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 JUNE 30, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-26500
FIRSTCITY FINANCIAL CORPORATION
(Exact name of Registrant as Specified in Its Charter)
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)
(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 August 21, 2000 was 8,356,862.
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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)
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
ASSETS
Cash and cash equivalents................................... $ 17,160 $ 11,263
Portfolio Assets, net....................................... 30,889 39,437
Loans receivable, net....................................... 88,333 30,144
Residual interests in securitizations....................... 53,817 55,661
Equity investments in Acquisition Partnerships and Servicing
Entities.................................................. 31,391 31,104
Deferred tax benefit, net................................... 20,101 27,101
Other assets, net........................................... 16,776 15,786
Net assets of discontinued operations....................... 18,144 20,126
-------- --------
Total Assets...................................... $276,611 $230,622
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $231,827 $169,792
Other liabilities......................................... 10,529 7,278
-------- --------
Total Liabilities................................. 242,356 177,070
Commitments and contingencies............................... -- --
Redeemable preferred stock:
Adjusting rate preferred stock, including accumulated
dividends in arrears of $2,568 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)........................................... 28,249 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: 8,356,862 and
8,333,300 shares, respectively)........................ 84 83
Paid in capital........................................... 79,612 79,562
Accumulated deficit....................................... (73,054) (52,663)
Accumulated other comprehensive loss...................... (636) (395)
-------- --------
Total Shareholders' Equity........................ 6,006 26,587
-------- --------
Total Liabilities, Redeemable Preferred Stock and
Shareholders'
Equity.......................................... $276,611 $230,622
======== ========
See accompanying notes to consolidated financial statements.
2
3
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Revenues:
Gain on sales of automobile loans................... $ -- $ 6,445 $ 2,836 $ 6,445
Servicing fees...................................... 3,940 2,165 7,236 4,278
Gain on resolution of Portfolio Assets.............. 689 745 1,770 2,047
Equity in earnings of Acquisition Partnerships and
Servicing Entities............................... 1,257 2,798 3,870 5,442
Interest income..................................... 6,059 4,135 11,064 8,484
Other income........................................ 445 108 1,290 677
-------- -------- -------- --------
Total revenues.............................. 12,390 16,396 28,066 27,373
Expenses:
Interest on notes payable........................... 6,194 4,240 11,703 8,597
Salaries and benefits............................... 4,944 3,869 9,614 7,766
Provision for loan and impairment losses............ 2,730 1,939 3.835 1,962
Occupancy, data processing, communication and
other............................................ 5,625 4,412 9,887 8,421
-------- -------- -------- --------
Total expenses.............................. 19,493 14,460 35,039 26,746
Earnings (loss) from continuing operations
before income taxes, minority interest and
accounting change......................... (7,103) 1,936 (6,973) 627
Provision for income taxes............................ 7,302 5,010 7,321 5,032
-------- -------- -------- --------
Loss from continuing operations before minority
interest and accounting change................... (14,405) (3,074) (14,294) (4,405)
Minority interest..................................... 427 (679) 187 (610)
Cumulative effect of accounting change................ -- -- -- (765)
-------- -------- -------- --------
Loss from continuing operations..................... (13,978) (3,753) (14,107) (5,780)
Loss from discontinued operations, net of income
taxes............................................... (5,000) (40,128) (5,000) (39,603)
-------- -------- -------- --------
Net loss............................................ (18,978) (43,881) (19,107) (45,383)
Preferred dividends(1)................................ (642) (642) (1,284) (1,284)
-------- -------- -------- --------
Net loss to common shareholders..................... $(19,620) $(44,523) $(20,391) $(46,667)
======== ======== ======== ========
Basic and diluted earnings (loss) per common share are
as follows:
Loss from continuing operations before accounting
change per common share.......................... $ (1.75) $ (0.52) $ (1.84) $ (0.77)
Discontinued operations per common share............ (0.60) (4.84) (0.60) $ (4.77)
Cumulative effect of accounting change.............. -- -- -- $ (0.09)
Net loss per common share........................... $ (2.35) $ (5.36) $ (2.44) $ (5.63)
Weighted average common shares outstanding.......... 8,348 8,299 8,341 8,294
- ---------------
(1) Includes accumulated dividends in arrears in 2000.
See accompanying notes to consolidated financial statements.
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4
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
RETAINED OTHER
NUMBER OF EARNINGS COMPREHENSIVE TOTAL
COMMON COMMON PAID IN (ACCUMULATED INCOME SHAREHOLDERS'
SHARES STOCK CAPITAL DEFICIT) (LOSS) EQUITY
--------- ------ ------- ------------ ------------- -------------
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......................... 23,562 1 50 -- -- 51
Comprehensive loss:
Net loss for the first six
months of 2000............ -- -- -- (19,107) -- (19,107)
Foreign currency items....... -- -- -- -- (241) (241)
---------
Total comprehensive loss....... (19,348)
---------
Preferred dividends............ -- -- -- (1,284) -- (1,284)
--------- --- ------- --------- ----- ---------
BALANCES, JUNE 30, 2000........ 8,356,862 $84 $79,612 $ (73,054) $(636) $ 6,006
========= === ======= ========= ===== =========
See accompanying notes to consolidated financial statements.
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5
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net loss.................................................. $(19,107) $(45,383)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss from discontinued operations...................... 5,000 39,603
Proceeds from resolution of Portfolio Assets........... 6,827 11,018
Gain on resolution of Portfolio Assets................. (1,770) (2,047)
Purchase of Portfolio Assets and loans receivable,
net................................................... (6,605) (714)
Origination of automobile receivables, net of purchase
discount.............................................. (94,373) (94,159)
Provision for loan and impairment losses............... 3,835 1,962
Equity in earnings of Acquisition Partnerships and
Servicing Entities.................................... (3,870) (5,442)
Proceeds from performing Portfolio Assets and loans
receivable, net....................................... 46,058 54,032
Decrease in net deferred tax asset..................... 7,000 5,064
Depreciation and amortization.......................... 1,247 1,596
Increase in other assets............................... (4,130) (14,949)
Increase in other liabilities.......................... 3,054 22,803
-------- --------
Net cash used in operating activities................ (56,834) (26,616)
-------- --------
Cash flows from investing activities:
Property and equipment, net............................... 495 (2,873)
Contributions to Acquisition Partnerships and Servicing
Entities............................................... (1,660) (10,939)
Distributions from Acquisition Partnerships and Servicing
Entities............................................... 4,936 15,760
-------- --------
Net cash provided by investing activities............ 3,771 1,948
-------- --------
Cash flows from financing activities:
Borrowings under notes payable............................ 115,617 147,718
Payments of notes payable................................. (53,691) (116,639)
Proceeds from issuance of common stock.................... 51 195
Preferred dividends paid.................................. -- (1,284)
-------- --------
Net cash provided by financing activities............ 61,977 29,990
-------- --------
Net cash provided by continuing operations........... 8,914 5,322
Net cash provided by (used by) discontinued
operations.......................................... (3,017) 2,371
-------- --------
Net increase in cash and cash equivalents................... 5,897 7,693
Cash and cash equivalents, beginning of period.............. 11,263 5,955
-------- --------
Cash and cash equivalents, end of period.................... $ 17,160 $ 13,648
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.................................................. $ 11,773 $ 6,347
Income taxes.............................................. $ 19 $ 31
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..... $ 1,284 $ 642
See accompanying notes to consolidated financial statements.
