --------
Net earnings to common stockholders $  1,806  $  1,263  $    891  $  3,285
                                    ========  ========  ========  ========
Diluted earnings per common share   $   0.16  $   0.11  $   0.08  $   0.27
                                    ========  ========  ========  ========

* Corporate overhead includes expenses related to the independent audit committee investigation of $2.0 million year to date, comprised of $1.2 million in the first quarter and $.8 million in the second quarter. The total expenditures related to the investigation through August 6, 2007 were approximately $2.0 million.

Portfolio Asset Acquisition and Resolution

The Company invested $25.2 million in portfolio acquisitions during the quarter. FirstCity also invested $1.1 million in SBA loan originations and advances as well as $3.0 million in the form of advances on loans receivable under the new special situations platform, FirstCity Crestone, which was formed in April 2007. Earning assets totaled $293.5 million at quarter end. FirstCity is currently evaluating 25 different transactions representing over $1.5 billion in face value of assets.

Portfolio purchases are detailed below (in millions):

                          Portfolio Purchases
              ===========================================
                                                          FirstCity
                               Latin            FirstCity Investment
              Domestic Europe  America  Total   Investment in Other  Total
              ======== ======= ======= ======== ========= ========= =======
         2007
2nd Quarter   $   27.4 $   2.4 $  61.6 $   91.4 $    25.2 $     4.2 $  29.4
1st Quarter       71.6     3.8     3.4     78.8      69.5       7.8    77.3
              ======== ======= ======= ======== ========= ========= =======
    YTD 2007  $   99.0 $   6.2 $  65.0 $  170.2 $    94.7 $    12.0 $ 106.7
              ======== ======= ======= ======== ========= ========= =======
         2006
4th Quarter   $   34.6 $ 101.2 $   2.1 $  137.9 $    70.2 $    16.8 $  87.0
3rd Quarter       35.4      --    56.1     91.5      31.5       3.7    35.2
2nd Quarter       24.2     1.0      --     25.2      19.0       7.0    26.0
1st Quarter       42.4      --      --     42.4      23.3       0.7    24.0
              ======== ======= ======= ======== ========= ========= =======
Total Year
 2006         $  136.6 $ 102.2 $  58.2 $  297.0 $   144.0 $    28.2 $ 172.2
              ======== ======= ======= ======== ========= ========= =======
Total Year
 2005         $   93.4 $  37.2 $  16.0 $  146.6 $    71.4 $     3.2 $  74.6
              ======== ======= ======= ======== ========= ========= =======
Total Year
 2004         $   91.2 $   9.8 $  73.1 $  174.1 $    59.8 $      -- $  59.8
              ======== ======= ======= ======== ========= ========= =======

For the second quarter 2007, operating contribution from the Portfolio Asset Acquisition business was $4.3 million. The earnings were comprised of $11.2 million in revenues, $4.3 million in equity in earnings of investments and $11.2 million of expenses. The business generated 60% of the revenues (including equity in earnings of investments) from domestic investments, 24% from investments in Latin America, 15% from investments in Europe and 1% from investments in Canada. The major components of revenue for the quarter include equity in earnings of investments of $4.3 million, servicing fees of $3.0 million, and income from Portfolio Assets of $5.7 million.

The revenues for the second quarter were positively impacted $1 million as a result of increases in expected cash flows in wholly owned portfolios with a book value of $62.7 million and certain portfolios held in acquisition partnerships with a book value of $21.3 million. Management will increase income accrual rates on portfolios that experience increases in cash flows as the portfolios mature. The majority of the $84 million in book value of portfolios that contributed to this increase in interest income from portfolio assets ($.8 million) and Equity in earnings of investments ($.2 million) were purchased within the last 18 months. Management may make additional adjustments to income accrual rates in the future if facts and circumstances warrant it.

The second quarter earnings were also negatively impacted by provisions net of recoveries for loan losses of $518,000, of which $746,000 was on wholly owned domestic portfolios. The difference of ($228,000) represents net recoveries from primarily domestic acquisition partnerships. The Company experiences fluctuations in estimated cash flows from time to time and does not believe that these provisions are indicative of any negative trend.

