425 1 h99282e425.txt FIRSTCITY FINANCIAL CORPORATION Filed by FirstCity Financial Corporation Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 13e-4(c) under the Securities Exchange Act of 1934. Subject Company: FirstCity Financial Corporation Commission File No. 033-19694 [FirstCity Financial Corporation] LOGO] contact: Suzy W. Taylor (866) 652-1810 FIRSTCITY FINANCIAL ANNOUNCES SECOND QUARTER 2002 RESULTS WACO, TEXAS AUGUST 14, 2002... FirstCity Financial Corporation (Nasdaq: FCFC) today announced earnings from continuing operations for the quarter ended June 30, 2002 of $4.2 million, or $ .43 per share. Net earnings to common shareholders were $2.1 million or $ .25 per share on a diluted basis after subtracting $1.5 million provision for loss from discontinued operations and $.6 million of accrued and unpaid dividends on the Company's preferred stock. For the six months ended June 30, 2002, the Company reported net earnings to common shareholders of $84,000 or $.01 per share. Components of the profits for the second quarter and six months ended June 30, 2002 and 2001 are detailed below:
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED ($ THOUSANDS) JUNE 30, JUNE 30, ------------------------ ------------------------ 2002 2001 2002 2001 ------- ------- ------- ------- Portfolio Acquisition and Resolution $ 4,203 $ 1,378 $ 6,534 $ 3,943 Gain on sale of interest in equity investments 1,779 -- 1,779 3,134 Consumer 395 5,118 (686) 3,595 Parent overhead, net (2,175) (2,632) (4,259) (5,183) ------- ------- ------- ------- Earnings from continuing operations 4,202 3,864 3,368 5,489 ------- ------- ------- ------- Loss from discontinued operations (1,500) (1,000) (2,000) (1,000) Accrued preferred dividends (642) (642) (1,284) (1,284) ------- ------- ------- ------- Net earnings to common stockholders $ 2,060 $ 2,222 $ 84 $ 3,205 ======= ======= ======= =======
PORTFOLIO ASSET ACQUISITION The operating contribution of $6.0 million for the quarter includes the gain on sale of equity investments in France of $1.8 million. The operating contribution of $6.0 million also includes $3.0 million of additional equity earnings in the acquisition partnerships, which represents the Company's share of a $12 million gain recorded in three domestic acquisition partnerships that completed a bulk loan sale of performing and non-performing assets with a carrying value of $59 million for proceeds of $71 million. As a result of the sale, the Company also recorded additional servicing fees of $.9 million. Earnings were comprised of $12.1 million in revenues, net of $6.1 million of expenses. The business generated 70% of the revenues from domestic investments, 22% from investments in France, and 8% from investments in Mexico. The major components of revenue for the quarter include servicing fees of $4.2 million, equity earnings in acquisition partnerships of $3.4 million, gains on sale of equity investments in France of $1.8 million, and interest income of $1.3 million. Acquisitions in the second quarter of $52.2 million were comprised of three portfolios, one in France at a cost of $27.5 million, one in Italy at a cost of $16.9 million, and one in the United States at a cost of $7.7 million. The Company's share of the purchase price was $1.9 million in France, $.8 million in Italy and $ 1.0 million in the United States, for a total investment for the quarter of $3.7 million. (more) (2) 31% INTEREST IN DRIVE FINANCIAL Drive originated $101 million of receivables during the quarter. Defaults, losses and delinquencies have risen to 17.70%, 8.43% and 6.76%, respectively, at the end of the quarter compared to 14.70%, 6.71% and 6.50%, respectively, for the same period last year. These increases are primarily a result of a continued weakness in the economy and seasonal trends in the business. DISCONTINUED OPERATIONS The Company recorded a provision for impairment of discontinued operations of $1.5 million during the quarter. The provision is primarily a result of reduction in the anticipated future cash flows from securitization trusts resulting from an increase in the actual prepayments during the quarter over predicted levels. As of June 30, 2002, the anticipated net realizable value of the Company's investment in discontinued operations is $15.2 million, which is net of reserves of $.7 million. The remaining reserves represent estimates of the anticipated liquidation costs associated with the cash flows from the securitization trusts. CORPORATE MATTERS Currently, FirstCity has approximately 1.2 million preferred shares outstanding with accrued and unpaid