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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) BASIS OF PRESENTATION
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 June
30, 2000, the results of operations for the three-month and six-month periods
ended June 30, 2000 and 1999, and the cash flows for the six-month periods ended
June 30, 2000 and 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
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.
(2) 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, a net asset related to the resolution of activity from
the discontinued operations has been reflected in the accompanying consolidated
balance sheets. During the third quarter 1999, the Company wrote-off its
investment of $50,558 in Mortgage Corp. and wrote down its net investment in
Capital Corp. by $12,674. The following is a summary of activity related to each
of the entity's operations.
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.
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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 June 30, 2000,
Capital Corp. had loans totaling $7.2 million remaining in its inventory. Sales
of all of the remaining inventory are expected to be completed during the third
quarter 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:
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
Investment securities, net of valuation allowance...... $24,904 $28,602
Accrual for loss on operations and disposal of
discontinued operations, net......................... (6,760) (8,476)
------- -------
Net assets of discontinued operations........ $18,144 $20,126
======= =======
An accrual of $5.0 million for costs to complete the plan of
discontinuation was recorded in the second quarter of 2000. A summary of
discontinued operations for the three months and six months ended June 30, 1999
is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1999
------------------ ----------------
Revenues:
Net mortgage warehouse income............ $ 3,529 $ 9,486
Gain on sale of mortgage loans........... 13,233 39,874
Loss on sale of mortgage servicing
rights................................ (6,298) (8,693)
Servicing fees........................... 4,227 10,370
Other.................................... 2,562 5,071
-------- --------
Total............................ 17,253 56,108
-------- --------
Expenses:
Salaries and benefits.................... 21,978 43,874
Amortization of mortgage servicing
rights................................ 2,431 7,154
Provision for valuation of mortgage
servicing rights...................... 4,638 2,294
Provision for loan and impairment
losses................................ 1,658 1,708
Interest on notes payable................ 1,750 3,778
Occupancy, data processing, communication
and other............................. 24,926 36,903
-------- --------
Total............................ 57,381 95,711
-------- --------
Loss from discontinued operations, net of
income taxes............................. $(40,128) $(39,603)
======== ========
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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) 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, investments in
expanding businesses to support their growth, 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.
In December 1999, the Company renewed and restructured its senior lending
facility (the "Senior Facility"). The Senior Facility was renewed at a maximum
available amount of $88 million and provides for a facility fee of $1.65 million
if the loan is paid in full before September 30, 2000, or $2.5 million if paid
thereafter. Defaults at Mortgage Corp. do not constitute defaults under the
Senior Facility. Additionally, the Company issued $25 million in senior
subordinated notes maturing December 2003.
At June 30, 2000, the Company was not in compliance with certain financial
and other covenants in the Senior Facility. The Company is working with its
lenders to obtain formal approval or waivers relating to these matters and
funding under the Senior Facility continues uninterrupted and was fully funded
as of July 31, 2000. The Senior Facility also requires the consent of the
lenders prior to payment of any common and preferred dividends. The Company
continually evaluates its liquidity position giving priority to assuring
adequate funding levels for its two operating entities. Secondarily, management
will determine when and if it is appropriate to pay the dividends on the
Company's outstanding preferred stock. Currently, there are approximately 1.2
million preferred shares outstanding with accrued dividends of approximately
$2.6 million.
In December 1999, the Company also issued an option to the holder of the
senior subordinated notes allowing it to acquire an additional warrant for
1,975,000 shares of the non-voting common stock in the Company (currently no
such stock is authorized), which can be exercised after one year if the notes or
any portion thereof remains outstanding, but not prior thereto. The strike price
on these warrants is $2.3125. In the event that the notes are paid prior to the
expiration of such one-year period through a transaction involving the issuance
of warrants, the note holder is entitled to retain sufficient warrants to allow
the note holder to acquire approximately 4.86% of the Company's common stock.
The Company is in the process of taking the necessary actions to authorize the
issuance of the non-voting common stock covered by the option (see note 12).
During the second quarter of 2000, the Company did not complete an
automobile finance receivable securitization. The ability of the Company to
continue securitizations is dependant on numerous factors including, but not
limited to, conditions in the securities market in general and conditions in the
asset-backed securitization market. The Company does not anticipate a down-turn
in market conditions that would have a significant adverse impact on the
Company's ability to securitize its loans. The Company continues to work with
the credit enhancement provider on its automobile securitizations to maintain
extensions of the waivers and consents of trigger events occurring from the
Company's failure to meet certain financial covenants.
During the second quarter of 2000, the Company increased its automobile
finance line from $70 million at March 31, 2000 to $100 million at June 30,
2000. The Company has received an extension on this warehouse line through
September 30, 2000.
At June 30, 2000, the Company has residual financing of $5 million.
Residual interests securing this borrowing had a carrying value of $31.3 million
at June 30, 2000. Although there is no guarantee, the Company anticipates
additional borrowings against such residuals will be available in the future.
During the second quarter, the Portfolio Asset Acquisition and Resolution
group of the Company entered into a $17 million loan facility with a Cargill
Financial Services, Inc. (Cargill). This facility is being used
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9
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exclusively to provide equity in new portfolio acquisitions in partnerships with
Cargill related entities. The new liquidity provided by the Cargill line
together with the corporate debt restructure discussed below, along with related
fees generated from the servicing of the assets and equity distributions
(totaling approximately $6.3 million for the first six months of 2000) from
existing Acquisition Partnerships and wholly owned portfolios will enable the
Company to more aggressively pursue equity investments in portfolios.
Although the above transactions enhanced the Company's immediate liquidity
concerns, management has identified the following actions that it believes are
essential to allow the Company to meet all of its financing needs and cover its
obligations during the remainder of 2000:
- continue to obtain warehouse financing for consumer lending operations
and identify alternative sources for such funding;
- identify alternative or additional sources of financing on residual
interests obtained from securitization transactions;
- continue to securitize automobile finance receivables, either with or
without credit enhancement;
- obtain additional financing required by Commercial Corp. for investment
in additional Portfolio Assets;
- realize positive cash flows from existing equity investments in Portfolio
Assets;
- sell asset and loan portfolios or portions of operating businesses; and
- attempt to increase or restructure the Company's senior revolving line of
credit.
As discussed in note 12, the Company anticipates closing a sale of 49% of
its Auto Finance operation. This transaction, anticipated to close in August
2000, will generate $75 million in cash to be used to pay down and restructure
existing debt. The sale of the Auto Finance operation and restructure of debt
are not final as of the date of this Form 10-Q. While the Company believes that
the sale of the interest in the Auto Finance operation and the debt restructure
will close, there can be no assurances that the transaction will close in the
event that unforeseen circumstances arise. In the event the transactions are not
closed, the Company will continue to evaluate its liquidity position giving
priority to assuring adequate funding levels for its two operating entities, but
no assurances can be given that the Company will be able to secure additional
liquidity.
