FirstCity Reports Earnings After Investigation Delay

Debt purchaser and loan servicer FirstCity Financial Corp. reported financial results for the fourth quarter of 2006 and the first quarter of 2007 after a delay in reporting during an independent investigation.

The earnings were marked by a loss in first quarter of this year of $914,699, down from the $2.02 million the company earned in the first quarter of 2006. FirstCity (NASDAQ: FCFC) posted a profit of $1.55 million in the fourth quarter of 2006, down from the $1.95 million earned in the fourth quarter of 2005.

FirstCity purchased 10 portfolios worth $137.9 million during the fourth quarter of 2006, including seven in the United States, two in Europe and one in Latin America. The company purchased $78.8 million in portfolio assets during the first quarter of 2007, including $36.8 million in Small Business Administration loans. These purchases consisted of eight portfolios — six in the United States, one in Europe and one in Latin America.

The company also said that it had completed in February its acquisition of a 50 percent stake in Servicios Integrales de Cobranza S.A. (Servinco) for $4 million. Chile-based Servinco is the second largest non-bank related collection agency in the country and was a co-investor with FirstCity in previous portfolio acquisitions.

FirstCity delayed filing its quarterly and year-end earnings reports with the U.S. Securities and Exchange Commission while it conducted a two-part internal investigation. In one part, FirstCity reviewed whether its subsidiaries received inadequate compensation in the sale of a loan portfolio to a third party. In the second part, FirstCity investigated allegations against an officer of an affiliate of FirstCity regarding compliance with laws applicable to its foreign operations.

FirstCity had previously said that there were no material adjustments to its financial statements in connection with the results of the investigation. In its release today, FirstCity said it would provide additional assurances for accurate financial reporting, particularly with respect to the company’s Latin American operations, and improve its internal control structure.

FirstCity shares were down more than 11 percent in trading Tuesday.