dividends of approximately $7.7 million or $6.29 per share. In June, the Company announced that, in conjunction with a proposed recapitalization, it had filed a registration statement with the Securities and Exchange Commission for a proposed exchange offer for its outstanding shares of New Preferred Stock. Upon the commencement of the exchange offer, FirstCity will offer to exchange each share of its New Preferred Stock for, at the holder's election, either: (1) $10.00 cash and 2 shares of FirstCity's common stock, or (2) $ 8.00 cash and 3 shares of FirstCity's common stock. FirstCity anticipates commencing the exchange offer promptly after its registration statement is declared effective by the Securities and Exchange Commission. Once the registration statement is declared effective the exchange offer will commence and appropriate documents will be mailed to holders of the New Preferred Stock. Because the exchange offer has not commenced, any materials submitted by any holder of New Preferred Stock to the exchange agent pursuant to an attempt to tender its shares in connection with the proposed tender offer will be returned by the exchange agent to the stockholder until the actual commencement of the proposed exchange offer as described above. Shares of FirstCity's New Preferred Stock and common stock may not be exchanged or sold nor may offers to exchange or buy be accepted prior to the time the registration statement becomes effective. This news release shall not constitute an offer to exchange or sell, or the solicitation of an offer to exchange or buy, nor shall there be any exchange or sale of these securities in any State in which such offer, exchange, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. (more) (3) The recapitalization is discussed in detail in the Company's news release issued on June 11, 2002 and in the Company's Form 10-Q for the quarter ended June 30, 2002 filed today. FirstCity has filed a tender offer statement and other related documents with the Securities and Exchange Commission. Upon the effectiveness of the registration statement and commencement of the exchange offer, copies of the exchange offer materials may be obtained from Suzy Taylor, toll free, at (866) 652-1810. HOLDERS OF NEW PREFERRED STOCK ARE STRONGLY ADVISED TO READ THESE DOCUMENTS WHEN THEY ARE AVAILABLE BECAUSE THEY CONTAIN IMPORTANT INFORMATION. Stockholders may obtain a free copy of these documents, when they are available, from FirstCity or at the SEC's website, www.sec.gov. Certain statements in this press release, which are not historical in fact, including, but not limited to, statements relating to the proposed recapitalization and future performance, may be deemed to be forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, performance or achievements, and may contain the words "expect", "intend", "plan", "estimate", "believe", "will be", "will continue", "will likely result", and similar expressions. Such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. There are many important factors that could cause FirstCity's actual results to differ materially from those indicated in the forward-looking statements. These factors include, but are not limited to, the consummation and the effect of the proposed recapitalization, the performance of FirstCity's subsidiaries and affiliates; availability of portfolio assets; assumptions underlying portfolio asset performance, the degree to which the FirstCity is leveraged; FirstCity's continued need for financing; availability of FirstCity's credit facilities; the impact of certain covenants in loan agreements of FirstCity and its subsidiaries, general economic conditions; interest rate risk; changes (legislative and otherwise) in the asset securitization industry; fluctuation in residential and commercial real estate values; capital markets conditions, including the markets for asset-backed securities; risks of declining value of loans, collateral or assets; risks associated with foreign operations; currency exchange rate fluctuations and foreign social and economic conditions; the ability of FirstCity to utilize net operating loss carryforwards; uncertainties of any litigation arising from discontinued operations; factors more fully discussed and identified under Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," risk factors and other risks identified in FirstCity's Annual Report on Form 10-K, filed with the SEC on April 1, 2002, as well as in FirstCity's other filings with the SEC, including the registration statement described above. Many of these factors are beyond FirstCity's control. In addition, it should be noted that past financial and operational performance of FirstCity is not necessarily indicative of future financial and operational performance. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. The forward-looking statements in this release speak only as of the date of this release. FirstCity expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in FirstCity'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 U.S. and with affiliate organizations in France and Mexico. Its common (FCFC) and preferred (FCFCO) stocks are listed on the Nasdaq National Market System. FIRSTCITY FINANCIAL CORPORATION Summary of Operations (In thousands, except per share data) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2002 2001 2002 2001 ------- ------- ------- ------- Revenues: Servicing fees from affiliates $ 4,170 $ 3,204 $ 6,392 $ 5,669 Gain on resolution of Portfolio Assets 456 214 700 432 Equity in earnings of investments 3,939 10,426 5,414 12,486 Interest income from affiliates 1,077 896 2,101 1,587 Interest income - other 280 517 561 1,066 Gain on sale of interest in equity investments 1,779 -- 1,779 3,134 Other income 936 428 1,176 548 ------- ------- ------- ------- Total revenues 12,637 15,685 18,123 24,922 Expenses: Interest and fees on notes payable to affiliates 1,531 2,283 2,936 4,668 Interest and fees on notes payable - other 94 29 237 86 Salaries and benefits 3,425 2,769 6,160 4,992 Provision for loan and impairment losses 22 1,543 121 2,128 Occupancy, data processing, communication and other 2,460 2,889 4,370 5,467 ------- ------- ------- ------- Total expenses 7,532 9,513 13,824 17,341 Earnings from continuing operations before income taxes and minority interest 5,105 6,172 4,299 7,581 Benefit (provision) for income taxes 6 (7) (7) 8 ------- ------- ------- ------- Earnings from continuing operations before minority interest 5,111 6,165 4,292 7,589 Minority interest (909) (1,997) (924) (1,796) Cumulative effect of accounting change -- (304) -- (304) ------- ------- ------- ------- Earnings from continuing operations 4,202 3,864 3,368 5,489 Loss from discontinued operations (1,500) (1,000) (2,000) (1,000) ------- ------- ------- ------- Net earnings 2,702 2,864 1,368 4,489 Accumulated preferred dividends in arrears (642) (642) (1,284) (1,284) ------- ------- ------- ------- Net earnings to common shareholders $ 2,060 $ 2,222 $ 84 $ 3,205 ======= ======= ======= ======= Basic and diluted earnings per common share are as follows: Earnings from continuing operations before accounting change $ 0.43 $ 0.43 $ 0.25 $ 0.54 Accounting change -- (0.04) -- (0.04) Discontinued operations (0.18) (0.12) (0.24) (0.12) Net earnings per common share $ 0.25 $ 0.27 $ 0.01 $ 0.38 Wtd. avg. common shares outstanding 8,376 8,376 8,376 8,372
SELECTED UNAUDITED BALANCE SHEET DATA
June 30, December 31, 2002 2001 -------- ------------ Portfolio acquisition and resolution assets $ 77,172 $ 79,335 Consumer assets 8,842 10,205 Deferred tax asset 20,101 20,101 Net assets of discontinued operations 15,175 16,657 Total assets 141,597 138,893 Notes payable 89,435 91,209 Preferred stock 33,385 32,101 Total common shareholders' equity 5,014 3,877
4 FIRSTCITY FINANCIAL CORPORATION SUPPLEMENTAL INFORMATION (DOLLARS IN THOUSANDS) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------ 2002 2001 2002 2001 ------- ------- ------- ------- SUMMARY OPERATING STATEMENT DATA FOR EACH BUSINESS Portfolio Asset Acquisition and Resolution: Revenues $ 12,098 $ 8,944 $ 18,889 $ 20,058 Expenses 6,094 6,023 10,455 10,853 -------- -------- -------- -------- Operating contribution before provision for loan and impairment losses 6,004 2,921 8,434 9,205 Provision for loan and impairment losses 22 1,543 121 2,128 -------- -------- -------- -------- Operating contribution, net of direct taxes $ 5,982 $ 1,378 $ 8,313 $ 7,077 ======== ======== ======== ======== Consumer Lending: Revenues, net of equity in loss of investment $ 497 $ 6,731 $ (848) $ 4,839 Expenses, net of minority interest 102 1,613 (162) 1,244 -------- -------- -------- -------- Operating contribution (loss), net of direct taxes $ 395 $ 5,118 $ (686) $ 3,595 ======== ======== ======== ======== PORTFOLIO ACQUISITION AND RESOLUTION: OVERVIEW AGGREGATE PURCHASE PRICE OF PORTFOLIOS ACQUIRED: Acquisition partnerships Domestic $ 7,724 $ 22,896 $ 20,494 $ 89,225 Mexico -- 10,117 11,709 29,582 France 27,502 -- 27,502 1,613 Italy 16,943 -- 16,943 -- -------- -------- -------- -------- Total $ 52,169 $ 33,013 $ 76,648 $120,420 ======== ======== ======== ======== PURCHASE FIRSTCITY'S PRICE