Based on the above, management of the Company expects that it will be able
to meet its obligations as they come due during 2000.
(4) PORTFOLIO ASSETS
Portfolio Assets are summarized as follows:
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
Non-performing Portfolio Assets....................... $ 64,811 $ 72,396
Performing Portfolio Assets........................... 16,128 17,878
Real estate Portfolios................................ 4,758 7,663
-------- --------
Total Portfolio Assets...................... 85,697 97,937
Adjusted purchase discount required to reflect
Portfolio Assets at carrying value.................. (54,808) (58,500)
-------- --------
Portfolio Assets, net....................... $ 30,889 $ 39,437
======== ========
9
10
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the quarter ended June 30, 2000, the Company recorded a reserve for
impairment on one of the real estate Portfolio Assets in the amount of $1,604.
Portfolio Assets are pledged to secure non-recourse notes payable.
(5) LOANS RECEIVABLE
Loans receivable are summarized as follows:
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
Automobile and consumer finance receivables........... $ 99,951 $37,718
Other loans held for investment....................... 6,535 883
Allowance for loan losses............................. (18,153) (8,457)
-------- -------
Loans receivable, net....................... $ 88,333 $30,144
======== =======
The activity in the allowance for loan losses is summarized as follows for
the periods indicated:
SIX MONTHS ENDED
JUNE 30,
-----------------
2000 1999
------- -------
Balances, beginning of period............................. $ 8,457 $ 5,894
Provision (credit) for loan losses........................ 738 (28)
Discounts acquired........................................ 16,965 14,582
Allocation of reserves to sold loans...................... (5,606) (7,890)
Charge off activities:
Principal balances charged off.......................... (4,115) (1,731)
Recoveries.............................................. 1,714 1,110
------- -------
Net charge offs................................. (2,401) (621)
------- -------
Balances, end of period................................... $18,153 $11,937
======= =======
(6) RESIDUAL INTERESTS IN SECURITIZATIONS
The Company has residual interests in securitizations consisting of rated
securities, retained interests, servicing interests and related interest only
strips (collectively referred to as residual interests) which are attributable
to loans sold through securitization transactions by the Company. Residual
interests are comprised of the following as of the dates indicated:
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
Rated securities....................................... $ 1,066 $ 1,313
Residual interests..................................... 60,832 62,167
Accrued interest....................................... 1,604 565
Valuation allowance.................................... (9,685) (8,384)
------- -------
$53,817 $55,661
======= =======
10
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:
SIX MONTHS ENDED
JUNE 30,
------------------
2000 1999
-------- -------
Balance, beginning of period............................. $ 55,661 $41,849
Residual interests received from securitizations......... 5,713 11,957
Cost allocated from securitizations...................... 1,557 --
Interest accreted........................................ 3,541 2,703
Cash received from trusts................................ (11,162) (9,134)
Provision for permanent impairment of value.............. (1,493) (1,990)
-------- -------
Balance, end of period................................... $ 53,817 $45,385
======== =======
(7) EQUITY INVESTMENTS IN ACQUISITION PARTNERSHIPS AND SERVICING ENTITIES
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
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
Assets........................................ $434,208 $324,954
======== ========
Liabilities................................... 322,847 210,967
Net equity.................................... 111,361 113,987
-------- --------
$434,208 $324,954
======== ========
Equity investment in Acquisition
Partnerships................................ $ 30,027 $ 29,639
Equity investment in Servicing Entities....... 1,364 1,465
-------- --------
$ 31,391 $ 31,104
======== ========
CONDENSED COMBINED SUMMARY OF EARNINGS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
2000 1999 2000 1999
-------- -------- ------- -------
Proceeds from resolution of Portfolio Assets........... $39,039 $37,539 $68,321 $67,184
Gain on resolution of Portfolio Assets................. 23,074 13,626 36,812 24,357
Interest income on performing Portfolio Assets......... 3,983 3,248 9,205 6,584
Net earnings........................................... 12,780 9,997 22,831 16,380
======= ======= ======= =======
Equity in earnings of Acquisition Partnerships......... $ 1,228 $ 2,792 $ 3,820 $ 5,463
Equity in earnings (loss) of Servicing Entities........ 29 6 50 (21)
------- ------- ------- -------
$ 1,257 $ 2,798 $ 3,870 $ 5,442
======= ======= ======= =======
11
12
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. The following is a
summary of results of operations for each of the segments and a reconciliation
to loss from continuing operations for the quarters and six months ended June
30, 2000 and 1999.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2000 1999 2000 1999
-------- ------- -------- -------
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Gain on resolution of Portfolio Assets.................. $ 689 $ 745 $ 1,770 $ 2,047
Equity in earnings of Acquisition Partnerships and
Servicing Entities.................................... 1,257 2,798 3,870 5,442
Servicing fees.......................................... 2,304 779 3,927 1,757
Other................................................... 611 719 1,638 2,183
-------- ------- -------- -------
Total.............................................. 4,861 5,041 11,205 11,429
Expenses:
Salaries and benefits................................... 1,309 1,203 2,723 2,624
Provision for loan and impairment losses................ 1,604 -- 1,604 --
Interest and fees on notes payable...................... 771 1,156 1,391 2,272
Asset level expenses, occupancy, data processing and
other................................................. 2,002 1,480 3,456 2,962
-------- ------- -------- -------
Total.............................................. 5,686 3,839 9,174 7,858
-------- ------- -------- -------
Operating contribution (loss) before direct taxes......... $ (825) $ 1,202 $ 2,031 $ 3,571
======== ======= ======== =======
Operating contribution (loss), net of direct taxes........ $ (827) $ 1,192 $ 2,013 $ 3,542
======== ======= ======== =======
CONSUMER LENDING:
Revenues:
Gain on sale of automobile loans........................ $ -- $ 6,445 $ 2,836 $ 6,445
Interest income......................................... 5,693 3,445 10,276 6,850
Servicing fees.......................................... 1,636 1,386 3,309 2,521
Other................................................... 27 40 77 69
-------- ------- -------- -------
Total.............................................. 7,356 11,316 16,498 15,885
Expenses:
Salaries and benefits................................... 2,768 1,667 5,194 3,200
Provision for loan and impairment losses................ 1,126 1,939 2,231 1,962
Interest and fees on notes payable...................... 1,460 894 2,568 1,646
Occupancy, data processing and other.................... 2,257 2,843 4,561 4,854
-------- ------- -------- -------
Total.............................................. 7,611 7,343 14,554 11,662
-------- ------- -------- -------
Operating contribution (loss) before direct taxes......... $ (255) $ 3,973 $ 1,944 $ 4,223
======== ======= ======== =======
Operating contribution (loss), net of direct taxes........ $ (255) $ 3,973 $ 1,936 $ 4,223
======== ======= ======== =======
Total operating contribution (loss), net of direct
taxes............................................ $ (1,082) $ 5,165 $ 3,949 $ 7,765
======== ======= ======== =======
CORPORATE OVERHEAD:
Corporate interest expense................................ $ 3,963 $ 2,190 $ 7,744 $ 4,679
Salaries and benefits, occupancy, professional and other
income and expenses, net................................ 1,933 1,728 3,312 3,863
Deferred tax provision from NOLs.......................... 7,000 5,000 7,000 5,003
-------- ------- -------- -------
Loss from continuing operations........................... $(13,978) $(3,753) $(14,107) $(5,780)
======== ======= ======== =======
12
13
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:
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
Portfolio acquisition and resolution assets... $ 68,962 $ 71,479
Consumer assets............................... 137,202 85,261
Deferred tax benefit, net..................... 20,101 27,101
Other assets, net............................. 32,202 26,655
Net assets of discontinued operations......... 18,144 20,126
-------- --------
Total assets........................ $276,611 $230,622
======== ========
(9) PREFERRED STOCK AND SHAREHOLDERS' EQUITY
In the third quarter of 1999, dividends on the Company's adjusting rate
preferred stock were suspended. At June 30, 2000, accumulated dividends in
arrears on such preferred stock totaled $2.6 million, or $2.10 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 are
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 an additional warrant for 1,975,000 shares of
non-voting common stock in the Company as previously discussed in note 3
(currently no such stock is authorized). The option provides that it can be
exercised after December 31, 2000 if the notes or any portion thereof remains
outstanding, but not prior thereto. The strike price on these warrants is
$2.3125. In the event that the notes are paid prior to December 31, 2000 through
a transaction involving the issuance of warrants, the note holder is entitled to
retain sufficient warrants to allow the note holder to acquire approximately
4.86% of the Company's common stock. The Company is in the process of taking the
necessary actions to authorize the issuance of the non-voting common stock
covered by the option. It is contemplated that the option will be amended in
connection with the restructure of the Company's debt (see note 12) into a $53
million facility including a $12 million Term Loan B held by the option holder.
The amended option will provide that the option can be exercised after August
31, 2001 if Term Loan B has not been paid in full prior to that date. The strike
price will remain at $2.3125. The other terms and conditions of the option will
remain the same.
(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. Additional events
could occur in the future, and would 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
14
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 $200,000,000. 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 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 $2,400,000 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.
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 June 30, 2000, advances of $2.1 million had been
made under the obligation.
(12) SUBSEQUENT EVENTS
As of the filing date of this Form 10-Q, the Company is in final stages of
closing the sale of 49% of its Auto Finance operation to IFA Incorporated (IFA),
a wholly owned subsidiary of Bank of Scotland. The transaction, anticipated to
close in August 2000, will generate $75 million in cash as described below and
result in a gain of approximately $10 million. Simultaneously, Bank of Scotland
and the Company will
14
15
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
complete a debt restructure which will result in reduced interest rates and
fees, increased liquidity, and an extended maturity.
The new entity formed to facilitate the transaction will be called Drive
Financial Services LP ("Drive"). Bank of Scotland, through its wholly owned
subsidiary IFA, will purchase 49% of this newly formed entity for $15 million
and provide $60 million in term financing which will be used to repay
indebtedness owed to FirstCity by its Auto Finance unit. Drive will be owned 49%
by IFA, 31% by FirstCity, and the Auto Finance management group will retain its
20% interest in the platform. Bank of Scotland will provide 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 the Bank of America.
FirstCity will provide a $4 million guaranty related to the residual assets
acquired by Drive, resulting in a $4 million deferral of the $10 million gain.
The indebtedness of FirstCity owed to its senior lenders under its Senior
Facility, to IFA under its Subordinated Debt facility and certain other
creditors will be reduced from $121 million to $46 million as a result of the
Drive transaction. The remaining debt will be restructured into a new facility
provided solely by Bank of Scotland and IFA which will provide for a maximum
loan amount of $53 million comprised of a $10 million revolving Line of Credit,
a $31 million Term Loan A and a $12 million Term Loan B, with reduced interest
rates and fees and a maturity date of December 31, 2003. IFA will retain its
option to acquire warrants for 1,975,000 shares of the Company's common stock
obtained in the $25 million subordinated debt transaction reported at year end
1999. The strike price of $2.3125 will remain the same, but the exercise date
under the option will be extended to August 31, 2001.
Dividends on outstanding preferred stock of FirstCity will be restricted
until Term Loan B is paid in full. Management of FirstCity intends 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. If completed, the elimination of Term Loan B would
clear the way for the Company to begin paying preferred dividends.
15
16
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 ("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 is in final stages of closing a major transaction that will
generate significant cash to allow the Company to return to its emphasis in the
Portfolio Asset Acquisition and Resolution business. FirstCity will sell 49% of
its Auto Finance operation to IFA Incorporated (IFA), a wholly owned subsidiary
of Bank of Scotland. The transaction, anticipated to close in August 2000, will
generate $75 million in cash as described below and result in a gain of
approximately $10 million. Simultaneously, Bank of Scotland and the Company will
complete a debt restructure which will result in reduced interest rates and
fees, increased liquidity, and an extended maturity.
The new entity formed to facilitate the transaction will be called Drive
Financial Services LP ("Drive"). The entity will assume 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. Bank of Scotland, through its wholly owned
subsidiary IFA, will purchase 49% of this newly formed entity for $15 million
and provide $60 million in term financing which will be used to repay
indebtedness owed to FirstCity by its Auto Finance unit. Drive will be owned 49%
by IFA, 31% by FirstCity, and the Auto Finance management group will retain its
20% interest in the platform. Bank of Scotland will provide 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 the Bank of America.
The additional funding along with improved capital markets execution will
provide the needed liquidity to allow this proven business model to mature with
planned, controlled growth. FirstCity will provide a $4 million guaranty related
to the residual assets acquired by Drive, resulting in a $4 million deferral of
the $10 million gain.
The indebtedness of FirstCity owed to its senior lenders under its Senior
Facility, to IFA under its Subordinated Debt facility and certain other
creditors will be reduced from $121 million to $46 million as a result of the
Drive transaction. The remaining debt will be restructured into a new facility
provided solely by Bank of Scotland and IFA which will provide for a maximum
loan amount of $53 million comprised of a $10 million revolving Line of Credit,
a $31 million Term Loan A and a $12 million Term Loan B, with reduced interest
rates and fees and a maturity date of December 31, 2003. IFA will retain its
option to acquire warrants for 1,975,000 shares of the Company's common stock
obtained in the $25 million subordinated debt transaction reported at year end
1999. The strike price of $2.31 will remain the same, but the exercise date
under the option will be extended to August 31, 2001.
Dividends on outstanding preferred stock of FirstCity will be restricted
until Term Loan B is paid in full. Management of FirstCity intends 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. If completed, the elimination of Term Loan B would
clear the way for the Company to begin paying preferred dividends.
During the second quarter, the Portfolio Asset Acquisition and Resolution
group of FirstCity 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. The new liquidity provided by the Cargill line together with
the corporate debt restructure enables the Company to more aggressively pursue
equity investments in portfolios, along with related fees generated from the
servicing of the
16
17
assets. The Company continues to see vast opportunities for investment and
servicing in its domestic and international venues.
In the second quarter, the Company reflected a $7 million increase in the
valuation allowance related to the deferred tax asset. Such increase was based
on revised financial projections which took into consideration, among other
things, the impact on future earnings due to the anticipated reduced ownership
interest and less reliance on "gain on sale" accounting for securitization
transactions in the business plan of Drive. In addition, FirstCity postponed the
securitization of its auto finance receivables, resulting in a marginal
operating contribution from the Auto Finance unit, not taking into account loss
provisions. A $5 million provision for loss from discontinued operations was
recorded to reflect accruals necessary to complete the plan of discontinuation
of the home equity segment. The Portfolio Asset Acquisition and Resolution
business reflected a nominal operating contribution before a provision for
impairment on owned real estate. Corporate interest reflects the cost of higher
debt levels, which will be significantly reduced after the Drive transaction is
closed.
FirstCity incurred a loss of $14.0 million from continuing operations for
the quarter ended June 30, 2000. After accruals for losses from discontinued
operations of $5 million and accrued dividends on the Company's preferred stock,
the loss to common shareholders was $19.6 million, or $2.35 per share on a
diluted basis.
Components of the quarterly loss are summarized below:
THREE MONTHS ENDED
INCOME/(LOSS) CONTRIBUTION JUNE 30, 2000
- -------------------------- ------------------
($ IN MILLIONS)
Increase in the valuation allowance of the deferred
tax asset........................................ $ (7.0)
Provision for loss from discontinued operations.... (5.0)
Consumer:
Provision for loan losses and impairment of
residuals........................................ (1.1)
Operating Contribution............................. 0.8
Portfolio Asset Acquisition and Resolution:
Provision for impairment of real estate............ (1.6)
Operating Contribution............................. 0.8
Other:
Corporate interest................................. (4.0)
Corporate overhead................................. (1.9)
Preferred dividends accrued........................ (0.6)
------
Net loss to common shareholders.................... $(19.6)
======
As of June 30, 2000, the Company was not in compliance with certain
financial and other covenants in its Senior Facility and Subordinated Debt
facility. The Company will obtain formal approval or waivers from the lenders as
a part of the contemplated debt restructure.
The sale of the Auto Finance operation and restructure of debt are not
final as of the date of this Form 10-Q. While the Company believes that the sale
of the interest in the Auto Finance operation and the debt restructure will
close, there can be no assurances that the transaction will close in the event
that unforeseen circumstances arise. In the event the transactions are not
closed, the Company will continue to evaluate its liquidity position giving
priority to assuring adequate funding levels for its two operating entities, but
no assurances can be given that the Company will be able to secure additional
liquidity.
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.
17
18
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, 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.
ANALYSIS OF REVENUES AND EXPENSES
The following table summarizes the revenues and expenses of each of the
Company's business segments and presents the contribution (loss) that each
business makes to the Company's operations.
ANALYSIS OF REVENUES AND EXPENSES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2000 1999 2000 1999
--------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Gain on resolution of Portfolio Assets........ $ 689 $ 745 $ 1,770 $ 2,047
Equity in earnings of Acquisition Partnerships
and Servicing Entities...................... 1,257 2,798 3,870 5,442
Servicing fees................................ 2,304 779 3,927 1,757
Other......................................... 611 719 1,638 2,183
--------- -------- -------- --------
Total.................................... 4,861 5,041 11,205 11,429
Expenses:
Salaries and benefits......................... 1,309 1,203 2,723 2,624
Provision for loan and impairment losses...... 1,604 -- 1,604 --
Interest and fees on notes payable............ 771 1,156 1,391 2,272
Asset level expenses, occupancy, data
processing and Other........................ 2,002 1,480 3,456 2,962
--------- -------- -------- --------
Total.................................... 5,686 3,839 9,174 7,858
--------- -------- -------- --------
Operating contribution (loss), before direct
taxes......................................... $ (825) $ 1,202 $ 2,031 $ 3,571
========= ======== ======== ========
Operating contribution (loss), net of direct
taxes......................................... $ (827) $ 1,192 $ 2,013 $ 3,542
========= ======== ======== ========
CONSUMER LENDING:
Revenues:
Gain on sale of automobile loans.............. $ -- $ 6,445 $ 2,836 $ 6,445
Interest income............................... 5,693 3,445 10,276 6,850
Servicing fees................................ 1,636 1,386 3,309 2,521
Other......................................... 27 40 77 69
--------- -------- -------- --------
Total.................................... 7,356 11,316 16,498 15,885
Expenses:
Salaries and benefits......................... 2,768 1,667 5,194 3,200
Provision for loan and impairment losses...... 1,126 1,939 2,231 1,962
Interest and fees on notes payable............ 1,460 894 2,568 1,646
Occupancy, data processing and other.......... 2,257 2,843 4,561 4,854
--------- -------- -------- --------
Total.................................... 7,611 7,343 14,554 11,662
--------- -------- -------- --------
Operating contribution (loss), before direct
taxes......................................... $ (255) $ 3,973 $ 1,944 $ 4,223
========= ======== ======== ========
Operating contribution (loss), net of direct
taxes......................................... $ (255) $ 3,973 $ 1,936 $ 4,223
========= ======== ======== ========
Total operating contribution (loss), net of
direct taxes.................................. $ (1,082) $ 5,165 $ 3,949 $ 7,765
========= ======== ======== ========
18
19
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2000 1999 2000 1999
--------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CORPORATE OVERHEAD:
Corporate interest expense....................... $ 3,963 $ 2,190 $ 7,744 $ 4,679
Salaries and benefits, occupancy, professional
and other income and expenses, net............ 1,933 1,728 3,312 3,863
Deferred tax provision from NOLs................. 7,000 5,000 7,000 5,003
--------- -------- -------- --------
Loss from continuing operations.................. (13,978) (3,753) (14,107) (5,780)
Loss from discontinued operations................ (5,000) (40,128) (5,000) (39,603)
--------- -------- -------- --------
Net loss......................................... (18,978) (43,881) (19,107) (45,383)
Preferred dividends.............................. (642) (642) (1,284) (1,284)
--------- -------- -------- --------
Net loss to common shareholders.................. $ (19,620) $(44,523) $(20,391) $(46,667)
========= ======== ======== ========
SHARE DATA:
Basic and diluted earnings (loss) per common
share are as follows:
Loss from continuing operations before
accounting change per common share.......... $ (1.75) $ (0.52) $ (1.84) $ (0.77)
Discontinued operations per common share...... (0.60) (4.84) (0.60) (4.77)
Cumulative effect of accounting change........ -- -- -- (0.09)
Net loss per common share..................... $ (2.35) $ (5.36) $ (2.44) (5.63)
Weighted average common shares outstanding.... 8,348 8,299 8,341 8,294
ORIGINATION AND OTHER FINANCIAL DATA:
Commercial Corp.:
Aggregate purchase price of assets acquired... $ 154,398 $ 58,179 $168,027 $ 67,996
Proceeds from resolution...................... 41,580 43,590 75,148 78,202
Consumer Corp.:
Aggregate acquisition of automobile and other
consumer receivables........................ 50,182 55,008 111,342 108,744
19
20
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