The following tables detail the impact of net foreign currency gains (losses) on corporate earnings:

                                    Three Months Ended   Six Months Ended
                                         June 30,            June 30,
                                    ------------------  ------------------
Illustration of the Effects of
 Currency                             2007      2006      2007      2006
                                    --------  --------  --------  --------
Fluctuations (dollars in thousands)     (unaudited)         (unaudited)
                                    ==================  ==================
Net earnings to Common Stockholders
 as reported                        $  1,806  $  1,263  $    891  $  3,285
Euro gains (losses)                     (204)      324      (446)      658
Mexican Peso gains (losses)              182    (1,328)      159    (1,154)
Argentine Peso gains (losses)              9       (54)       (2)      (45)
Canadian Dollar gains                    199        --       220        --
Chilean Peso gains                        21        --        23        --
                                    ========  ========  ========  ========

Euro exchange rate at valuation
 date                                   0.74      0.80
Mexican Peso exchange rate at
 valuation date                        10.87     11.40
Argentine Peso exchange rate at
 valuation date                         3.09      3.09
Canadian Dollar exchange rate at
 valuation date                         1.06       n/a
Chilean Peso exchange rate at
 valuation date                       527.80       n/a

Other Corporate Matters

Share Repurchase Program

FirstCity has a repurchase program for shares of its common stock. Since the program was initiated, the company has purchased 530,300 shares at an average cost of $10.51 per share. 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. No repurchases have been made since September 2006, but the Company intends to continue the repurchase program.

Liquidity

FirstCity is negotiating a $50 million increase in its loan facility with Bank of Scotland under FirstCity's Revolving Credit Agreement dated as of November 12, 2004, from $175 million to $225 million, a $50 million increase in the acquisition facility provided to FH Partners L.P., a wholly owned affiliate of FirstCity, under the Revolving Credit Agreement dated as of August 26, 2005, from $50 million to $100 million, and a new $25 million loan facility with BoS (USA), Inc., an affiliate of Bank of Scotland, which would be subordinated to the Revolving Credit Agreement provided to FirstCity by Bank of Scotland. FirstCity believes that the increased funding with the Bank of Scotland and BoS (USA), Inc. will be completed on a timely basis to accommodate future acquisitions and continued growth. FirstCity management believes that the current negative market conditions related to sub prime/finance companies has not had an effect on the Company's liquidity and ability to continue to grow the business. FirstCity Financial is not reliant on Wall Street for operating capital but rather has a strong relationship with Bank of Scotland and expects completion of the amendments contemplated without complications in the next few weeks. There can be no assurance that FirstCity can obtain the additional financing from the Bank of Scotland or any other lender.

Conference Call

A conference call will be held on Friday, August 10, 2007 at 9 a.m. Central time to discuss second quarter 2007 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 Second Quarter 2007
            Conference Call
Date:       Friday, August 10, 2007
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        866-831-6224
                International   617-213-8853

                Pass code -    77619158

Replay          Domestic        888-286-8010
                International    617-801-6888

                Pass code -    63076523

The replay will be available until Friday, August 24, 2007

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 start up of new businesses and entry into new foreign markets, 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, ability to obtain additional financing from the Bank of Scotland or any other lender, 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, 2006, filed with the SEC on July 24, 2007, 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 Europe and Latin America. 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     Six Months Ended
                                      June 30,              June 30,
                                  2007       2006       2007       2006
                                ---------  ---------  ---------  ---------
Revenues:
    Servicing fees              $   2,977  $   2,856  $   5,582  $   5,503
    Income from Portfolio
     Assets                         5,685      2,946     10,720      5,004
    Gain on sale of SBA loans
     held for sale, net               343         --        624         --
    Interest income from SBA
     loans                            606         --        914         --
    Interest income from
     affiliates                       140        465        266        895
    Interest income from loans
     receivable - other               982         --      1,889         --
    Other income                      538        612        997      1,192
                                ---------  ---------  ---------  ---------
      Total revenues               11,271      6,879     20,992     12,594
                                ---------  ---------  ---------  ---------
Expenses:
    Interest and fees on notes
     payable - other                4,668      1,938      8,919      3,636
    Interest and fees on notes
     payable to affiliates             --         10         --         20
    Salaries and benefits           3,864      3,278      7,857      7,016
    Provision (recovery) for loan
     and impairment losses            746        (58)     1,072         51
    Occupancy, data processing,
     communication and other        4,388      1,913      8,231      3,477
                                ---------  ---------  ---------  ---------
      Total expenses               13,666      7,081     26,079     14,200
                                ---------  ---------  ---------  ---------
Equity in earnings of
 investments                        4,332      1,387      6,158      5,021
Gain on sale of interest in
 equity investments                    --         27         --         27
                                ---------  ---------  ---------  ---------
Earnings from continuing
 operations before income
 taxes and minority interest        1,937      1,212      1,071      3,442
  Income taxes                       (146)       (22)      (303)      (144)
  Minority interest                    15         73        123         62
                                ---------  ---------  ---------  ---------
Earnings from continuing
 operations                         1,806      1,263        891      3,360
                                ---------  ---------  ---------  ---------
Discontinued operations
  Loss from operations of
   discontinued components             --         --         --        (75)
  Income taxes                         --         --         --         --
                                ---------  ---------  ---------  ---------
  Loss from discontinued
   operations                          --         --         --        (75)
                                ---------  ---------  ---------  ---------
Net earnings                    $   1,806  $   1,263  $     891  $   3,285
                                =========  =========  =========  =========

Basic earnings per common share
 are as follows:
   Earnings from continuing
    operations                  $    0.17  $    0.11  $    0.08  $    0.30
   Discontinued operations      $      --  $      --  $      --  $   (0.01)
   Net earnings per common
    share                       $    0.17  $    0.11  $    0.08  $    0.29
   Wtd. avg. common shares
    outstanding                    10,789     11,308     10,789     11,308

Diluted earnings per common
 share are as follows:
   Earnings from continuing
    operations                  $    0.16  $    0.11  $    0.08  $    0.28
   Discontinued operations      $      --  $      --  $      --  $   (0.01)
   Net earnings per common
    share                       $    0.16  $    0.11  $    0.08  $    0.27
   Wtd. avg. common shares
    outstanding                    11,397     11,959     11,414     11,958

        Selected Unaudited Balance Sheet Data

                                 June 30,  December 31,
                                   2007       2006
                                ---------  ---------
  Cash                          $  18,380  $  18,472
  Earning Assets:
    Portfolio Assets, net         122,628    108,696
    Loans and interest
     receivable                    55,597     29,311
    Equity investments            115,275    112,357
  Deferred tax asset, net          20,101     20,101
  Service fees receivable and
   other assets                     9,632      8,726
                                ---------  ---------
    Total assets                $ 341,613  $ 297,663
                                =========  =========

  Notes payable - other         $ 228,365  $ 187,811
  Minority interest and other
   liabilities                      7,566      5,959
                                ---------  ---------
    Total liabilities             235,931    193,770
    Total equity                  105,682    103,893
                                ---------  ---------
    Total liabilities and
     equity                     $ 341,613  $ 297,663
                                =========  =========


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


                                 Three Months Ended     Six Months Ended
                                      June 30,              June 30,
                                  2007       2006       2007       2006
                                ---------  ---------  ---------  ---------
Portfolio Asset Acquisition and
 Resolution:
  Summary Operating Statement
   Data
    Revenues                    $  11,188  $   6,688  $  20,780  $  12,234
    Equity in earnings of
     investments                    4,332      1,387      6,158      5,021
    Gain on sale of interest in
     equity investments                --         27         --         27
    Expenses                      (10,461)    (5,611)   (19,683)   (11,354)
                                ---------  ---------  ---------  ---------
    Operating contribution
     before provision for
     loan and impairment losses     5,059      2,491      7,255      5,928
    Provision for loan and
     impairment losses                746        (58)     1,072         51
                                ---------  ---------  ---------  ---------
      Operating contribution,
       net of direct taxes      $   4,313  $   2,549  $   6,183  $   5,877
                                =========  =========  =========  =========

  Aggregate purchase price of
   portfolios acquired:
    Acquisition partnerships
     Domestic                   $  27,464  $  24,176  $  99,032  $  66,527
     Latin America                 61,558         --     64,959         --
     Europe                         2,409      1,026      6,211      1,026
                                ---------  ---------  ---------  ---------
       Total                    $  91,431  $  25,202  $ 170,202  $  67,553
                                =========  =========  =========  =========


 Historical Acquisitions         Purchase  FirstCity's
 - Annual:                        Price    Investment
                                ---------  ---------
   Six months ended June 30,
    2007                        $ 170,202  $  94,748
   2006                           296,990    144,048
   2005                           146,581     71,405
   2004                           174,139     59,762
   2003                           129,192     22,944

                                 June 30,  December 31,
                                  2007         2006
                                ---------  ---------
 Portfolio acquisition and
  resolution assets by region:
   Domestic                     $ 203,582  $ 158,147
   Latin America                   35,017     28,883
   Europe                          54,560     61,062
   Canada                             341      2,272
                                ---------  ---------
     Total                      $ 293,500  $ 250,364
                                =========  =========

                                 Three Months Ended     Six Months Ended
                                       June 30,              June 30,
                                   2007        2006      2007       2006
                                ---------  ---------  ---------  ---------
 Revenues and equity in
  earnings of investments by
  region:
   Domestic                     $   9,382  $   6,037  $  16,349  $  11,391
   Latin America                    3,693        488      6,225      3,141
   Europe                           2,375      1,550      4,205      2,723
   Canada                              70         --        159         --
                                ---------  ---------  ---------  ---------
     Total                      $  15,520  $   8,075  $  26,938  $  17,255
                                =========  =========  =========  =========

 Revenues and equity in
  earnings of investments by
  source:
   Equity earnings              $   4,332  $   1,387  $   6,158  $   5,021
   Income from Portfolio Assets     5,685      2,946     10,720      5,004
   Servicing fees                   2,977      2,856      5,582      5,503
   Gain on sale of SBA loans
    held for sale, net                343         --        624         --
   Interest income from SBA
    loans                             606         --        914         --
   Interest income from
    affiliates                        140        465        266        895
   Interest income from loans
    receivable - other                982         --      1,889         --
   Other                              455        421        785        832
                                ---------  ---------  ---------  ---------
     Total                      $  15,520  $   8,075  $  26,938  $  17,255
                                =========  =========  =========  =========



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


                           Three Months Ended         Six Months Ended
                                June 30,                  June 30,
                            2007         2006         2007         2006
                        -----------  -----------  -----------  -----------
Analysis of Equity
 Investments
FirstCity's Average
 investment
  Domestic              $    34,200  $    51,054  $    35,084  $    51,678
  Latin America              21,177        3,094       20,161        2,977
  Europe                     44,365       19,065       46,112       19,390
  Europe-Servicing
   subsidiaries               5,630        5,455        5,827        5,512
  Latin
   America-Servicing
   subsidiaries               4,500          190        2,785          227
                        -----------  -----------  -----------  -----------
    Total               $   109,872  $    78,858  $   109,969  $    79,784
                        ===========  ===========  ===========  ===========

FirstCity Share of
 Equity Earnings:
  Domestic              $     1,113  $     1,585  $     1,364  $     3,854
  Latin America                 887       (1,575)         877       (1,131)
  Europe                      1,673        1,118        3,213        2,096
  Europe-Servicing
   subsidiaries                 487          292          563          366
  Latin
   America-Servicing
   subsidiaries                 172          (33)         141         (164)
                        -----------  -----------  -----------  -----------
    Total               $     4,332  $     1,387  $     6,158  $     5,021
                        ===========  ===========  ===========  ===========

Selected other data:
Average investment in
 wholly owned portfolio
 assets and loans
 receivable:
  Domestic              $   163,146  $    54,439  $   150,017  $    52,112
  Latin America               8,267       18,803        8,831       17,617
  Europe                      4,014        1,969        3,800        1,864
  Canada                      1,837           --        2,023           --
                        -----------  -----------  -----------  -----------
    Total               $   177,264  $    75,211  $   164,671  $    71,593
                        ===========  ===========  ===========  ===========

Income from wholly
 owned portfolio assets
 and loans receivable:
  Domestic              $     7,076  $     3,027  $    13,043  $     5,157
  Latin America                 519          348        1,046          679
  Europe                         91           36          165           63
  Canada                         70           --          159           --
                        -----------  -----------  -----------  -----------
    Total               $     7,756  $     3,411  $    14,413  $     5,899
                        ===========  ===========  ===========  ===========

Servicing fee revenues:
  Domestic
   partnerships:
    Servicing fee
     revenue            $     1,050  $     1,214  $     1,679  $     1,973
    Average servicing
     fee %                      4.2%         2.8%         4.0%         2.9%
  Latin American
   partnerships:
    Servicing fee
     revenue            $     1,909  $     1,534  $     3,867  $     3,360
    Average servicing
     fee %                     12.7%         9.0%        14.2%        11.5%
  Incentive service
   fees                 $        --  $       108  $        --  $       170
  Total Service
   Fees-Portfolio
   Assets:
    Servicing fee
     revenue            $     2,959  $     2,856  $     5,546  $     5,503
    Average servicing
     fee %                      7.3%         4.7%         8.0%         5.7%
  Service Fees-SBA
   loans:               $        18  $        --  $        36  $        --
    Total Service Fees  $     2,977  $     2,856  $     5,582  $     5,503

Collections:
  Domestic              $    25,259  $    43,840  $    42,484  $    67,109
  Latin America              15,081       17,059       27,259       29,204
  Europe                     14,328       12,418       47,839       29,115
                        -----------  -----------  -----------  -----------
    Subtotal                 54,668       73,317      117,582      125,428
  Wholly owned               21,393       15,416       41,084       22,147
                        -----------  -----------  -----------  -----------
    Total               $    76,061  $    88,733  $   158,666  $   147,575
                        ===========  ===========  ===========  ===========

Servicing portfolio
 (face value)
  Domestic              $   616,079  $   528,392
  Latin America           2,475,093    1,277,911
  Europe                  1,035,833      908,735
                        -----------  -----------
    Total               $ 4,127,005  $ 2,715,038
                        ===========  ===========

Number of personnel at
 period end:
  Domestic                       68           61
  Latin America                 117          118
  Corporate                      37           33
                        -----------  -----------
    Total personnel             222          212
                        ===========  ===========

Contact Information

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