INVESTMENT ------- ----------- HISTORICAL ACQUISITIONS - ANNUAL 2002 year to date $ 76,648 $ 9,113 2001 224,927 24,319 2000 394,927 22,140 1999 210,799 11,203 1998 139,691 28,478 1997 183,229 37,109 PORTFOLIO ACQUISITION AND RESOLUTION ASSETS BY REGION: Domestic 44,023 $ 54,893 Mexico 20,054 18,931 France 12,245 9,058 Italy 850 -- -------- -------- Total $ 77,172 $ 82,882 ======== ======== REVENUES BY REGION: Domestic $ 8,515 $ 4,580 $ 11,961 $ 12,595 Mexico 931 3,238 3,367 4,993 France and Italy 2,648 1,126 3,556 2,450 Other foreign 4 -- 5 20 -------- -------- -------- -------- Total $ 12,098 $ 8,944 $ 18,889 $ 20,058 ======== ======== ======== ======== REVENUES BY SOURCE: Equity earnings $ 3,442 $ 3,699 $ 6,262 $ 7,653 Servicing fees 4,170 3,204 6,392 5,669 Interest income - loans 1,313 1,350 2,590 2,518 Gain on sale of interest in equity investment 1,779 -- 1,779 3,134 Gain on resolution of Portfolio Assets 456 214 700 432 Other 938 477 1,166 652 -------- -------- -------- -------- Total $ 12,098 $ 8,944 $ 18,889 $ 20,058 ======== ======== ======== ========
5 FIRSTCITY FINANCIAL CORPORATION SUPPLEMENTAL INFORMATION (DOLLARS IN THOUSANDS) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- ----------------------- 2002 2001 2002 2001 ----------- ----------- -------- -------- FirstCity's Average investment in Acquisition Partnerships Domestic $ 33,385 $ 29,803 $ 33,181 $ 28,984 Mexico (365) 1,172 (53) 1,169 France and Italy 8,767 7,078 8,825 7,247 France-Servicing subsidiaries 2,650 1,975 2,399 1,738 ----------- ----------- -------- -------- Total $ 44,437 $ 40,028 $ 44,352 $ 39,138 =========== =========== ======== ======== FirstCity Share of Equity Earnings (Loss): Domestic $ 4,544 $ 2,366 $ 6,502 $ 5,494 Mexico (1,897) 129 (1,914) (342) France and Italy 534 1,046 994 1,514 France-Servicing subsidiaries 261 158 680 987 ----------- ----------- -------- -------- Total $ 3,442 $ 3,699 $ 6,262 $ 7,653 =========== =========== ======== ======== Selected other data: Average investment in wholly owned portfolio assets and loans receivable: Domestic $ 13,662 $ 26,643 $ 14,167 $ 28,474 Mexico 21,178 16,746 20,022 14,893 ----------- ----------- -------- -------- Total $ 34,840 $ 43,389 $ 34,189 $ 43,367 =========== =========== ======== ======== Income from wholly owned portfolio assets and loans receivable: Domestic $ 748 $ 724 $ 1,284 $ 1,469 Mexico 1,021 840 2,006 1,481 ----------- ----------- -------- -------- Total $ 1,769 $ 1,564 $ 3,290 $ 2,950 =========== =========== ======== ======== Servicing fee revenues: Domestic partnerships: $ Collected $ 104,388 $ 31,999 $136,211 $ 65,942 Servicing fee revenue 2,333 952 3,150 1,839 Average servicing fee % 2.23% 2.98% 2.31% 2.79% Mexico partnerships: $ Collected $ 29,156 $ 28,512 $ 48,350 $ 64,421 Servicing fee revenue 1,632 2,077 2,986 3,421 Average servicing fee % 5.60% 7.28% 6.18% 5.31% Incentive service fees $ 205 $ 175 $ 256 $ 409 Total Service Fees: $ Collected $ 133,544 $ 60,511 $184,561 $130,363 Servicing fee revenue 4,170 3,204 6,392 5,669 Average servicing fee % 3.12% 5.29% 3.46% 4.35% Servicing portfolio (face value) Domestic $ 406,918 $ 529,701 Mexico 1,391,792 1,481,749 France and Italy 731,566 381,861 ----------- ----------- Total $ 2,530,276 $ 2,393,311 =========== =========== Number of personnel at period end: Production 25 27 Servicing Domestic 60 54 Mexico 75 33 ----------- ----------- Total personnel 160 114 =========== ===========
6 FIRSTCITY FINANCIAL CORPORATION SUPPLEMENTAL INFORMATION (DOLLARS IN THOUSANDS) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Consumer Lending: Retail installment contracts acquired(1) $100,780 $107,890 $214,181 $230,444 Origination characteristics: Face value to wholesale value 99.56% 100.03% 100.46% 100.60% Weighted average coupon 21.18% 20.76% 21.06% 20.58% Purchase discount (% of face value) 15.40% 15.14% 15.59% 15.23% Servicing portfolio (face value in $) 637,229 495,527 Defaults (% of total loans acquired) 17.70% 14.70% Losses on defaults (% of original loan balance at time of default) 8.43% 6.71% Delinquencies (% of total serviced portfolio) 6.76% 6.50% Equity in earnings (loss) of Drive $ 497 $ 6,727 $ (848) $ 4,833 Cumulative effect of accounting change -- (304) -- (304) Minority interest (99) (1,283) 170 (905) -------- -------- -------- -------- Net equity in earnings (loss) of Drive $ 398 $ 5,140 $ (678) $ 3,624 ======== ======== ======== ========
(1) Auto lending business formerly conducted by FirstCity Funding (FirstCity now owns 31% of Drive Financial Services and accounts for its investment using the equity method of accounting).