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
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
2000 1999 2000 1999
-------- -------- ------- -------
(DOLLARS IN THOUSANDS)
GAIN ON RESOLUTION OF PORTFOLIO ASSETS:
Average investment:
Nonperforming Portfolios.......................... $19,887 $29,319 $20,664 $31,074
Performing Portfolios............................. 11,590 15,554 10,725 19,166
Real estate Portfolios............................ 6,077 10,372 6,643 10,851
Gain on resolution of Portfolio Assets:
Nonperforming Portfolios.......................... 618 545 1,340 1,439
Real estate Portfolios............................ 71 200 430 608
------- ------- ------- -------
Total........................................ $ 689 $ 745 $ 1,770 $ 2,047
Interest income on performing Portfolios............. $ 359 $ 599 $ 753 $ 1,487
Gross profit percentage on resolution of Portfolio
Assets:
Nonperforming Portfolios.......................... 27.63% 11.66% 26.29% 17.25%
Real estate Portfolios............................ 23.35% 14.45% 24.88% 22.69%
Weighted average gross profit percentage.......... 27.12% 12.31% 25.93% 18.58%
Interest yield on performing Portfolios
(annualized)...................................... 12.39% 15.40% 14.03% 15.52%
Servicing fee revenues................................. $ 2,304 $ 779 $ 3,927 $ 1,757
PERSONNEL:
Personnel expenses................................... $ 1,309 $ 1,203 $ 2,723 $ 2,624
Number of personnel (at period end):
Production........................................ 17 10
Servicing......................................... 60 63
INTEREST EXPENSE:
Average debt......................................... $32,042 $56,012 $31,420 $58,664
Interest expense..................................... 771 1,156 1,391 2,272
Average cost (annualized)............................ 9.62% 8.26% 8.85% 7.75%
20
21
The following table presents selected information regarding the revenues
and expenses of the Acquisition Partnerships.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
ACQUISITION PARTNERSHIPS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
2000 1999 2000 1999
-------- -------- ------- -------
(DOLLARS IN THOUSANDS)
REVENUES:
Gain on resolution of Portfolio Assets............... $23,074 $13,626 $36,812 $24,357
Gross profit percentage on resolution of Portfolio
Assets............................................ 59.10% 36.30% 53.88% 36.25%
Interest income...................................... $ 3,983 $ 3,248 $ 9,205 $ 6,584
Other income......................................... 711 978 1,139 1,139
INTEREST EXPENSE:
Interest expense..................................... $11,447 $ 2,703 $15,412 $ 5,855
Average cost (annualized)............................ 10.25% 10.50% 9.48% 9.24%
OTHER EXPENSES:
Servicing fees....................................... $ 1,589 $ 1,071 $ 3,446 $ 2,509
Legal................................................ 621 662 1,510 1,219
Property protection.................................. 734 645 2,069 2,030
Other................................................ 597 2,774 1,888 4,087
------- ------- ------- -------
Total other expenses......................... 3,541 5,152 8,913 9,845
------- ------- ------- -------
Net earnings................................. $12,780 $ 9,997 $22,831 $16,380
======= ======= ======= =======
Equity in earnings of Acquisition Partnerships....... $ 1,228 $ 2,792 $ 3,820 $ 5,463
Equity in earnings (loss) of Servicing Entities...... 29 6 50 (21)
------- ------- ------- -------
$ 1,257 $ 2,798 $ 3,870 $ 5,442
======= ======= ======= =======
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CONSUMER LENDING
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
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
2000 1999 2000 1999
-------- -------- ------- -------
(DOLLARS IN THOUSANDS)
INTEREST INCOME:
Average loans and investments:
Auto.............................................. $60,674 $32,556 $52,078 $32,597
Investments....................................... 56,156 46,480 55,745 45,430
Interest income:
Auto.............................................. 3,797 1,900 6,485 3,898
Residual interests................................ 1,778 1,435 3,541 2,703
Average yield (annualized):
Auto.............................................. 25.03% 23.34% 24.90% 23.92%
Investments....................................... 12.67% 12.35% 12.70% 11.90%
SERVICING FEE REVENUES................................. $ 1,636 $ 1,386 $ 3,309 $ 2,521
PERSONNEL:
Personnel expenses................................... $ 2,768 $ 1,667 $ 5,194 $ 3,200
Number of personnel (at period end):
Production........................................ 125 130
Servicing......................................... 224 122
INTEREST EXPENSE:
Average debt......................................... $59,869 $43,678 $51,487 $38,418
Interest expense..................................... 1,460 894 2,568 1,646
Average cost (annualized)............................ 9.75% 8.19% 9.98% 8.57%
PROVISION FOR INCOME TAXES
The Company has substantial federal net operating loss carryforwards
("NOLs"), which expire through the year 2019, and 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. Additional events could occur in the future, and would 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.
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.
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23
SECOND QUARTER 2000 COMPARED TO SECOND QUARTER 1999
The Company reported a loss from continuing operations of $14.0 million in
2000 compared to a loss of $3.8 million in 1999. The loss from discontinued
operations totaled $5.0 million in 2000 and $40.1 million in 1999. Net loss to
common shareholders was $19.6 million in 2000 compared to $44.5 million in 1999.
On a per share basis, basic and diluted net loss attributable to common
shareholders was $2.35 in 2000 compared to $5.36 in 1999.
Portfolio Asset Acquisition and Resolution
Commercial Corp. purchased $154 million of Portfolio Assets during 2000
through the Acquisition Partnerships compared to $58.2 million in acquisitions
in 1999. Commercial Corp.'s quarter end investment in Portfolio Assets decreased
to $30.9 million in 2000 from $48.2 million in 1999. Commercial Corp. invested
$4.9 million in equity in Portfolio Assets in 2000 compared to $4.5 million in
1999.
Gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets decreased by 58% to $2.5 million in 2000 from $6.1 million in
1999. The net gain on resolution of Portfolio Assets was flat period to period.
The weighted average gross profit percentage on the resolution of Portfolio
Assets in 2000 was 27.1% as compared to 12.3% in 1999 primarily due to a $0.4
million cost adjustment in one portfolio asset in 1999.
Equity in earnings of Acquisition Partnerships and Servicing
Entities. Proceeds from the resolution of Portfolio Assets for the Acquisition
Partnerships increased by 4% to $39.0 million in 2000 from $37.5 million in 1999
while the gross profit percentage increased to 59.1% in 2000 from 36.3% in 1999.
The net result was an overall increase in the net income of the Acquisition
Partnerships of 28% to $12.8 million in 2000 from $10.0 million in 1999.
However, Commercial Corp.'s equity earnings from Acquisition Partnerships
declined 56% to $1.3 million from $2.8 million due to smaller equity investments
in recent partnership acquisitions.
Servicing fee revenues. Servicing fees increased by 196% to $2.3 million in
2000 from $.8 million in 1999 primarily as a result of significant collections
from acquisition partnerships formed during 1999.
Other revenues. Other revenues were flat period to period.
Operating expenses. Operating expenses increased by 48% to $5.7 million in
2000 from $3.8 million in 1999 primarily as a result of a provision for loan and
impairment losses.
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
Acquisition Partnership asset pools.
Interest on notes payable declined $.4 million or 33% due to average debt
for the quarter declining 43% to $32.0 million in 2000 from $56.0 million in
1999. The decline in average debt was partially offset by increased interest
rates, which averaged 9.62% versus 8.26% for the 2000 and 1999 periods,
respectively.
Asset level expenses, occupancy, data processing and other expenses
increased $.5 million or 35%.
Consumer Lending
Gain on sale of automobile loans. There was no securitization of automobile
loans in the 2000 quarter versus the sale of loans totaling $55.8 million, which
generated a gain of $6.4 million, during the 1999 quarter.
Interest income. Interest income on consumer loans increased by 65% to $5.7
million in 2000 from $3.4 million in 1999, reflecting increased levels of loan
origination activity and an increase in the average balance of aggregate loans
and investments held by Consumer Corp. during 2000.
Service fees. Service fee income increased $.3 million or 18% as a result
of the increase in the average servicing portfolio of securitized automobile
loans to $221 million from $186 million for the 2000 and 1999 periods,
respectively.
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Operating expenses. Total operating expenses were relatively flat period to
period.
Provision for loan losses on automobile receivables and impairment of
residual interests decreased by $.8 million from 1999.
Salaries and benefits increased by $1.1 million or 66% as a result of the
higher number of employees required to support the growth in the servicing
portfolio between periods. The average of the entire automobile loan servicing
portfolio increased to $297 million from $221 million for the 2000 and 1999
periods, respectively.
Interest expense increased by 63% to $1.5 million in 2000 from $.9 million
in 1999 as a result of higher levels of debt and interest costs. Average debt
increased 37% to $59.9 million from $43.7 million and the average interest cost
increased to 9.75% from 8.19% in 2000 and 1999, respectively.
Other expenses decreased $.6 million or 21% from 1999.
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 81% to $4.0
million in 2000 from $2.2 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. Salary and benefits decreased 13% to $.9 million in 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 a deferred tax provision of $7.0
million in 2000 and $5.0 million in 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
The Company reported a loss from continuing operations of $14.1 million in
2000 compared to a loss of $5.8 million in 1999. The loss from discontinued
operations totaled $5.0 million in 2000 and $39.6 million in 1999. Net loss to
common shareholders was $20.4 million in 2000 compared to $46.7 million in 1999.
On a per share basis, basic and diluted net loss attributable to common
shareholders was $2.44 in 2000 compared to $5.63 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
Commercial Corp. purchased $168 million of Portfolio Assets during 2000
through the Acquisition Partnerships compared to $68.0 million in acquisitions
in 1999. Commercial Corp.'s quarter end investment in Portfolio Assets decreased
to $30.9 million in 2000 from $48.2 million in 1999. Commercial Corp. invested
$6.8 million in equity in Portfolio Assets in 2000 compared to $7.0 million in
1999.
Gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets decreased by 38% to $6.8 million in 2000 from $11.0 million in
1999. The net gain on resolution of Portfolio Assets decreased by 14% to $1.8
million in 2000 from $2.0 million in 1999 as the result of lower collections.
The weighted average gross profit percentage on the resolution of Portfolio
Assets in 2000 was 25.9% as compared to 18.6% in 1999 primarily due to a $0.4
million cost adjustment in one portfolio asset in 1999.
Equity in earnings of Acquisition Partnerships and Servicing
Entities. Proceeds from the resolution of Portfolio Assets for the Acquisition
Partnerships increased 1.7% to $68.3 million in 2000 from $67.2 million in 1999
while the gross profit percentage increased to 53.9% in 2000 from 36.3% in 1999.
The net result was an overall increase in the net income of the Acquisition
Partnerships of 39% to $22.8 million in 2000 from $16.4 million in 1999.
However, Commercial Corp.'s equity earnings from Acquisition Partnerships
declined
24
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30% to $3.8 million in 2000 from $5.5 million in 1999 due to smaller equity
investments in recent partnership acquisitions.
Servicing fee revenues. Servicing fees increased by 124% to $3.9 million in
2000 from $1.8 million in 1999 primarily as a result of significant collections
from acquisition partnerships formed during 1999 .
Other revenues. Other revenues decreased by 25% to $1.6 million in 2000
compared to $2.2 million in 1999 principally as a result of lower interest
income on performing portfolios.
Operating expenses. Operating expenses increased 17% to $9.2 million in
2000 from $7.9 million in 1999 primarily as a result of a provision for loan and
impairment losses.
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
Acquisition Partnership asset pools.
Interest on notes payable declined $.9 million or 39% due to average debt
for the quarter declining 43% to $31.4 million in 2000 from $58.7 million in
1999. The decline in average debt was partially offset by increased interest
rates, which averaged 8.85% versus 7.75% for the 2000 and 1999 periods,
respectively.
Asset level expenses, occupancy, data processing and other expenses
increased $.5 million or 17% from period to period.
Consumer Lending
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.
Interest income. Interest income on consumer loans increased by 50% to
$10.3 million in 2000 from $6.9 million in 1999, reflecting increased levels of
loan origination activity and an increase in the average balance of aggregate
loans and investments held by Consumer Corp. during 2000.
Service fees. Service fee income increased $.8 million or 31% as a result
of the increase in the average servicing portfolio of securitized automobile
loans to $222 million from $165 million for the 2000 and 1999 periods,
respectively.
Operating expenses. Operating expenses increased by 25% to $14.6 million in
2000 from $11.7 million in 1999 primarily as a result of a increased interest
expense and operating activity.
Salaries and benefits increased by $2.0 million or 62% as a result of the
higher number of employees required to support the growth in the servicing
portfolio between periods. The average of the entire automobile loan servicing
portfolio increased to $285 million from $202 million for the 2000 and 1999
periods, respectively.
Provision for loan losses on automobile receivables and impairment of
residual interests increased by $.3 million from 1999 primarily due to increased
levels of charged off automobile loans held inventory.
Interest expense increased by 56% to $2.6 million in 2000 from $1.6 million
in 1999 as a result of higher levels of debt and interest costs. Average debt
increased 34% to $51.5 million from $38.4 million and the average interest cost
increased to 9.98% from 8.57% in 2000 and 1999, respectively.
Other expenses for 2000 declined slightly by 6% from 1999.
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.
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26
Corporate overhead. Company level interest expense increased by 66% to $7.7
million in 2000 from $4.7 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. Salary and benefits decreased 13% to $1.7 million in 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 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, investments in
expanding businesses to support their growth, 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.
The indebtedness of FirstCity owed to its senior lenders under its Senior
Facility, to IFA under its Subordinated Debt facility and certain other
creditors will be reduced from $121 million to $46 million as a result of the
Drive transaction. The remaining debt will be restructured into a new facility
provided solely by Bank of Scotland and IFA which will provide for a maximum
loan amount of $53 million comprised of a $10 million revolving Line of Credit,
a $31 million Term Loan A and a $12 million Term Loan B, with reduced interest
rates and fees and a maturity date of December 31, 2003. IFA will retain its
option to acquire warrants for 1,975,000 shares of the Company's common stock
obtained in the $25 million subordinated debt transaction reported at year end
1999. The strike price of $2.3125 will remain the same, but the exercise date
under the option will be extended to August 31, 2001. FirstCity will provide a
$4 million guaranty related to the residual assets acquired by Drive, resulting
in a $4 million deferral of the $10 million gain.
Dividends on outstanding preferred stock of FirstCity will be restricted
until Term Loan B is paid in full. Management of FirstCity intends 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. If completed, the elimination of Term Loan B would
clear the way for the Company to begin paying preferred dividends.
During the second quarter, the Portfolio Asset Acquisition and Resolution
group of FirstCity entered into a $17 million loan facility with a Cargill
affiliate. This facility is being used exclusively to provide equity in new
portfolio acquisitions in partnerships with Cargill related entities. The new
liquidity provided by the Cargill line together with the corporate debt
restructure enables the Company to more aggressively pursue equity investments
in portfolios, along with related fees generated from the servicing of the
assets. The Company continues to see vast opportunities for investment and
servicing in its domestic and international venues.
As of June 30, 2000 the Company was not in compliance with certain
financial and other covenants in its Senior Facility and Subordinated Debt
facility. The Company will obtain formal approval or waivers from the lenders as
a part of the contemplated debt restructure.
The sale of the Auto Finance operation and restructure of debt are not
final as of the date of this Form 10-Q. While the Company believes that the sale
of the interest in the Auto Finance operation and the debt restructure will
close, there can be no assurances that the transaction will close in the event
that unforeseen circumstances arise. In the event the transactions are not
closed, the Company will continue to evaluate its liquidity position giving
priority to assuring adequate funding levels for its two operating entities, but
no assurances can be given that the Company will be able to secure additional
liquidity.
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27
Based on the above, management of the Company expects that it will be able
to meet its obligations as they come due during 2000.
The Company and each of its major operating subsidiaries have entered into
one or more credit facilities to finance its respective operations. Each of the
operating subsidiary credit facilities is nonrecourse to the Company, except as
to the following agreements. The Company has guaranteed obligations of FC
Capital Corp. to Lehman Commercial Paper, Inc. ($3,854,190 as of August 21,
2000), limited to an amount of up to $1,000,000, 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 Client,
including the September 29, 1999 and December 8, 1999 letter agreements. The
Company and FirstCity Funding L.P. 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. These
agreements require the Company and FirstCity Funding L.P., 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, agree to make certain secondary servicer advances.
Excluding the term acquisition facilities of the unconsolidated Acquisition
Partnerships, as of June 30, 2000, the Company and its subsidiaries had credit
facilities providing for borrowings in an aggregate principal amount of $272
million and outstanding borrowings of $232 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 August 21, 2000 and the outstanding borrowings under such facilities as of
June 30, 2000.
CREDIT FACILITIES
FUNDED AND
UNFUNDED OUTSTANDING
COMMITMENT BORROWINGS
AMOUNT AS OF AS OF
AUGUST 21, JUNE 30,
2000 2000 INTEREST RATE OTHER TERMS AND CONDITIONS
------------ ----------- ------------- -------------------------------------
(DOLLARS IN MILLIONS)
FIRSTCITY
Company Senior Facility........... $ 88 $ 87 Libor + 4% Secured by the assets of the Company,
expires June 30, 2001
Company senior subordinated
term debt....................... 25 24 Prime + 3.75% Secured by the assets of the Company,
expires December 20, 2003
Term credit facilities............ 10 8 LIBOR + 5.0% Secured by stock of an acquisition
Fixed at partnership and certain residual
7.25% interests, expires September 30, 2000
and January 3, 2001
COMMERCIAL CORP.
Term facility..................... 4 4 LIBOR + 4.0% Term facility secured by existing
Portfolio Assets, expires June 15,
2001
Term acquisition facilities....... 21 21 Fixed at Acquisition facilities for existing
7.00% to Portfolio Assets. Secured by
7.66% Portfolio Assets. Expires June 5,
2002 and November 7, 2002
Equity acquisition facility....... 17 8 LIBOR + 4.5% Acquisition facility for the
investment in future acquisition
Partnerships. Expires March 31, 2001
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FUNDED AND
UNFUNDED OUTSTANDING
COMMITMENT BORROWINGS
AMOUNT AS OF AS OF
AUGUST 21, JUNE 30,
2000 2000 INTEREST RATE OTHER TERMS AND CONDITIONS
------------ ----------- ------------- -------------------------------------
(DOLLARS IN MILLIONS)
CONSUMER CORP.
Warehouse facility................ 100 73 Rate based on Commercial paper conduit warehouse
commercial facility secured by automobile
paper rates receivables, expires September 30,
combined with 2000
certain
facility fees
Term facility..................... 5 5 Prime + 1% Term facility secured by residual
interests in automobile securitized
loans, expires August 15, 2000
Term fixed asset facilities....... 2 2 Fixed at Secured by certain fixed assets,
9.33% to expires July 31, 2002 and 2003
9.50%
---- ----
Total..................... $272 $232
==== ====
Unconsolidated Acquisition
Partnerships Term acquisition
facilities...................... $164 $164 Fixed at 8.5% Senior and subordinated loans secured
==== ==== to 13%, LIBOR by Portfolio Assets, various
+ 2% to 4% maturities
and Prime +
1%
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, contingencies or failures to meet conditions to
closing of anticipated transactions, the performance of the Company's
subsidiaries and affiliates, assumptions underlying asset performance; the
impact of certain covenants in loan agreements of the Company and its
subsidiaries; the ability of the Company to utilize net operating loss
carryforwards; the continued availability of the Company's credit facilities;
uncertainties of any litigation that might arise in a bankruptcy proceeding;
general economic conditions; 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; residential
and commercial real estate values; the degree to which the Company is leveraged;
capital market conditions, including the markets for asset-backed securities;
changes in foreign political, social and economic conditions; regulatory
initiatives and compliance with governmental regulations; the ability to attract
and retain qualified personnel; factors more fully discussed and identified
under Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations, risk factors and other risks identified in the Company's
Annual Report on Form 10-K, filed April 6, 2000, and amended on May 1, 2000, 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
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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.
Its common (FCFC) and preferred (FCFCO) stocks are listed on the NASDAQ National
Market System.
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 effected 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.
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.
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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 June 30, 2000, accumulated dividends in
arrears on such preferred stock totaled $2.6 million, or $2.10 per share.
30
31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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).
31
32
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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
ConsumerLending 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).
32
33
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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).
33
34
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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.
10.33 -- 100,000,000 dollar form of note, dated March 30, 1999
among FCAR Receivables LLC, Enterprise Funding
Corporation and Nationsbank, N.A.
34
35
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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.
10.38 -- Employment Agreement, dated October 1, 1999, by and
between FirstCity Commercial Corporation and G. Stephen
Fillip.
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.
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.)
(b) Reports on Form 8-K. No report on Form 8-K was filed by the Registrant
with the Securities Exchange Commission during the quarterly period ended June
30, 2000.
35
36
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: August 21, 2000
36
37
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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).
38
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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
ConsumerLending 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).
39
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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).
40
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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.
10.33 -- 100,000,000 dollar form of note, dated March 30, 1999
among FCAR Receivables LLC, Enterprise Funding
Corporation and Nationsbank, N.A.
41
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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.
10.38 -- Employment Agreement, dated October 1, 1999, by and
between FirstCity Commercial Corporation and G. Stephen
Fillip.
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.
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.)