##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549


Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 2004                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from          to                                              

Commission file number 033-19694





FirstCity Financial Corporation


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 76-0243729                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    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)


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Title of Each Class


Common Stock, par value $.01


Adjusting Rate Preferred Stock, par value $.01


þ o


þ


o þ












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FIRSTCITY FINANCIAL CORPORATION


TABLE OF CONTENTS


|           |  |                                                                                                                  |     |      |     | 
|---------- |  | ---------------------------------------------------------------------------------------------------------------- | --- | ---- | --- | 
|           |  |                                                                                                                  |     | Page |    
|           |  |                                                                                                                  |     |      |    
|PART I    
|Item 1.    |  | Business                                                                                                         |     |      | 3   | 
|Item 2.    |  | Properties                                                                                                       |     |      | 11  | 
|Item 3.    |  | Legal Proceedings                                                                                                |     |      | 11  | 
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                              |     |      | 12  | 
|          
|PART II   
|Item 5.    |  | Market for Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities |     |      | 12  | 
|Item 6.    |  | Selected Financial Data                                                                                          |     |      | 13  | 
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition
    and Results of Operations                        |     |      | 14  | 
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |     |      | 37  | 
|Item 8.    |  | Financial Statements and Supplementary Data                                                                      |     |      | 40  | 
|Item 9.    |  | Changes in and Disagreements With Accountants on Accounting and
    Financial Disclosure                         |     |      | 106 | 
|Item 9A.   |  | Controls and Procedures                                                                                          |     |      | 106 | 
|Item 9B.   |  | Other Information                                                                                                |     |      | 106 | 
|          
|PART III  
|Item 10.   |  | Directors and Executive Officers of the Registrant                                                               |     |      | 106 | 
|Item 11.   |  | Executive Compensation                                                                                           |     |      | 106 | 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters               |     |      | 106 | 
|Item 13.   |  | Certain Relationships and Related Transactions                                                                   |     |      | 106 | 
|Item 14.   |  | Principal Accountant Fees and Services                                                                           |     |      | 106 | 
|          
|PART IV   
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                                       |     |      | 106 | 
|Signatures |  |                                                                                                                  | 109 |     

FORWARD LOOKING INFORMATION






2



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PART I







|        |          
|------- | ---------
|Item 1. | Business.

General




Available Information




Business Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increasing the Companys investments in Portfolio Assets
    acquired from financial institutions and government agencies,
    both for its own account or through investment entities formed
    with Cargill Financial Services Corporation
    (Cargill, CFSC or Cargill
    Financial) or one or more other co-investors, thereby
    capitalizing on the expertise of partners whose skills
    complement those of the Company.
|
| |  | Identifying and acquiring, through non-traditional niche
    sources, distressed assets that meet the Companys
    investment criteria, which may involve the utilization of
    special acquisition structures.                                                                                                                                                                                                                          
|
| |  | Acquiring, managing, servicing and resolving Portfolio Assets in
    certain international markets, either separately or in
    partnership with others, including Cargill.                                                                                                                                                                                                                                                                
|
| |  | Capitalizing on the Companys servicing expertise to enter
    into new markets with servicing agreements that provide for
    reimbursement of costs of entry and operations plus an incentive
    servicing fee after certain thresholds are met without requiring
    substantial equity investments.                                                                                                                                   
|
| |  | Maximizing growth in operations, thereby permitting the
    utilization of the Companys net operating loss
    carryforwards (NOLs).                                                                                                                                                                                                                                                                                                    

Background




3



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4



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Portfolio Asset Acquisition and Resolution Business


Accounting for
Certain Loans or Debt Securities Acquired in a Transfer,






| |                           
| | --------------------------
| | Sources of Assets Acquired





| |                 
| | ----------------
| | Portfolio Assets





5



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Portfolio Assets


|                                 |  |                         |         |  |      |   |         |      |  |   |         | 
|-------------------------------- |  | ----------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|                                 |  | Year Ended December 31, |        
|                                 |  |                         |        
|                                 |  | 2004                    |         |  | 2003 |   |         | 2002 | 
|                                 |  |                         |         |  |      |   |         |      | 
|                                 |  | (Dollars in thousands)  |        
|Face Value                       |  | $                       | 842,920 |  |      | $ | 386,895 |      |  | $ | 702,019 | 
|Total purchase price             |  | $                       | 174,139 |  |      | $ | 129,192 |      |  | $ | 171,769 | 
|Total equity invested            |  | $                       | 139,850 |  |      | $ | 64,303  |      |  | $ | 66,932  | 
|FirstCity equity invested(1)     |  | $                       | 59,762  |  |      | $ | 22,944  |      |  | $ | 16,717  | 
|Total number of Portfolio Assets |  |                         | 323,111 |  |      |   | 10,056  |      |  |   | 11,453  | 






|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes investments made in the form of equity and notes
    receivable from the Acquisition Partnerships payable to
    affiliates of the Company.



| |                            
| | ---------------------------
| | Sources of Portfolio Assets



6



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| |                                
| | -------------------------------
| | Asset Analysis and Underwriting









| |          
| | ---------
| | Servicing





7



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| |                                                         
| | --------------------------------------------------------
| | Structure and Financing of Portfolio Asset
    Purchases















| |                          
| | -------------------------
| | Relationship with Cargill





8



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| |                  
| | -----------------
| | Business Strategy





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Traditional markets. FirstCity believes it will continue
    to invest in Portfolio Assets acquired from financial
    institutions and government agencies, both for its own account
    or through investment entities formed with Cargill or one or
    more other co-investors.                                                                                                                                                                                                                                                                                                                                        
|
| |  | Niche markets. FirstCity believes it will continue to
    pursue profitable private market niches in which to invest. The
    niche investment opportunities that FirstCity has pursued to
    date include (i) the acquisition of improved or unimproved
    real estate, including excess retail sites, and
    (ii) periodic purchases of single financial or real estate
    assets from banks and other financial institutions with which
    FirstCity has established relationships, and from a variety of
    other sellers that are familiar with the Companys
    reputation for acting quickly and efficiently.
|
| |  | Foreign markets. FirstCity believes that the foreign
    markets for Portfolio Assets are less developed than the
    U.S. market, and therefore provide a greater opportunity to
    achieve attractive risk adjusted returns. FirstCity has
    purchased Portfolio Assets in France, Japan (sold in 1999) and
    Mexico and expects to continue to seek purchase opportunities
    outside of the United States.                                                                                                                                                                                                       

Consumer Lending  Discontinued Operation




9



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Accounting for the
Impairment or Disposal of Long-Lived Assets,


Government Regulation




Competition






Employees




Relationship with the Bank of Scotland




10



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|        |            
|------- | -----------
|Item 2. | Properties.



|                         |  |          |                   |  |                  |  |                      | 
|------------------------ |  | -------- | ----------------- |  | ---------------- |  | -------------------- | 
|Location                 |  | Function |                   |  | Business Segment | 
|                         |  |          |                   |  |                  | 
|Waco, Texas              |  |          | Executive Offices |  |                  |  | Corporate/Commercial | 
|Golden Valley, Minnesota |  |          | Servicing Offices |  |                  |  | Commercial           | 
|Richmond, Virginia       |  |          | Servicing Offices |  |                  |  | Commercial           | 
|Guadalajara, Mexico      |  |          | Servicing Offices |  |                  |  | Commercial           | 
|Mexico City, Mexico      |  |          | Servicing Offices |  |                  |  | Commercial           | 






|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings.





11



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|        |                                                         
|------- | --------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders.






PART II







|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities.



|              |  |              |       |  |              |   |      |      |  |   |      |  |  |   |      | 
|------------- |  | ------------ | ----- |  | ------------ | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|              |  | 2004         |       |  | 2003         |  
|              |  |              |       |  |              |  
|              |  | Market Price |       |  | Market Price |  
|              |  |              |       |  |              |  
|Quarter Ended |  | High         |       |  | Low          |   |      | High |  |   | Low  | 
|              |  |              |       |  |              |   |      |      |  |   |      | 
|March 31      |  | $            | 9.00  |  |              | $ | 5.95 |      |  | $ | 1.85 |  |  | $ | 1.10 | 
|June 30       |  |              | 8.34  |  |              |   | 6.95 |      |  |   | 2.25 |  |  |   | 1.25 | 
|September 30  |  |              | 10.21 |  |              |   | 6.47 |      |  |   | 4.85 |  |  |   | 2.17 | 
|December 31   |  |              | 10.44 |  |              |   | 8.30 |      |  |   | 7.10 |  |  |   | 3.45 | 





ISSUER PURCHASES OF EQUITY SECURITIES


|                                      |  |                     |         |  |                    |                     |        |                      |                     |  |                    |  |  |  |  | 
|------------------------------------- |  | ------------------- | ------- |  | ------------------ | ------------------- | ------ | -------------------- | ------------------- |  | ------------------ |  |  |  |  | 
|                                      |  |                     |         |  |                    |                     |        | (d) Maximum          |                    
|                                      |  |                     |         |  |                    |                     |        | Number (or           |                    
|                                      |  |                     |         |  |                    |                     |        | Approximate Dollar   |                    
|                                      |  |                     |         |  |                    | (c) Total Number of |        |                      | Value) of Shares    | 
|                                      |  |                     |         |  |                    | Shares (or Units)   |        |                      | (or Units) that may | 
|                                      |  | (a) Total Number of |         |  | (b) Average Price  |                     |        | Purchased as Part of |                     |  | yet be Purchased   | 
|                                      |  | Shares (or Units    |         |  | Paid per Share (or |                     |        | Publicly Announced   |                     |  | under the Plans or | 
|Period                                |  | Purchased)          |         |  | Unit)              |                     |        | Plans or Programs    |                     |  | Programs           | 
|                                      |  |                     |         |  |                    |                     |        |                      |                     |  |                    | 
|October 1, 2004 to October 31, 2004   |  |                     | N/A     |  |                    |                     |        |                      |                     |  |                    |  |  |  |  | 
|November 1, 2004 to November 30, 2004 |  |                     | N/A     |  |                    |                     |        |                      |                     |  |                    |  |  |  |  | 
|December 1, 2004 to December 31, 2004 |  |                     | 126,291 |  |                    | $                   | 21.525 |                      |                     |  |                    |  |  |  |  | 
|Total                                 |  |                     | 126,291 |  |                    | $                   | 21.525 |                      |                     |  |                    |  |  |  |  | 



12



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|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data.



Selected Financial Data


|                                                                  |                     |                                               |        |         |      |   |        |         |  |   |        |         |   |      |        |         |   |   |         |         |  
|----------------------------------------------------------------- | ------------------- | --------------------------------------------- | ------ | ------- | ---- | - | ------ | ------- |  | - | ------ | ------- | - | ---- | ------ | ------- | - | - | ------- | ------- | -
|                                                                  |                     | Years Ended December 31,                      |       
|                                                                  |                     |                                               |       
|                                                                  |                     | 2004                                          |        |         | 2003 |   |        | 2002    |  |   | 2001   |         |   | 2000 |       
|                                                                  |                     |                                               |        |         |      |   |        |         |  |   |        |         |   |      |       
|                                                                  |                     | (Dollars in thousands, except per share data) |       
|Consolidated Statement of Operations Data:                        |                     |                                               |        |         |      |   |        |         |  |   |        |         |   |      |        |         |   |   |         |        
|Revenues                                                          |                     | $                                             | 36,054 |         |      | $ | 35,492 |         |  | $ | 32,519 |         |   | $    | 32,474 |         |   | $ | 42,183  |        
|Expenses                                                          |                     |                                               | 30,905 |         |      |   | 30,959 |         |  |   | 28,656 |         |   |      | 33,815 |         |   |   | 46,422  |        
|Earnings (loss) from continuing operations                        |                     |                                               | 5,011  |         |      |   | 4,358  |         |  |   | 2,399  |         |   |      | (2,277 | )       |   |   | (11,795 | )      
|Earnings (loss) from discontinued operations                      |                     |                                               | 58,623 |         |      |   | 4,829  |         |  |   | (6,170 | )       |   |      | (752   | )       |   |   | (4,105  | )      
|Net earnings (loss )                                              |                     |                                               | 63,634 |         |      |   | 9,187  |         |  |   | (3,771 | )       |   |      | (3,029 | )       |   |   | (15,900 | )      
|Redeemable preferred dividends                                    |                     |                                               |       |         |      |   | (133   | )       |  |   | (2,478 | )       |   |      | (2,568 | )       |   |   | (2,568  | )      
|Net earnings (loss) to common stockholders(1)                     |                     |                                               | 63,634 |         |      |   | 9,054  |         |  |   | (6,249 | )       |   |      | (5,597 | )       |   |   | (18,468 | )      
|Earnings (loss) from continuing operations per common
    share  |                     |                                               |        |         |      |   |        |         |  |   |        |         |   |      |        |         |   |   |         |        
|                                                                  | Basic(1)            |                                               |        | 0.45    |      |   |        | 0.38    |  |   |        | (0.01   | ) |      |        | (0.58   | ) |   |         | (1.72   | )
|                                                                  | Diluted(1)          |                                               |        | 0.42    |      |   |        | 0.37    |  |   |        | (0.01   | ) |      |        | (0.58   | ) |   |         | (1.72   | )
|Net earnings (loss) per common share                             |                     |                                               |        |         |      |   |        |         |  |   |        |         |   |      |        |         |   |   |         |        
|                                                                  | Basic(1)            |                                               |        | 5.67    |      |   |        | 0.81    |  |   |        | (0.74   | ) |      |        | (0.67   | ) |   |         | (2.21   | )
|                                                                  | Diluted(1)          |                                               |        | 5.37    |      |   |        | 0.80    |  |   |        | (0.74   | ) |      |        | (0.67   | ) |   |         | (2.21   | )
|Consolidated Balance Sheet Data:                                  |                     |                                               |        |         |      |   |        |         |  |   |        |         |   |      |        |         |   |   |         |        
|                                                                  | Total assets        |                                               |        | 158,857 |      |   |        | 132,388 |  |   |        | 126,456 |   |      |        | 138,893 |   |   |         | 140,991 |  
|                                                                  | Total notes payable |                                               |        | 51,303  |      |   |        | 75,060  |  |   |        | 80,673  |   |      |        | 91,209  |   |   |         | 93,764  |  
|                                                                  | Preferred stock     |                                               |        |        |      |   |        | 3,846   |  |   |        | 3,705   |   |      |        | 32,101  |   |   |         | 29,533  |  
|Total common equity                                               |                     |                                               | 92,423 |         |      |   | 28,969 |         |  |   | 18,752 |         |   |      | 3,877  |         |   |   | 8,478   |        






|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(1) | Includes deferred tax provisions of $7.0 million in 2000
    related to the reduction of benefits to be realized from NOLs.

Accounting for the Impairment or Disposal of Long-Lived
Assets.




13



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|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations.



Overview
















Results of Operations




| |                      
| | ---------------------
| | 2004 Compared to 2003



14



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| |                                           
| | ------------------------------------------
| | Portfolio Asset Acquisition and Resolution



Servicing fee revenues.


Gain on resolution of Portfolio Assets.


Equity in earnings of investments.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Domestic  Equity in earnings of domestic
    Acquisition Partnerships decreased to $9.9 million in 2004
    compared to $13.5 million in 2003. Equity earnings in
    MinnTex Investment Partners LP was $2.6 million in 2004
    compared to $3.7 million in 2003 as the Portfolio Assets
    within that partnership are being liquidated. Also, one real
    estate partnership, of which FirstCity owns 50%, realized a
    $2.9 million gain in 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Mexico  Equity in loss of Mexican Acquisition
    Partnerships was $1.0 million in 2004 compared to
    $4.0 million in 2003. These partnerships reflected a loss
    of $5.3 million in 2004 compared to $41.2 million in
    2003. FirstCitys percentage share of the
    partnerships losses was greater in 2004 than 2003 because
    FirstCitys ownership percentage of recent acquisitions is
    greater than earlier acquisitions. The partnerships recorded
    foreign exchange gains of $3.0 million in 2004 compared to
    losses of $30.0 million in 2003. Interest expense of
    $11.6 million and $17.0 million were recorded in 2004
    and 2003, respectively. This interest is owed to affiliates of
    the investors in these partnerships, of which FirstCity recorded
    $2.0 million and $2.5 million, respectively, as
    interest income. Excluding effects of foreign currency
    transactions and interest expense, these partnerships reflected
    adjusted net earnings of $3.2 million in 2004 compared to
    $5.8 million in 2003.
|
| |  | France  Equity in earnings of Acquisition
    Partnerships located in France increased 24% to
    $5.1 million in 2004 compared to $4.1 million in 2003.
    This increase is principally due to the addition of three
    partnerships which accounted for $.8 million in equity
    earnings in 2004. During 2004, FirstCity also recorded
    $.7 million in foreign currency transaction gains (included
    in other expenses) relating to investments in France as the euro
    relative to the dollar appreciated from 1.26 at
    December 31, 2003 to 1.36 at December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Interest income.


Other income.


Expenses.


15



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| |                                 
| | --------------------------------
| | Other Items Affecting Operations



Corporate interest and overhead.


Income taxes.


16



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Discontinued Operations.


Accounting for the Impairment
or Disposal of Long-Lived Assets,




| |                      
| | ---------------------
| | 2003 Compared to 2002





| |                                           
| | ------------------------------------------
| | Portfolio Asset Acquisition and Resolution



Servicing fee revenues.


Gain on resolution of Portfolio Assets.


Equity in earnings of investments.


17



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Domestic  Equity in earnings of domestic
    Acquisition Partnerships was $13.5 million in 2003 compared
    to $10.0 million in 2002. Equity in earnings in MinnTex
    Investment Partners LP, which began operations in April 2002,
    was $3.7 million in 2003 compared to $1.8 million in
    2002. Also, one real estate partnership realized a
    $2.9 million gain on sale in the fourth quarter of 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Mexico  Equity in loss of Mexican Acquisition
    Partnerships was $4.0 million in 2003 compared to
    $3.5 million in 2002. These partnerships reflected a loss
    of $41.2 million in 2003 compared to $56.5 million in
    2002. The partnerships recorded foreign exchange losses of
    $30.0 million in 2003 compared to $24.9 million in
    2002. Interest expense of $17.0 million and
    $54.9 million were recorded 2003 and 2002, respectively.
    This interest is owed to the investors of these partnerships, of
    which FirstCity recorded $2.5 million and
    $3.9 million, respectively, as interest income. Excluding
    effects of foreign currency transactions and interest expense,
    these partnerships reflected adjusted net earnings of
    $5.8 million in 2003 compared to $23.3 million in
    2002, which is primarily due to the Mexican partnerships
    receiving $28.9 million or 34% less collections in 2003
    compared to 2002.
|
| |  | France  Equity in earnings of Acquisition
    Partnerships located in France increased 100% to
    $4.1 million in 2003 compared to $1.9 million in 2002.
    This increase is principally due to the addition of three French
    Partnerships during 2002 and two in 2003, which accounted for
    $2.4 million in equity in earnings in 2003. In addition,
    the Company sold in June 2002 its investment in eight French
    Partnerships, which accounted for $.4 million in equity in
    earnings in 2002. During 2003, FirstCity also recorded
    $1.2 million in foreign currency transaction gains
    (included in other expenses) relating to investments in France
    as the euro relative to the dollar appreciated from 1.05 at
    December 31, 2002 to 1.26 at December 31, 2003.                                                                                                                                                                           

Interest income.


Gain on sale of interest in equity investments.


Other income.


Expenses.










18



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| |                                 
| | --------------------------------
| | Other Items Affecting Operations



Corporate interest and overhead.


Income taxes.


Discontinued Operations.




19



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Analysis of Revenues and Expenses




Analysis of Revenues and Expenses


|                                                         |                                                                                       |                                                     |       |        |        |        |      |        |        |        |       |        |        |        | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------------- | ----- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | 
|                                                         |                                                                                       | Year Ended December 31,                             |      
|                                                         |                                                                                       |                                                     |      
|                                                         |                                                                                       | 2004                                                |       |        | 2003   |        |      | 2002   |       
|                                                         |                                                                                       |                                                     |       |        |        |        |      |        |       
|                                                         |                                                                                       | (In thousands, except per share data)               |      
|Portfolio Asset Acquisition and Resolution:              |                                                                                       |                                                     |       |        |        |        |      |        |        |        |       |       
|                                                         | Revenues:                                                                             |                                                     |       |        |        |        |      |        |        |        |       |        |       
|                                                         |                                                                                       | Servicing fees                                      |       | $      | 13,747 |        |      | $      | 15,051 |        |       | $      | 12,665 |       
|                                                         |                                                                                       | Gain on resolution of Portfolio Assets              |       |        | 1,649  |        |      |        | 1,380  |        |       |        | 1,138  |       
|                                                         |                                                                                       | Gain on sale of interest in investment              |       |        |       |        |      |        |       |        |       |        | 1,779  |       
|                                                         |                                                                                       | Equity in earnings of investments                   |       |        | 14,913 |        |      |        | 14,174 |        |       |        | 9,212  |       
|                                                         |                                                                                       | Interest income                                     |       |        | 3,208  |        |      |        | 3,324  |        |       |        | 5,122  |       
|                                                         |                                                                                       | Other                                               |       |        | 1,933  |        |      |        | 1,197  |        |       |        | 2,185  |       
|                                                         |                                                                                       |                                                     |       |        |        |        |      |        |       
|                                                         |                                                                                       |                                                     | Total |        |        | 35,450 |      |        |        | 35,126 |       |        |        | 32,101 | 
|                                                         | Expenses:                                                                             |                                                     |       |        |        |        |      |        |        |        |       |        |       
|                                                         |                                                                                       | Interest and fees on notes payable                  |       |        | 3,798  |        |      |        | 2,907  |        |       |        | 2,946  |       
|                                                         |                                                                                       | Salaries and benefits                               |       |        | 12,403 |        |      |        | 12,537 |        |       |        | 9,611  |       
|                                                         |                                                                                       | Provision for loan and impairment losses            |       |        | 30     |        |      |        | 98     |        |       |        | 295    |       
|                                                         |                                                                                       | Occupancy, data processing, communication and other |       |        | 4,745  |        |      |        | 4,953  |        |       |        | 6,504  |       
|                                                         |                                                                                       | Minority interest                                   |       |        | 63     |        |      |        | (10    | )      |       |        | 1,311  |       
|                                                         |                                                                                       |                                                     |       |        |        |        |      |        |       
|                                                         |                                                                                       |                                                     | Total |        |        | 21,039 |      |        |        | 20,485 |       |        |        | 20,667 | 
|                                                         |                                                                                       |                                                     |       |        |        |        |      |        |       
|                                                         | Operating contribution before direct taxes                                            |                                                     | $     | 14,411 |        |        | $    | 14,641 |        |        | $     | 11,434 |       
|                                                         |                                                                                       |                                                     |       |        |        |        |      |        |       
|                                                         | Operating contribution, net of direct taxes                                           |                                                     | $     | 14,437 |        |        | $    | 14,497 |        |        | $     | 11,214 |       
|                                                         |                                                                                       |                                                     |       |        |        |        |      |        |       
|Corporate Overhead:                                      |                                                                                       |                                                     |       |        |        |        |      |        |        |        |       |       
|                                                         | Other revenue                                                                         |                                                     |       | 604    |        |        |      | 366    |        |        |       | 418    |       
|                                                         | Corporate interest expense                                                            |                                                     |       | (3,378 | )      |        |      | (4,588 | )      |        |       | (3,858 | )     
|                                                         | Salaries and benefits, occupancy, professional and other income
    and expenses, net |                                                     |       | (6,652 | )      |        |      | (5,917 | )      |        |       | (5,375 | )     
|                                                         |                                                                                       |                                                     |       |        |        |        |      |        |       
|                                                         | Earnings from continuing operations                                                   |                                                     | $     | 5,011  |        |        | $    | 4,358  |        |        | $     | 2,399  |       
|                                                         | Earnings (loss) from discontinued operations                                          |                                                     |       | 58,623 |        |        |      | 4,829  |        |        |       | (6,170 | )     
|                                                         |                                                                                       |                                                     |       |        |        |        |      |        |       
|                                                         | Net earnings (loss)                                                                   |                                                     |       | 63,634 |        |        |      | 9,187  |        |        |       | (3,771 | )     
|                                                         | Preferred dividends                                                                   |                                                     |       |       |        |        |      | (133   | )      |        |       | (2,478 | )     
|                                                         |                                                                                       |                                                     |       |        |        |        |      |        |       
|                                                         | Net earnings (loss) to common stockholders                                            |                                                     | $     | 63,634 |        |        | $    | 9,054  |        |        | $     | (6,249 | )     
|                                                         |                                                                                       |                                                     |       |        |        |        |      |        |       
|Share data:                                              |                                                                                       |                                                     |       |        |        |        |      |        |        |        |       |       
|Basic earnings per common share are as follows:          |                                                                                       |                                                     |       |        |        |        |      |        |        |        |       |       
|Earnings (loss) from continuing operations               |                                                                                       | $                                                   | 0.45  |        |        | $      | 0.38 |        |        | $      | (0.01 | )     
|                                                         | Discontinued operations                                                               |                                                     | $     | 5.22   |        |        | $    | 0.43   |        |        | $     | (0.73  | )     
|                                                         | Net earnings (loss)                                                                   |                                                     | $     | 5.67   |        |        | $    | 0.81   |        |        | $     | (0.74  | )     
|                                                         | Weighted average common shares outstanding                                            |                                                     |       | 11,230 |        |        |      | 11,200 |        |        |       | 8,500  |       
|Diluted earnings (loss) per common share are as follows: |                                                                                       |                                                     |       |        |        |        |      |        |        |        |       |       
|Earnings (loss) from continuing operations               |                                                                                       | $                                                   | 0.42  |        |        | $      | 0.37 |        |        | $      | (0.01 | )     
|                                                         | Discontinued operations                                                               |                                                     | $     | 4.95   |        |        | $    | 0.43   |        |        | $     | (0.73  | )     
|                                                         | Net earnings (loss) to common stockholders                                            |                                                     | $     | 5.37   |        |        | $    | 0.80   |        |        | $     | (0.74  | )     
|                                                         | Weighted average common shares outstanding                                            |                                                     |       | 11,840 |        |        |      | 11,349 |        |        |       | 8,500  |       

20



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##### 



Fourth Quarter 2004




Condensed Consolidated Summary of Operations


|                                        |         |                        |        |        |      |   |        |        | 
|--------------------------------------- | ------- | ---------------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                                        |         | Fourth Quarter         |       
|                                        |         |                        |       
|                                        |         | 2004                   |        |        | 2003 |  
|                                        |         |                        |        |        |      |  
|                                        |         | (Dollars in thousands, |       
|                                        |         | except per share data) |       
|Revenues                                |         | $                      | 10,334 |        |      | $ | 10,706 |       
|Expenses                                |         |                        | 8,445  |        |      |   | 8,178  |       
|Earnings from continuing operations     |         |                        | 1,939  |        |      |   | 2,418  |       
|Earnings from discontinued operations   |         |                        | 50,639 |        |      |   | 1,131  |       
|Net earnings to common stockholders     |         |                        | 52,578 |        |      |   | 3,549  |       
|Net earnings per common share  basic   |         |                        | 4.67   |        |      |   | 0.32   |       
|Net earnings per common share  diluted |         |                        | 4.41   |        |      |   | 0.31   |       
|Weighted average shares outstanding:    |         |                        |        |        |      |   |        |       
|                                        | Basic   |                        |        | 11,253 |      |   |        | 11,189 | 
|                                        | Diluted |                        |        | 11,913 |      |   |        | 11,621 | 

Portfolio Asset Acquisition and Resolution




|           |  |                |         |  |            |   |        | 
|---------- |  | -------------- | ------- |  | ---------- | - | ------ | 
|           |  | Purchase       |         |  | FirstCity  |  
|           |  | Price          |         |  | Investment |  
|           |  |                |         |  |            |  
|           |  | (In thousands) |        
|1stQuarter |  | $              | 6,699   |  |            | $ | 3,097  | 
|2ndQuarter |  |                | 85,424  |  |            |   | 18,512 | 
|3rdQuarter |  |                | 36,054  |  |            |   | 27,143 | 
|4thQuarter |  |                | 45,962  |  |            |   | 11,010 | 
|           |  |                |         |  |            |  
|Total 2004 |  | $              | 174,139 |  |            | $ | 59,762 | 
|Total 2003 |  | $              | 129,192 |  |            | $ | 22,944 | 
|Total 2002 |  | $              | 171,769 |  |            | $ | 16,717 | 
|Total 2001 |  | $              | 224,927 |  |            | $ | 24,319 | 
|Total 2000 |  | $              | 394,927 |  |            | $ | 22,140 | 



21



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##### 





Analysis of Selected Revenues and Expenses


Portfolio Asset Acquisition and Resolution


|                                                             |                              |                            |       |     |         |        |   |      |         |        |   |     |         |        |  
|------------------------------------------------------------ | ---------------------------- | -------------------------- | ----- | --- | ------- | ------ | - | ---- | ------- | ------ | - | --- | ------- | ------ | -
|                                                             |                              | Year Ended December 31,    |      
|                                                             |                              |                            |      
|                                                             |                              | 2004                       |       |     | 2003    |        |   | 2002 |        
|                                                             |                              |                            |       |     |         |        |   |      |        
|                                                             |                              | (Dollars in thousands)     |      
|Income from Portfolio Assets and Loans Receivable:           |                              |                            |       |     |         |        |   |      |         |        |   |    
|Average investment in Portfolio Assets and loans receivable: |                              |                            |       |     |         |        |   |      |         |        |   |    
|                                                             |                              | Domestic                   |       | $   | 19,028  |        |   | $    | 6,785   |        |   | $   | 13,068  |       
|                                                             |                              | Latin America              |       |     | 16,568  |        |   |      | 14,656  |        |   |     | 18,534  |       
|                                                             |                              | Europe                     |       |     | 1,112   |        |   |      | 2,120   |        |   |     |        |       
|                                                             |                              |                            |       |     |         |        |   |      |        
|                                                             |                              |                            | Total |     | $       | 36,708 |   |      | $       | 23,561 |   |     | $       | 31,602 |  
|                                                             |                              |                            |       |     |         |        |   |      |        
|Income from Portfolio Assets and loans receivable:           |                              |                            |       |     |         |        |   |      |         |        |   |    
|                                                             |                              | Domestic                   |       | $   | 2,653   |        |   | $    | 2,040   |        |   | $   | 2,208   |       
|                                                             |                              | Latin America              |       |     | 2,017   |        |   |      | 2,540   |        |   |     | 3,910   |       
|                                                             |                              | Europe                     |       |     | 64      |        |   |      | 96      |        |   |     |        |       
|                                                             |                              |                            |       |     |         |        |   |      |        
|                                                             |                              |                            | Total |     | $       | 4,734  |   |      | $       | 4,676  |   |     | $       | 6,118  |  
|                                                             |                              |                            |       |     |         |        |   |      |        
|Average return (annualized):                                 |                              |                            |       |     |         |        |   |      |         |        |   |    
|                                                             |                              | Domestic                   |       |     | 13.9    | %      |   |      | 30.1    | %      |   |     | 16.9    | %     
|                                                             |                              | Latin America              |       |     | 12.2    | %      |   |      | 17.3    | %      |   |     | 21.1    | %     
|                                                             |                              | Europe                     |       |     | 5.8     | %      |   |      | 4.5     | %      |   |     |        |       
|                                                             |                              |                            | Total |     |         | 12.9   | % |      |         | 19.9   | % |     |         | 19.4   | %
|Servicing fee revenues:                                      |                              |                            |       |     |         |        |   |      |         |        |   |    
|                                                             | Domestic partnerships:       |                            |       |     |         |        |   |      |         |        |   |     |        
|                                                             |                              | $ Collected                |       | $   | 120,956 |        |   | $    | 143,440 |        |   | $   | 188,081 |       
|                                                             |                              | Servicing fee revenue      |       |     | 4,858   |        |   |      | 4,857   |        |   |     | 5,469   |       
|                                                             |                              | Average servicing fee %    |       |     | 4.0     | %      |   |      | 3.4     | %      |   |     | 2.9     | %     
|                                                             | Latin American partnerships: |                            |       |     |         |        |   |      |         |        |   |     |        
|                                                             |                              | $ Collected                |       | $   | 72,716  |        |   | $    | 56,372  |        |   | $   | 85,303  |       
|                                                             |                              | Servicing fee revenue      |       |     | 8,557   |        |   |      | 9,860   |        |   |     | 6,592   |       
|                                                             |                              | Average servicing fee %(1) |       |     | 11.8    | %      |   |      | 17.5    | %      |   |     | 7.7     | %     
|                                                             | Incentive service fees       |                            | $     | 332 |         |        | $ | 334  |         |        | $ | 604 |        
|                                                             | Total Service Fees:          |                            |       |     |         |        |   |      |         |        |   |     |        
|                                                             |                              | $ Collected                |       | $   | 193,672 |        |   | $    | 199,812 |        |   | $   | 273,384 |       
|                                                             |                              | Servicing fee revenue      |       |     | 13,747  |        |   |      | 15,051  |        |   |     | 12,665  |       
|                                                             |                              | Average servicing fee %    |       |     | 7.1     | %      |   |      | 7.5     | %      |   |     | 4.6     | %     

22



---



##### 



|                                              |                                      |                         |        |        |      |     |        |        |     |     |       |        |     |     | 
|--------------------------------------------- | ------------------------------------ | ----------------------- | ------ | ------ | ---- | --- | ------ | ------ | --- | --- | ----- | ------ | --- | --- | 
|                                              |                                      | Year Ended December 31, |       
|                                              |                                      |                         |       
|                                              |                                      | 2004                    |        |        | 2003 |     |        | 2002   |    
|                                              |                                      |                         |        |        |      |     |        |        |    
|                                              |                                      | (Dollars in thousands)  |       
|Personnel:                                    |                                      |                         |        |        |      |     |        |        |     |     |       |       
|Personnel expenses                            |                                      | $                       | 12,403 |        |      | $   | 12,537 |        |     | $   | 9,611 |       
|                                              | Number of personnel (at period end): |                         |        |        |      |     |        |        |     |     |       |        |    
|                                              |                                      | Domestic                |        |        | 65   |     |        |        | 61  |     |       |        | 75  |    
|                                              |                                      | Mexico                  |        |        | 139  |     |        |        | 176 |     |       |        | 137 |    
|                                              |                                      |                         |        |        |      |     |        |        |    
|                                              |                                      |                         | Total  |        |      | 204 |        |        |     | 237 |       |        |     | 212 | 
|                                              |                                      |                         |        |        |      |     |        |        |    
|Interest expense:                             |                                      |                         |        |        |      |     |        |        |     |     |       |       
|                                              | Average debt                         |                         | $      | 43,612 |      |     | $      | 31,147 |     |     | $     | 31,960 |    
|                                              | Interest expense                     |                         |        | 3,798  |      |     |        | 2,907  |     |     |       | 2,946  |    
|                                              | Average cost                         |                         |        | 8.7    | %    |     |        | 9.3    | %   |     |       | 9.2    | %  
|Provision for impairment on Portfolio Assets: |                                      |                         |        |        |      |     |        |        |     |     |       |       
|                                              | Non-performing                       |                         | $      | 16     |      |     | $      | 31     |     |     | $     | 97     |    
|                                              | Performing                           |                         |        | 13     |      |     |        | 57     |     |     |       | 4      |    
|                                              | Real estate                          |                         |        | 1      |      |     |        | 10     |     |     |       | 194    |    
|                                              |                                      |                         |        |        |      |     |        |        |    
|                                              |                                      | $                       | 30     |        |      | $   | 98     |        |     | $   | 295   |       
|                                              |                                      |                         |        |        |      |     |        |        |    






|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(1) | For the Mexican Acquisition Partnerships, the Company earns a
    servicing fee based on costs of servicing plus a profit margin.



Analysis of Selected Revenues and Expenses


Acquisition Partnerships


|                                               |                                                           |                         |        |         |        |   |        |         |        |   |       |         |         |  
|---------------------------------------------- | --------------------------------------------------------- | ----------------------- | ------ | ------- | ------ | - | ------ | ------- | ------ | - | ----- | ------- | ------- | -
|                                               |                                                           | Year Ended December 31, |       
|                                               |                                                           |                         |       
|                                               |                                                           | 2004                    |        |         | 2003   |   |        | 2002    |       
|                                               |                                                           |                         |        |         |        |   |        |         |       
|                                               |                                                           | (Dollars in thousands)  |       
|Revenues:                                      |                                                           |                         |        |         |        |   |        |         |        |   |       |        
|                                               | Gain on resolution of Portfolio Assets                    |                         | $      | 95,779  |        |   | $      | 98,126  |        |   | $     | 89,824  |        
|                                               | Gross profit percentage on resolution of Portfolio Assets |                         |        | 36.89   | %      |   |        | 38.40   | %      |   |       | 33.00   | %      
|                                               | Interest income                                           |                         | $      | 11,478  |        |   | $      | 9,631   |        |   | $     | 14,380  |        
|                                               | Other income                                              |                         |        | 3,257   |        |   |        | 1,749   |        |   |       | 2,348   |        
|Interest expense(1):                           |                                                           |                         |        |         |        |   |        |         |        |   |       |        
|                                               | Interest expense                                          |                         | $      | 18,495  |        |   | $      | 24,032  |        |   | $     | 63,281  |        
|                                               | Average debt                                              |                         | $      | 343,540 |        |   | $      | 380,101 |        |   | $     | 418,075 |        
|                                               | Average cost                                              |                         |        | 5.38    | %      |   |        | 6.32    | %      |   |       | 15.14   | %      
|Other expenses:                                |                                                           |                         |        |         |        |   |        |         |        |   |       |        
|                                               | Service fees                                              |                         | $      | 17,260  |        |   | $      | 18,520  |        |   | $     | 17,909  |        
|                                               | Other operating costs                                     |                         |        | 30,763  |        |   |        | 22,960  |        |   |       | 16,689  |        
|                                               | Foreign currency losses (gains)                           |                         |        | (957    | )      |   |        | 29,957  |        |   |       | 24,919  |        
|                                               | Income taxes                                              |                         |        | 1,970   |        |   |        | (1,111  | )      |   |       | (3,022  | )      
|                                               |                                                           |                         |        |         |        |   |        |         |       
|                                               |                                                           | Total other expenses    |        |         | 49,036 |   |        |         | 70,326 |   |       |         | 56,495  |  
|                                               |                                                           |                         |        |         |        |   |        |         |       
|                                               |                                                           | Net earnings (loss)     |        | $       | 42,983 |   |        | $       | 15,148 |   |       | $       | (13,224 | )
|                                               |                                                           |                         |        |         |        |   |        |         |       
|Equity in earnings of Acquisition Partnerships |                                                           | $                       | 13,970 |         |        | $ | 13,588 |         |        | $ | 8,418 |        
|Equity in earnings of Servicing Entities       |                                                           |                         | 943    |         |        |   | 586    |         |        |   | 794   |        
|                                               |                                                           |                         |        |         |        |   |        |         |       
|                                               |                                                           | $                       | 14,913 |         |        | $ | 14,174 |         |        | $ | 9,212 |        
|                                               |                                                           |                         |        |         |        |   |        |         |       

23



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##### 



|                                                               |                               |                         |   |        |        |  |   |        |        |  |   |        |        | 
|-------------------------------------------------------------- | ----------------------------- | ----------------------- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                               |                               | Year Ended December 31, |  
|                                                               |                               |                         |  
|                                                               |                               | 2004                    |   |        | 2003   |  |   | 2002   |       
|                                                               |                               |                         |   |        |        |  |   |        |       
|                                                               |                               | (Dollars in thousands)  |  
|FirstCitys Average investment in Acquisition
    Partnerships |                               |                         |   |        |        |  |   |        |        |  |   |       
|                                                               | Domestic                      |                         | $ | 36,941 |        |  | $ | 34,282 |        |  | $ | 32,592 |       
|                                                               | Latin America                 |                         |   | 1,141  |        |  |   | 1,034  |        |  |   | 1,155  |       
|                                                               | Europe                        |                         |   | 13,159 |        |  |   | 12,137 |        |  |   | 9,419  |       
|                                                               | Europe-Servicing subsidiaries |                         |   | 4,673  |        |  |   | 3,765  |        |  |   | 2,689  |       
|                                                               |                               |                         |   |        |        |  |   |        |       
|                                                               |                               | Total                   |   | $      | 55,914 |  |   | $      | 51,218 |  |   | $      | 45,855 | 
|                                                               |                               |                         |   |        |        |  |   |        |       
|FirstCity share of equity earnings                             |                               |                         |   |        |        |  |   |        |        |  |   |       
|                                                               | Domestic                      |                         | $ | 9,905  |        |  | $ | 13,526 |        |  | $ | 9,983  |       
|                                                               | Latin America                 |                         |   | (992   | )      |  |   | (4,028 | )      |  |   | (3,493 | )     
|                                                               | Europe                        |                         |   | 5,057  |        |  |   | 4,090  |        |  |   | 1,928  |       
|                                                               | Europe-Servicing subsidiaries |                         |   | 943    |        |  |   | 586    |        |  |   | 794    |       
|                                                               |                               |                         |   |        |        |  |   |        |       
|                                                               |                               | Total                   |   | $      | 14,913 |  |   | $      | 14,174 |  |   | $      | 9,212  | 
|                                                               |                               |                         |   |        |        |  |   |        |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Interest expense for 2004, 2003 and 2002 includes interest on
    loans to the Acquisition Partnerships located primarily in
    Mexico from affiliates of the investor groups. As noted above,
    beginning in 2003, FirstCity amended seven loan agreements from
    Mexican Acquisition Partnerships to provide for no interest to
    be payable with respect to periods after the effective date of
    the amendment. This change had no impact on the consolidated net
    earnings as the effect is offset through equity earnings in
    these Partnerships.

Liquidity and Capital Resources










24



---



##### 











|                                                                                    |       |                       |    |     |                   |   |    |               |  |                                            |  |                                                                                             | 
|----------------------------------------------------------------------------------- | ----- | --------------------- | -- | --- | ----------------- | - | -- | ------------- |  | ------------------------------------------ |  | ------------------------------------------------------------------------------------------- | 
|                                                                                    |       | Funded and            |    |     |                   |   |    |               | 
|                                                                                    |       | Unfunded              |    |     | Credit Facilities |   |    |               |  |                                           
|                                                                                    |       | Commitment            |    |     | Outstanding       |   |    |               |  |                                           
|                                                                                    |       | Amount as of          |    |     | Borrowings as of  |   |    |               |  |                                           
|                                                                                    |       | March 2,              |    |     | December 31,      |   |    |               |  |                                           
|                                                                                    |       | 2005                  |    |     | 2004              |   |    | Interest Rate |  | Other Terms and Conditions                
|                                                                                    |       |                       |    |     |                   |   |    |               |  |                                           
|                                                                                    |       | (Dollars in millions) |    |     |                   |   |   
|Bank of Scotland $96 million portfolio acquisition and
    working capital facility |       | $                     | 96 |     |                   | $ | 51 |               |  | LIBOR+2.5%-2.75%                           |  | Secured by equity interests and other assets of FirstCity,
    matures November 2008       
|                                                                                   
|Cargill equity investment facility                                                  |       |                       | 35 |     |                   |   |   |               |  | Greater of 8.5% or LIBOR+4.5%              |  | Secured by equity interests, matures March 2005                                            
|                                                                                   
|Unsecured loans payable                                                             |       |                       |   |     |                   |   |   |               |  | Rate based Corporate average cost of funds |  | Contingent liability related to acquisition of minority
    interest, Matures December 2011
|                                                                                    |       |                       |    |     |                   |   |    |               |  |                                           
|                                                                                    | Total |                       | $  | 131 |                   |   | $  | 51            |  |                                            |  |                                                                                             | 
|                                                                                    |       |                       |    |     |                   |   |    |               |  |                                           
|                                                                                   
|Unconsolidated Acquisition Partnerships Term Facilities(1)                          |       | $                     | 90 |     |                   | $ | 90 |               |  | Various rates                              |  | Secured by Portfolio Assets,                                                               
|                                                                                    |       |                       |    |     |                   |   |    |               |  | various maturities, non-recourse          






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In addition to the term acquisition facilities of the
    unconsolidated Acquisition Partnerships, the Latin American
    Acquisition Partnerships also have term debt of approximately
    $249 million outstanding as of December 31, 2004, owed
    to affiliates of the investor groups. Of this amount, the
    Company has recorded approximately $19.2 million as Loans
    Receivable on the Consolidated Balance Sheets.

25



---



##### 



Discussion of Critical Accounting Policies






| |                                                                           
| | --------------------------------------------------------------------------
| | Revenue Recognition: Performing, Non-performing and Real
    Estate Pools.





| |                                
| | -------------------------------
| | Non-Performing Portfolio Assets









26



---



##### 





| |                            
| | ---------------------------
| | Performing Portfolio Assets













| |                       
| | ----------------------
| | Real Estate Portfolios





| |                   
| | ------------------
| | Deferred Tax Asset



27



---



##### 











| |                                               
| | ----------------------------------------------
| | Equity Investments in Acquisition Partnerships







| |                        
| | -----------------------
| | Discontinued Operations



28



---



##### 



Accounting for the Impairment or Disposal of Long-Lived
Assets,




| |                                  
| | ---------------------------------
| | Estimates of Future Cash Receipts





| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | (i) to calculate the allocation of cost of sales of
    non-performing Portfolios;                                     
|
| | (ii) to determine the effective yield of performing
    Portfolios;                                                    
|
| | (iii) to determine the reasonableness of settlement offers
    received in the liquidation of the Portfolio Assets; and
|
| | (iv) to determine whether or not there is impairment in a
    pool of Portfolio Assets                                 



| |                                                         
| | --------------------------------------------------------
| | Calculation of the estimates of future cash
    receipts





| |                                      
| | -------------------------------------
| | Risks associated with these estimates





29



---



##### 







| |                     
| | --------------------
| | Consolidation Policy





Consolidation of Variable Interest Entities








| |                          
| | -------------------------
| | Relationship with Cargill





30



---



##### 







Contractual Obligations and Commercial Commitments




|                                                                                                       |  |       |        |                        |          |   |        |             |  |            |       |  |  |   |        | 
|------------------------------------------------------------------------------------------------------ |  | ----- | ------ | ---------------------- | -------- | - | ------ | ----------- |  | ---------- | ----- |  |  | - | ------ | 
|                                                                                                       |  |       |        | Payments due by Period |          |   |       
|                                                                                                       |  |       |        |                        |          |   |       
|                                                                                                       |  |       |        | Less than              |          |   | One to |             |  | After Four |      
|Contractual Cash Obligations                                                                           |  | Total |        |                        | One Year |   |        | Three Years |  |            | Years | 
|                                                                                                       |  |       |        |                        |          |   |        |             |  |            |       | 
|Notes payable secured by Portfolio Assets, loans receivable and
    equity in Acquisition Partnerships |  | $     | 50,680 |                        |          | $ |       |             |  | $          |      |  |  | $ | 50,680 | 
|Unsecured notes                                                                                        |  |       | 623    |                        |          |   | 132    |             |  |            |      |  |  |   | 491    | 
|Operating leases                                                                                       |  |       | 571    |                        |          |   | 327    |             |  |            | 207   |  |  |   | 37     | 
|                                                                                                       |  |       |        |                        |          |   |        |             |  |            |       | 
|                                                                                                       |  | $     | 51,874 |                        |          | $ | 459    |             |  | $          | 207   |  |  | $ | 51,208 | 
|                                                                                                       |  |       |        |                        |          |   |        |             |  |            |       | 

|                       |  |                                        |   |           |  |             |   |  |  |   |   | 
|---------------------- |  | -------------------------------------- | - | --------- |  | ----------- | - |  |  | - | - | 
|                       |  | Amount of Commitment Expiration Period
|                       |  |                                       
|                       |  | Unfunded                               |   | Less than |  | One to     
|                       |  | Commitments                            |   | One Year  |  | Three Years
|                       |  |                                        |   |           |  |            
|Commercial Commitments |  | $                                      |  |           |  | $           |  |  |  | $ |  | 

Effect of New Accounting Standards


Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity


Effective Date, Disclosures, and Transition
for Mandatorily Redeemable Financial Instruments of Certain
Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests under FASB Statement No. 150,
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity


Accounting for
Certain Loans or Debt Securities Acquired in a Transfer


31



---



##### 





Consolidation of Variable Interest Entities


Share-Based Payment.




RISK FACTORS


Availability of Portfolio Assets




32



---



##### 





Assumptions Underlying Portfolio Asset Performance




Risk Associated with Foreign Operations




Impact of Changing Interest Rates






Continuing Need for Financing




33



---



##### 





Risk of Declining Value of Collateral




Availability of Net Operating Loss Carryforwards








Assumptions Regarding Recognition of Deferred Tax Asset




34



---



##### 





Environmental Liabilities




Competition






General Economic Conditions




Government Regulation




35



---



##### 



Litigation




Relationship With and Dependence Upon Cargill




Dependence on Key Personnel






Influence of Certain Stockholders




36



---



##### 



Shares Eligible for Future Sale




Period to Period Variances




Tax, Monetary and Fiscal Policy Changes




Anti-Takeover Considerations









Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk.






37



---



##### 







|                                                                                                          |  |          |      |   |        |   |        |        |  |   |        |  |         |        |        |  |         |   |        |       |  |   |        |  |  |   |         | 
|--------------------------------------------------------------------------------------------------------- |  | -------- | ---- | - | ------ | - | ------ | ------ |  | - | ------ |  | ------- | ------ | ------ |  | ------- | - | ------ | ----- |  | - | ------ |  |  | - | ------- | 
|                                                                                                          |  | Weighted |      |   |        |   |        |        |  |   |        |  | Greater |        |        | 
|                                                                                                          |  | Average  |      |   | 0-3    |   |        | 3-6    |  |   | 6-9    |  |         | 9-12   |        |  | than 12 |   |        |      
|                                                                                                          |  | Rate     |      |   | Months |   |        | Months |  |   | Months |  |         | Months |        |  | Months  |   |        | Total | 
|                                                                                                          |  |          |      |   |        |   |        |        |  |   |        |  |         |        |        |  |         |   |        |       | 
|Interest bearing assets                                                                                   |  |          |      |   |        |   |        |        |  |   |        |  |         |        |        |  |         |   |        |       |  |   |        |  |  |   |         | 
|Portfolio assets(1)                                                                                       |  |          | N/A  |   |        | $ | 1,827  |        |  | $ | 1,176  |  |         | $      | 2,485  |  |         | $ | 5,079  |       |  | $ | 27,385 |  |  | $ | 37,952  | 
|Loans receivable(2)                                                                                       |  |          | 7.09 | % |        |   | 2,481  |        |  |   | 2,920  |  |         |        | 1,766  |  |         |   | 1,249  |       |  |   | 12,839 |  |  |   | 21,255  | 
|Equity investments(3)                                                                                     |  |          | N/A  |   |        |   | 13,397 |        |  |   | 8,783  |  |         |        | 10,588 |  |         |   | 7,924  |       |  |   | 17,123 |  |  |   | 57,815  | 
|                                                                                                          |  |          |      |   |        |   |        |        |  |   |        |  |         |        |        |  |         |   |        |       | 
|                                                                                                          |  |          |      |   |        | $ | 17,705 |        |  | $ | 12,879 |  |         | $      | 14,839 |  |         | $ | 14,252 |       |  | $ | 57,347 |  |  | $ | 117,022 | 
|                                                                                                          |  |          |      |   |        |   |        |        |  |   |        |  |         |        |        |  |         |   |        |       | 
|Interest bearing liabilities                                                                              |  |          |      |   |        |   |        |        |  |   |        |  |         |        |        |  |         |   |        |       |  |   |        |  |  |   |         | 
|Notes payable secured by Portfolio Assets, loans receivable and
    equity in Acquisition Partnerships(4) |  |          | 4.92 | % |        | $ |       |        |  | $ |       |  |         | $      |       |  |         | $ |       |       |  | $ | 50,680 |  |  | $ | 50,680  | 
|Unsecured notes                                                                                           |  |          | 6.67 | % |        |   |       |        |  |   |       |  |         |        | 132    |  |         |   |       |       |  |   | 491    |  |  |   | 623     | 
|                                                                                                          |  |          |      |   |        |   |        |        |  |   |        |  |         |        |        |  |         |   |        |       | 
|                                                                                                          |  |          |      |   |        | $ |       |        |  | $ |       |  |         | $      | 132    |  |         | $ |       |       |  | $ | 51,171 |  |  | $ | 51,303  | 
|                                                                                                          |  |          |      |   |        |   |        |        |  |   |        |  |         |        |        |  |         |   |        |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Portfolio assets are shown based on estimated proceeds from
    disposition, which could occur much faster or slower than
    anticipated or as directed.                                                                                                                                                                                                                    
|   
|(2) | Loans receivable are shown in the table based upon the expected
    date of sale or repayment.                                                                                                                                                                                                                                                                               
|   
|(3) | Equity investments are shown based on anticipated equity
    disbursements, which could occur much faster or slower than
    anticipated.                                                                                                                                                                                                                                    
|   
|(4) | Notes payable mature in the periods indicated. This does not
    necessarily indicate when the outstanding balances would be
    paid. Notes payable secured by Portfolio Assets fund up to 100%
    of the corresponding asset class. If the asset balance declines
    whether through a sale or a payment from the borrower, the
    corresponding liability must be paid.





38



---



##### 







39



---



##### 








|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary Data.

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


|                                                                       |                                                                                                                                                                                                                                                                          |                                            |        |         |              |   |        |         |         | 
|---------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | ------- | ------------ | - | ------ | ------- | ------- | 
|                                                                       |                                                                                                                                                                                                                                                                          | December 31,                               |        |         | December 31, |  
|                                                                       |                                                                                                                                                                                                                                                                          | 2004                                       |        |         | 2003         |  
|                                                                       |                                                                                                                                                                                                                                                                          |                                            |        |         |              |  
|                                                                       |                                                                                                                                                                                                                                                                          | (Dollars in thousands, except              |       
|                                                                       |                                                                                                                                                                                                                                                                          | per share data)                            |       
|ASSETS                                                                
|Cash and cash equivalents                                              |                                                                                                                                                                                                                                                                          | $                                          | 9,724  |         |              | $ | 2,745  |        
|Portfolio Assets, net                                                  |                                                                                                                                                                                                                                                                          |                                            | 37,952 |         |              |   | 4,525  |        
|Loans receivable from Acquisition Partnerships held for
    investment |                                                                                                                                                                                                                                                                          |                                            | 21,255 |         |              |   | 17,313 |        
|Equity investments                                                     |                                                                                                                                                                                                                                                                          |                                            | 57,815 |         |              |   | 57,479 |        
|Deferred tax asset, net                                                |                                                                                                                                                                                                                                                                          |                                            | 20,101 |         |              |   | 20,101 |        
|Service fees receivable from affiliates                                |                                                                                                                                                                                                                                                                          |                                            | 1,631  |         |              |   | 1,390  |        
|Other assets, net                                                      |                                                                                                                                                                                                                                                                          |                                            | 8,562  |         |              |   | 6,769  |        
|Discontinued mortgage assets                                           |                                                                                                                                                                                                                                                                          |                                            | 1,817  |         |              |   | 6,399  |        
|Discontinued consumer assets held for sale                             |                                                                                                                                                                                                                                                                          |                                            |       |         |              |   | 15,667 |        
|                                                                       |                                                                                                                                                                                                                                                                          |                                            |        |         |              |  
|                                                                       |                                                                                                                                                                                                                                                                          | Total Assets                               |        | $       | 158,857      |   |        | $       | 132,388 | 
|                                                                       |                                                                                                                                                                                                                                                                          |                                            |        |         |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                  
|Liabilities:                                                           |                                                                                                                                                                                                                                                                          |                                            |        |         |              |   |        |        
|                                                                       | Notes payable to affiliates                                                                                                                                                                                                                                              |                                            | $      | 491     |              |   | $      | 1,276   |        
|                                                                       | Notes payable other                                                                                                                                                                                                                                                      |                                            |        | 50,812  |              |   |        | 73,784  |        
|                                                                       | Redeemable preferred stock, including accumulated dividends in
    arrears of zero and $1,193, respectively, (par value $.01;
    redemption value of $21 per share; 2,000,000 shares
    authorized; shares issued and outstanding: zero and 126,291,
    respectively) |                                            |        |        |              |   |        | 3,846   |        
|                                                                       | Minority interest                                                                                                                                                                                                                                                        |                                            |        | 1,292   |              |   |        | 841     |        
|                                                                       | Liabilities from discontinued consumer operations                                                                                                                                                                                                                        |                                            |        | 9,033   |              |   |        | 19,132  |        
|                                                                       | Liabilities from discontinued mortgage operations                                                                                                                                                                                                                        |                                            |        | 50      |              |   |        | 249     |        
|                                                                       | Other liabilities                                                                                                                                                                                                                                                        |                                            |        | 4,756   |              |   |        | 4,291   |        
|                                                                       |                                                                                                                                                                                                                                                                          |                                            |        |         |              |  
|                                                                       |                                                                                                                                                                                                                                                                          | Total Liabilities                          |        |         | 66,434       |   |        |         | 103,419 | 
|Commitments and contingencies (note 14)                                |                                                                                                                                                                                                                                                                          |                                            |        |         |              |   |        |        
|Stockholders 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; shares issued and
    outstanding: 11,260,687 and 11,193,687, respectively)                                                                                                                   |                                            |        | 113     |              |   |        | 112     |        
|                                                                       | Paid in capital                                                                                                                                                                                                                                                          |                                            |        | 99,364  |              |   |        | 99,168  |        
|                                                                       | Accumulated deficit                                                                                                                                                                                                                                                      |                                            |        | (10,289 | )            |   |        | (73,923 | )      
|                                                                       | Accumulated other comprehensive income                                                                                                                                                                                                                                   |                                            |        | 3,235   |              |   |        | 3,612   |        
|                                                                       |                                                                                                                                                                                                                                                                          |                                            |        |         |              |  
|                                                                       |                                                                                                                                                                                                                                                                          | Total Stockholders Equity                 |        |         | 92,423       |   |        |         | 28,969  | 
|                                                                       |                                                                                                                                                                                                                                                                          |                                            |        |         |              |  
|                                                                       |                                                                                                                                                                                                                                                                          | Total Liabilities and Stockholders Equity |        | $       | 158,857      |   |        | $       | 132,388 | 
|                                                                       |                                                                                                                                                                                                                                                                          |                                            |        |         |              |  



40



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                  |                                                            |                                                  |        |        |        |   |       |        |        |   |        |        |        |  
|--------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------------------ | ------ | ------ | ------ | - | ----- | ------ | ------ | - | ------ | ------ | ------ | -
|                                                                                  |                                                            | Year Ended December 31,                          |       
|                                                                                  |                                                            |                                                  |       
|                                                                                  |                                                            | 2004                                             |        |        | 2003   |   |       | 2002   |       
|                                                                                  |                                                            |                                                  |        |        |        |   |       |        |       
|                                                                                  |                                                            | (In thousands, except per share                  |       
|                                                                                  |                                                            | data)                                            |       
|Revenues:                                                                         |                                                            |                                                  |        |        |        |   |       |        |        |   |        |       
|                                                                                  | Servicing fees from affiliates                             |                                                  | $      | 13,747 |        |   | $     | 15,051 |        |   | $      | 12,665 |       
|                                                                                  | Gain on resolution of Portfolio Assets                     |                                                  |        | 1,649  |        |   |       | 1,380  |        |   |        | 1,138  |       
|                                                                                  | Equity in earnings of investments                          |                                                  |        | 14,913 |        |   |       | 14,174 |        |   |        | 9,212  |       
|                                                                                  | Interest income from affiliates                            |                                                  |        | 2,321  |        |   |       | 2,794  |        |   |        | 4,060  |       
|                                                                                  | Interest income  other                                    |                                                  |        | 902    |        |   |       | 533    |        |   |        | 1,068  |       
|                                                                                  | Gain on sale of interest in equity investments             |                                                  |        |       |        |   |       |       |        |   |        | 1,779  |       
|                                                                                  | Other income                                               |                                                  |        | 2,522  |        |   |       | 1,560  |        |   |        | 2,597  |       
|                                                                                  |                                                            |                                                  |        |        |        |   |       |        |       
|                                                                                  |                                                            | Total revenues                                   |        |        | 36,054 |   |       |        | 35,492 |   |        |        | 32,519 |  
|Expenses:                                                                         |                                                            |                                                  |        |        |        |   |       |        |        |   |        |       
|                                                                                  | Interest and fees on notes payable to affiliates           |                                                  |        | 65     |        |   |       | 79     |        |   |        | 27     |       
|                                                                                  | Interest and fees on notes payable  other                 |                                                  |        | 6,846  |        |   |       | 7,283  |        |   |        | 6,777  |       
|                                                                                  | Interest on shares subject to mandatory redemption         |                                                  |        | 265    |        |   |       | 133    |        |   |        |       |       
|                                                                                  | Salaries and benefits                                      |                                                  |        | 16,139 |        |   |       | 15,875 |        |   |        | 12,609 |       
|                                                                                  | Provision for loan and impairment losses                   |                                                  |        | 30     |        |   |       | 98     |        |   |        | 295    |       
|                                                                                  | Occupancy, data processing, communication and other        |                                                  |        | 7,560  |        |   |       | 7,491  |        |   |        | 8,948  |       
|                                                                                  |                                                            |                                                  |        |        |        |   |       |        |       
|                                                                                  |                                                            | Total expenses                                   |        |        | 30,905 |   |       |        | 30,959 |   |        |        | 28,656 |  
|Earnings from continuing operations before income taxes and
    minority interest |                                                            |                                                  | 5,149  |        |        |   | 4,533 |        |        |   | 3,863  |       
|Provision for income taxes                                                        |                                                            |                                                  | (75    | )      |        |   | (185  | )      |        |   | (153   | )     
|                                                                                  |                                                            |                                                  |        |        |        |   |       |        |       
|Earnings from continuing operations before minority interest                      |                                                            |                                                  | 5,074  |        |        |   | 4,348 |        |        |   | 3,710  |       
|Minority interest                                                                 |                                                            |                                                  | (63    | )      |        |   | 10    |        |        |   | (1,311 | )     
|                                                                                  |                                                            |                                                  |        |        |        |   |       |        |       
|Earnings from continuing operations                                               |                                                            |                                                  | 5,011  |        |        |   | 4,358 |        |        |   | 2,399  |       
|                                                                                  |                                                            |                                                  |        |        |        |   |       |        |       
|Discontinued operations                                                           |                                                            |                                                  |        |        |        |   |       |        |        |   |        |       
|                                                                                  | Earnings (loss) from operations of discontinued components |                                                  |        | 60,382 |        |   |       | 4,774  |        |   |        | (6,170 | )     
|                                                                                  |                                                            | Income taxes                                     |        |        | (1,759 | ) |       |        | 55     |   |        |        |       |  
|                                                                                  |                                                            |                                                  |        |        |        |   |       |        |       
|                                                                                  |                                                            | Net earnings (loss) from discontinued operations |        |        | 58,623 |   |       |        | 4,829  |   |        |        | (6,170 | )
|                                                                                  |                                                            |                                                  |        |        |        |   |       |        |       
|Net earnings (loss)                                                               |                                                            |                                                  | 63,634 |        |        |   | 9,187 |        |        |   | (3,771 | )     
|Accumulated preferred dividends in arrears                                        |                                                            |                                                  |       |        |        |   | (133  | )      |        |   | (2,478 | )     
|                                                                                  |                                                            |                                                  |        |        |        |   |       |        |       
|Net earnings (loss) to common stockholders                                        |                                                            | $                                                | 63,634 |        |        | $ | 9,054 |        |        | $ | (6,249 | )     
|                                                                                  |                                                            |                                                  |        |        |        |   |       |        |       
|Basic earnings per common share are as follows:                                   |                                                            |                                                  |        |        |        |   |       |        |        |   |        |       
|                                                                                  | Earnings (loss) from continuing operations                 |                                                  | $      | 0.45   |        |   | $     | 0.38   |        |   | $      | (0.01  | )     
|                                                                                  | Discontinued operations                                    |                                                  | $      | 5.22   |        |   | $     | 0.43   |        |   | $      | (0.73  | )     
|                                                                                  | Net earnings (loss) to common stockholders                 |                                                  | $      | 5.67   |        |   | $     | 0.81   |        |   | $      | (0.74  | )     
|                                                                                  | Weighted average common shares outstanding                 |                                                  |        | 11,230 |        |   |       | 11,200 |        |   |        | 8,500  |       
|Diluted earnings (loss) per common share are as follows:                          |                                                            |                                                  |        |        |        |   |       |        |        |   |        |       
|                                                                                  | Earnings (loss) from continuing operations                 |                                                  | $      | 0.42   |        |   | $     | 0.37   |        |   | $      | (0.01  | )     
|                                                                                  | Discontinued operations                                    |                                                  | $      | 4.95   |        |   | $     | 0.43   |        |   | $      | (0.73  | )     
|                                                                                  | Net earnings (loss) to common stockholders                 |                                                  | $      | 5.37   |        |   | $     | 0.80   |        |   | $      | (0.74  | )     
|                                                                                  | Weighted average common shares outstanding                 |                                                  |        | 11,840 |        |   |       | 11,349 |        |   |        | 8,500  |       



41



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


AND COMPREHENSIVE INCOME (LOSS)


|                                                                        |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |   |       |        |   |   |        |        |  
|----------------------------------------------------------------------- | ------------------------------------- | ---------------------- | ---------- | - | ------ | - | --- | ------- |  | ----------- | ----------- | - |  | ------------- | ------- | ------ | ------------- | - | ----- | ------ | - | - | ------ | ------ | -
|                                                                        |                                       |                        |            |   |        |   |     |         |  | Accumulated |             |   | 
|                                                                        |                                       | Number of              |            |   |        |   |     |         |  |             | Other       |   |  | Total         |        
|                                                                        |                                       | Common                 |            |   | Common |   |     | Paid in |  |             | Accumulated |   |  | Comprehensive |         |        | Stockholders |  
|                                                                        |                                       | Shares                 |            |   | Stock  |   |     | Capital |  |             | Deficit     |   |  | Income        |         |        | Equity        |  
|                                                                        |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |  
|                                                                        |                                       | (Dollars in thousands) |           
|Balances, December 31, 2001                                             |                                       |                        | 8,376,500  |   |        | $ | 84  |         |  | $           | 79,645      |   |  | $             | (76,728 | )      |               | $ | 876   |        |   | $ | 3,877  |       
|Issuance of common stock in Exchange for redeemable preferred
    stock |                                       |                        | 2,417,388  |   |        |   | 24  |         |  |             | 18,891      |   |  |               |        |        |               |   |      |        |   |   | 18,915 |       
|Issuance of common stock to acquire minority interest in
    subsidiary |                                       |                        | 400,000    |   |        |   | 4   |         |  |             | 396         |   |  |               |        |        |               |   |      |        |   |   | 400    |       
|Issuance of common stock under employee stock purchase plan             |                                       |                        | 1,188      |   |        |   |    |         |  |             | 2           |   |  |               |        |        |               |   |      |        |   |   | 2      |       
|Comprehensive loss:                                                     |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |   |       |        |   |   |        |       
|                                                                        | Net loss for 2002                     |                        |            |  |        |   |     |        |  |             |             |  |  |               |         | (3,771 | )             |   |       |       |   |   |        | (3,771 | )
|                                                                        | Translation adjustments               |                        |            |  |        |   |     |        |  |             |             |  |  |               |         |       |               |   |       | 1,782  |   |   |        | 1,782  |  
|                                                                        | Unrealized net gain on securitization |                        |            |  |        |   |     |        |  |             |             |  |  |               |         |       |               |   |       | 25     |   |   |        | 25     |  
|                                                                        |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |  
|Total comprehensive loss                                                |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |   |       |        |   |   | (1,964 | )     
|                                                                        |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |  
|Preferred dividends                                                     |                                       |                        |           |   |        |   |    |         |  |             |            |   |  |               | (2,478  | )      |               |   |      |        |   |   | (2,478 | )     
|                                                                        |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |  
|Balances, December 31, 2002                                             |                                       |                        | 11,195,076 |   |        |   | 112 |         |  |             | 98,934      |   |  |               | (82,977 | )      |               |   | 2,683 |        |   |   | 18,752 |       
|Issuance of common stock in exchange for redeemable preferred
    stock |                                       |                        | 8,200      |   |        |   |    |         |  |             | 75          |   |  |               |        |        |               |   |      |        |   |   | 75     |       
|Issuance of shares through employee stock purchase plan                 |                                       |                        | 1,395      |   |        |   |    |         |  |             | 3           |   |  |               |        |        |               |   |      |        |   |   | 3      |       
|Exercise of common stock options                                        |                                       |                        | 6,250      |   |        |   |    |         |  |             | 12          |   |  |               |        |        |               |   |      |        |   |   | 12     |       
|Refund of unconverted common stock                                      |                                       |                        | (17,234    | ) |        |   |    |         |  |             | 144         |   |  |               |        |        |               |   |      |        |   |   | 144    |       
|Comprehensive income:                                                   |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |   |       |        |   |   |        |       
|                                                                        | Net earnings for 2003                 |                        |            |  |        |   |     |        |  |             |             |  |  |               |         | 9,187  |               |   |       |       |   |   |        | 9,187  |  
|                                                                        | Translation adjustments               |                        |            |  |        |   |     |        |  |             |             |  |  |               |         |       |               |   |       | 2,157  |   |   |        | 2,157  |  
|                                                                        | Unrealized net loss on securitization |                        |            |  |        |   |     |        |  |             |             |  |  |               |         |       |               |   |       | (1,228 | ) |   |        | (1,228 | )
|                                                                        |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |  
|Total comprehensive income                                              |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |   |       |        |   |   | 10,116 |       
|                                                                        |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |  
|Preferred dividends                                                     |                                       |                        |           |   |        |   |    |         |  |             |            |   |  |               | (133    | )      |               |   |      |        |   |   | (133   | )     
|                                                                        |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |  
|Balances, December 31, 2003                                             |                                       |                        | 11,193,687 |   |        |   | 112 |         |  |             | 99,168      |   |  |               | (73,923 | )      |               |   | 3,612 |        |   |   | 28,969 |       
|Exercise of common stock options                                        |                                       |                        | 67,000     |   |        |   | 1   |         |  |             | 196         |   |  |               |        |        |               |   |      |        |   |   | 197    |       
|Comprehensive income:                                                   |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |   |       |        |   |   |        |       
|                                                                        | Net earnings for 2004                 |                        |            |  |        |   |     |        |  |             |             |  |  |               |         | 63,634 |               |   |       |       |   |   |        | 63,634 |  
|                                                                        | Translation adjustments               |                        |            |  |        |   |     |        |  |             |             |  |  |               |         |       |               |   |       | (377   | ) |   |        | (377   | )
|                                                                        |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |  
|Total comprehensive income                                              |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |   |       |        |   |   | 63,257 |       
|                                                                        |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |  
|Balances, December 31, 2004                                             |                                       |                        | 11,260,687 |   |        | $ | 113 |         |  | $           | 99,364      |   |  | $             | (10,289 | )      |               | $ | 3,235 |        |   | $ | 92,423 |       
|                                                                        |                                       |                        |            |   |        |   |     |         |  |             |             |   |  |               |         |        |               |  



42



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                     |                                                                                     |                                                                             |                                                        |        |         |         |        |       |         |        |        |        |         |         |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------ | ------ | ------- | ------- | ------ | ----- | ------- | ------ | ------ | ------ | ------- | ------- | -
|                                                     |                                                                                     | Year Ended December 31,                                                     |                                                       
|                                                     |                                                                                     |                                                                             |                                                       
|                                                     |                                                                                     | 2004                                                                        |                                                        |        | 2003    |         |        | 2002  |        
|                                                     |                                                                                     |                                                                             |                                                        |        |         |         |        |       |        
|                                                     |                                                                                     | (Dollars in thousands)                                                      |                                                       
|Cash flows from operating activities:                |                                                                                     |                                                                             |                                                        |        |         |         |        |       |         |        |        |       
|                                                     | Net earnings (loss)                                                                 |                                                                             | $                                                      | 63,634 |         |         | $      | 9,187 |         |        | $      | (3,771 | )      
|                                                     | Adjustments to reconcile net earnings to net cash used in
    operating activities: |                                                                             |                                                        |        |         |         |        |       |         |        |        |        |        
|                                                     |                                                                                     | Net (earnings) loss from discontinued operations                            |                                                        |        | (58,623 | )       |        |       | (4,829  | )      |        |        | 6,170   |        
|                                                     |                                                                                     | Proceeds from resolution of Portfolio Assets                                |                                                        |        | 5,998   |         |        |       | 7,527   |        |        |        | 4,210   |        
|                                                     |                                                                                     | Gain on resolution of Portfolio Assets                                      |                                                        |        | (1,649  | )       |        |       | (1,380  | )      |        |        | (1,138  | )      
|                                                     |                                                                                     | Purchase of Portfolio Assets and loans receivable, net                      |                                                        |        | (48,416 | )       |        |       | (6,646  | )      |        |        | (4,412  | )      
|                                                     |                                                                                     | Provision for loan and impairment losses                                    |                                                        |        | 30      |         |        |       | 98      |        |        |        | 295     |        
|                                                     |                                                                                     | Equity in earnings of investments                                           |                                                        |        | (14,913 | )       |        |       | (14,174 | )      |        |        | (9,212  | )      
|                                                     |                                                                                     | Proceeds from performing Portfolio Assets and loans receivable,
    net     |                                                        |        | 7,283   |         |        |       | 4,660   |        |        |        | 5,675   |        
|                                                     |                                                                                     | Capitalized interest and costs on Portfolio Assets and loans
    receivable |                                                        |        | (191    | )       |        |       | (216    | )      |        |        | (15     | )      
|                                                     |                                                                                     | Depreciation and amortization                                               |                                                        |        | 725     |         |        |       | 896     |        |        |        | 721     |        
|                                                     |                                                                                     | (Increase) decrease in service fees receivable from affiliate               |                                                        |        | (241    | )       |        |       | 845     |        |        |        | (689    | )      
|                                                     |                                                                                     | Increase in other assets                                                    |                                                        |        | (952    | )       |        |       | (2,576  | )      |        |        | (2,528  | )      
|                                                     |                                                                                     | Gain on sale of interest in equity investments or Subsidiary                |                                                        |        |        |         |        |       |        |        |        |        | (1,779  | )      
|                                                     |                                                                                     | Gain on early extinguishment of debt                                        |                                                        |        |        |         |        |       |        |        |        |        | (899    | )      
|                                                     |                                                                                     | Payment of dividends on preferred stock                                     |                                                        |        | (1,459  | )       |        |       |        |        |        |        |        |        
|                                                     |                                                                                     | Increase in other liabilities                                               |                                                        |        | 396     |         |        |       | 73      |        |        |        | 1,866   |        
|                                                     |                                                                                     | Change in debt imputed value                                                |                                                        |        | (759    | )       |        |       |        |        |        |        |        |        
|                                                     |                                                                                     |                                                                             |                                                        |        |         |         |        |       |        
|                                                     |                                                                                     |                                                                             | Net cash used in operating activities                  |        |         | (49,137 | )      |       |         | (6,535 | )      |        |         | (5,506  | )
|                                                     |                                                                                     |                                                                             |                                                        |        |         |         |        |       |        
|Cash flows from investing activities:                |                                                                                     |                                                                             |                                                        |        |         |         |        |       |         |        |        |       
|                                                     |                                                                                     | Proceeds from sale of interest in equity investments or
    Subsidiary      |                                                        |        |        |         |        |       |        |        |        |        | 3,373   |        
|                                                     |                                                                                     | Purchase of minority interest by consolidated subsidiary                    |                                                        |        |        |         |        |       | (1,399  | )      |        |        |        |        
|                                                     |                                                                                     | Property and equipment, net                                                 |                                                        |        | (2,307  | )       |        |       | (776    | )      |        |        | (412    | )      
|                                                     |                                                                                     | Contributions to Acquisition Partnerships and Servicing Entities            |                                                        |        | (12,603 | )       |        |       | (18,879 | )      |        |        | (14,011 | )      
|                                                     |                                                                                     | Distributions from Acquisition Partnerships and Servicing
    Entities      |                                                        |        | 29,050  |         |        |       | 30,845  |        |        |        | 23,440  |        
|                                                     |                                                                                     |                                                                             |                                                        |        |         |         |        |       |        
|                                                     |                                                                                     |                                                                             | Net cash provided by investing activities              |        |         | 14,140  |        |       |         | 9,791  |        |        |         | 12,390  |  
|                                                     |                                                                                     |                                                                             |                                                        |        |         |         |        |       |        
|Cash flows from financing activities:                |                                                                                     |                                                                             |                                                        |        |         |         |        |       |         |        |        |       
|                                                     |                                                                                     | Borrowing under notes payable  other                                       |                                                        |        | 75,848  |         |        |       | 30,748  |        |        |        | 61,626  |        
|                                                     |                                                                                     | Payments of notes payable to affiliates                                     |                                                        |        | (26     | )       |        |       | (82     | )      |        |        | (1,079  | )      
|                                                     |                                                                                     | Payments of notes payable  other                                           |                                                        |        | (99,965 | )       |        |       | (36,498 | )      |        |        | (40,118 | )      
|                                                     |                                                                                     | Proceeds from issuance of common stock                                      |                                                        |        |        |         |        |       | 15      |        |        |        | 2       |        
|                                                     |                                                                                     | Refund on unconverted Common Stock                                          |                                                        |        |        |         |        |       | 144     |        |        |        |        |        
|                                                     |                                                                                     | Payments for tender of redeemable preferred stock                           |                                                        |        | (2,652  | )       |        |       | (50     | )      |        |        | (10,456 | )      
|                                                     |                                                                                     | Payments for closing costs of recapitalization                              |                                                        |        |        |         |        |       |        |        |        |        | (1,503  | )      
|                                                     |                                                                                     | Exercise of options                                                         |                                                        |        | 197     |         |        |       |        |        |        |        |        |        
|                                                     |                                                                                     |                                                                             |                                                        |        |         |         |        |       |        
|                                                     |                                                                                     |                                                                             | Net cash provided by (used in) financing activities    |        |         | (26,598 | )      |       |         | (5,723 | )      |        |         | 8,472   |  
|                                                     |                                                                                     |                                                                             |                                                        |        |         |         |        |       |        
|                                                     |                                                                                     |                                                                             | Net cash provided by (used in) continuing operations   |        |         | (61,595 | )      |       |         | (2,467 | )      |        |         | 15,356  |  
|                                                     |                                                                                     |                                                                             | Net cash provided by (used in) discontinued operations |        |         | 68,574  |        |       |         | 1,094  |        |        |         | (16,821 | )
|                                                     |                                                                                     |                                                                             |                                                        |        |         |         |        |       |        
|Net increase (decrease) in cash and cash equivalents |                                                                                     |                                                                             | 6,979                                                  |        |         |         | (1,373 | )     |         |        | (1,465 | )     
|Cash and cash equivalents, beginning of year         |                                                                                     |                                                                             | 2,745                                                  |        |         |         | 4,118  |       |         |        | 5,583  |       
|                                                     |                                                                                     |                                                                             |                                                        |        |         |         |        |       |        
|Cash and cash equivalents, end of year               |                                                                                     | $                                                                           | 9,724                                                  |        |         | $       | 2,745  |       |         | $      | 4,118  |       
|                                                     |                                                                                     |                                                                             |                                                        |        |         |         |        |       |        
|Supplemental disclosure of cash flow information:    |                                                                                     |                                                                             |                                                        |        |         |         |        |       |         |        |        |       
|                                                     | Cash paid during the year for:                                                      |                                                                             |                                                        |        |         |         |        |       |         |        |        |        |        
|                                                     |                                                                                     | Interest                                                                    |                                                        | $      | 7,520   |         |        | $     | 6,401   |        |        | $      | 5,580   |        
|                                                     |                                                                                     | Income taxes                                                                |                                                        |        | 823     |         |        |       | 350     |        |        |        | 46      |        
|                                                     | Non-cash financing activities:                                                      |                                                                             |                                                        |        |         |         |        |       |         |        |        |        |        
|                                                     |                                                                                     | Dividends accumulated and not paid on preferred stock                       |                                                        |        |        |         |        |       | 133     |        |        |        | 2,478   |        



43



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002


(Dollars in thousands)




|   |                                           
|-- | ------------------------------------------
|1. | Summary of Significant Accounting Policies



|    |                      
|--- | ---------------------
|(a) | Basis of Presentation







|    |                        
|--- | -----------------------
|(b) | Description of Business







44



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                            
|--- | ---------------------------
|(c) | Principles of Consolidation



|                                           |  |            |       |  
|------------------------------------------ |  | ---------- | ----- | -
|                                           |  | Percentage |      
|Affiliate                                  |  | Ownership  |      
|                                           |  |            |      
|BIDMEX 4, LLC                              |  |            | 20.00 | %
|BIDMEX 5, LLC                              |  |            | 20.00 | %
|BIDMEX 8, LLC                              |  |            | 20.00 | %
|CRY Limited                                |  |            | 20.00 | %
|CTY Limited                                |  |            | 20.00 | %
|UHR Limited                                |  |            | 20.00 | %
|WOX Limited                                |  |            | 20.00 | %
|Namex, LLC                                 |  |            | 22.22 | %
|WOD Limited                                |  |            | 22.50 | %
|WOL Limited                                |  |            | 22.50 | %
|FC Portfolio Limited                       |  |            | 22.50 | %
|SAI SA                                     |  |            | 22.50 | %
|FCS Fischer, Ltd                           |  |            | 24.70 | %
|NEVVS Limited                              |  |            | 25.00 | %
|BIDMEX 7, LLC                              |  |            | 25.00 | %
|BIDMEX 10, LLC                             |  |            | 25.00 | %
|MinnTex Investment Partners LP             |  |            | 33.00 | %
|Compagnie Transatlantique de Portefeuilles |  |            | 33.33 | %
|FCS Fischer GP, Corp                       |  |            | 33.33 | %
|P.R.L. Development, SAS                    |  |            | 33.50 | %
|First B Realty, L.P                        |  |            | 49.00 | %
|WAMCO III, Ltd                             |  |            | 49.00 | %
|WAMCO IX, Ltd                              |  |            | 49.00 | %
|WAMCO XXIV, Ltd                            |  |            | 49.00 | %
|WAMCO XXV, Ltd                             |  |            | 49.00 | %
|WAMCO XXVIII, Ltd                          |  |            | 49.50 | %

45



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                   |  |            |       |  
|---------------------------------- |  | ---------- | ----- | -
|                                   |  | Percentage |      
|Affiliate                          |  | Ownership  |      
|                                   |  |            |      
|WAMCO XXX, Ltd                     |  |            | 49.50 | %
|WAMCO 31, Ltd                      |  |            | 49.50 | %
|WAMCO 32, Ltd                      |  |            | 49.50 | %
|WAMCO 33, Ltd                      |  |            | 49.50 | %
|FCS Creamer Ltd                    |  |            | 49.75 | %
|FCS Wildhorse, Ltd                 |  |            | 49.75 | %
|FCS Wood, Ltd                      |  |            | 49.75 | %
|Calibat Fund, LLC                  |  |            | 50.00 | %
|FCS Creamer GP, Corp               |  |            | 50.00 | %
|FCS Wildhorse GP Corp              |  |            | 50.00 | %
|FCS Wood GP Corp                   |  |            | 50.00 | %
|FirstCity South America            |  |            | 50.00 | %
|FirstStreet Investment Corporation |  |            | 50.00 | %
|MinnTex GP Corp                    |  |            | 50.00 | %
|WAMCO 31 of Texas, Inc             |  |            | 50.00 | %
|WAMCO 32 of Texas, Inc             |  |            | 50.00 | %
|WAMCO 33 of Texas, Inc             |  |            | 50.00 | %
|WAMCO III of Texas, Inc            |  |            | 50.00 | %
|WAMCO IX of Texas, Inc             |  |            | 50.00 | %
|WAMCO XXIV of Texas, Inc           |  |            | 50.00 | %
|WAMCO XXV of Texas, Inc            |  |            | 50.00 | %
|WAMCO XXVII of Texas, Inc          |  |            | 50.00 | %
|WAMCO XXVIII of Texas, Inc         |  |            | 50.00 | %
|WAMCO XXX of Texas, Inc            |  |            | 50.00 | %



46



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                       |  |            |       |  
|---------------------- |  | ---------- | ----- | -
|                       |  | Percentage |      
|Affiliate              |  | Ownership  |      
|                       |  |            |      
|BIDMEX, LLC            |  |            | 3.21  | %
|WAMCO XXVII, Ltd       |  |            | 4.07  | %
|BIDMEX II, LLC         |  |            | 4.12  | %
|BIDMEX 6, LLC          |  |            | 10.00 | %
|WHBE Limited           |  |            | 10.00 | %
|Renova Financial Trust |  |            | 10.00 | %
|BIDMEX 3, LLC          |  |            | 10.02 | %
|ResMex, LLC            |  |            | 11.12 | %
|FC Properties, Ltd     |  |            | 14.50 | %
|BIDMEX 9, LLC          |  |            | 15.00 | %







|                                   |  |            |       | 
|---------------------------------- |  | ---------- | ----- | 
|                                   |  | Percentage |      
|Affiliate                          |  | Ownership  |      
|                                   |  |            |      
|Credit Finance Corporation Limited |  |            | 10.00 | 
|Miromesnil Limited                 |  |            | 33.30 | 
|Societe Immobilere Lincoln, S.A.   |  |            | 10.00 | 
|CATX Limited                       |  |            | 25.00 | 
|Transalp Limited                   |  |            | 25.00 | 
|Finin Limited                      |  |            | 33.30 | 
|Mirom Limited                      |  |            | 10.00 | 

Accounting by an Equity Method Investor for
Investee losses When the Investor Has Loans to and Investments
in Other Securities of the Investee




|    |                 
|--- | ----------------
|(d) | Cash Equivalents



47



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                 
|--- | ----------------
|(e) | Portfolio Assets





| |                                
| | -------------------------------
| | Non-Performing Portfolio Assets









| |                            
| | ---------------------------
| | Performing Portfolio Assets









48



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                       
| | ----------------------
| | Real Estate Portfolios





|    |                 
|--- | ----------------
|(f) | Loans Receivable





|    |                       
|--- | ----------------------
|(g) | Property and Equipment





|    |            
|--- | -----------
|(h) | Intangibles

Goodwill and Other Intangible Assets.




|    |                                    
|--- | -----------------------------------
|(i) | Revenue Recognition on Service Fees



49



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                       
|--- | --------------------------------------
|(j) | Revenue Recognition on Contingent Fees







|    |                                       
|--- | --------------------------------------
|(k) | Accumulated Other Comprehensive Income

Reporting Comprehensive Income




|    |                        
|--- | -----------------------
|(l) | Translation Adjustments



|                           |                                                                                                                                 |   |       |       |  
|-------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | - | ----- | ----- | -
|Balance, December 31, 2001 |                                                                                                                                 | $ | (327  | )    
|                           | Aggregate adjustment for the year resulting from translation
    adjustments                                                    |   |       | 1,782 |  
|                           |                                                                                                                                 |   |      
|Balance, December 31, 2002 |                                                                                                                                 |   | 1,455 |      
|                           | Aggregate adjustment for the year resulting from translation
    adjustments                                                    |   |       | 2,157 |  
|                           |                                                                                                                                 |   |      
|Balance, December 31, 2003 |                                                                                                                                 |   | 3,612 |      
|                           | Aggregate adjustment for the year resulting from translation
    adjustments and gains and losses on certain hedge transactions |   |       | (377  | )
|                           |                                                                                                                                 |   |      
|Balance, December 31, 2004 |                                                                                                                                 | $ | 3,235 |      
|                           |                                                                                                                                 |   |      

50



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                                                
|--- | -----------------------------------------------
|(m) | Unrealized Gains on Securitization Transactions

Accounting for
Certain Investments in Debt and Equity Securities.


|                           |                                                                                                 |   |       |        |  
|-------------------------- | ----------------------------------------------------------------------------------------------- | - | ----- | ------ | -
|Balance, December 31, 2001 |                                                                                                 | $ | 1,203 |       
|                           | Aggregate adjustment for the period resulting from unrealized
    net gains on securitizations  |   |       | 25     |  
|                           |                                                                                                 |   |      
|Balance, December 31, 2002 |                                                                                                 |   | 1,228 |       
|                           | