FirstCity Reports Difficult Q4, but Rosy Outlook for Purchasing

Debt purchaser and servicer FirstCity Financial Corporation Monday announced financial results for the fourth quarter and year ended Dec. 31, 2007. The company reported earnings of $2.2 million for the year, down nearly 78 percent from earnings for 2006.

Waco, Texas-based FirstCity (Nasdaq: FCFC) said that much of the negative growth for the year was attributable to performance in the fourth quarter. James Sartain, president and CEO of FirstCity, said in a conference call Monday, “We are obviously very disappointed in the results from the fourth quarter.”

In the quarter, the company lost $1.36 million compared to net earnings of $1.55 million in the same period a year ago. Revenues in the quarter were $11 million, up 45 percent from the same quarter a year ago. But expenses, specifically interest expense, occupancy, and data processing costs, were up more than 50 percent in the quarter.

For the year, FirstCity reported earnings of $2.2 million on revenues of $43.7 million, up nearly 54 percent from 2007. The company said that in the year, it recorded a cost of $2.2 million related to an independent audit investigation that concluded in 2007 (“FirstCity Won’t Change Financials After Investigation,” July 9, 2007).

The company said it invested a total of $148.7 million in portfolio purchases for the year, down from the $172.2 million it invested in 2006. But Sartain said that the total was skewed due to issues in the fourth quarter. “The fourth quarter is typically our largest quarter for portfolio acquisitions,” Sartain said in a conference call. “This year, obviously, it was not.” FirstCity spent only $19.4 million on portfolio purchases in Q4 2007 compared to $87 million it invested in Q4 2006.

Sartain explained that creditor expectations were not aligned with the company’s portfolio pricing models in the last three months of 2007. “Generally, we were about 10-15 percent off bank pricing expectations,” he said. Sartain said that in Q4 FirstCity was the high bidder in at least seven portfolio auctions in which the seller pulled out of a sale citing prices that were too low.

But Sartain was very bullish on his company’s prospects in 2008. “These are the times we look for [as debt purchasers],” he said on the conference call. “We are still trying to find the bottom, but when we do we will be ready to act,” he said, referencing a recent $125 million credit facility from the Bank of Scotland.

Sartain’s comments came as debt purchasers across the country are reporting lower prices ("Card Debt Prices Dropping as More Paper Hits Market," March 17).

FirstCity said that at the end of the fourth quarter, it counted 241 total employees, up from 208 at the end of 2006. Of the employee total, 118 were employed in the Latin American offices, a growing market for the company. Sartain said that of the $1.8 billion in face value portfolios in their buying pipeline, $1.2 billion was in Latin America. In the fourth quarter, FirstCity generated 56 percent of its revenues from domestic portfolios, 26 percent from investments in Latin America, 18 percent from investments in Europe and less than 1 percent from investments in Canada.

Sartain also took the conference call as an opportunity to introduce new executive Jim Moore to investors. Moore was named EVP and Chief Operating Officer in February (“Executive Change: Jim W. Moore to FirstCity Financial as EVP, COO," Feb. 1).

Investors were generally positive on the company’s results, sending FirstCity’s shares up more than 6 percent in early trading Monday.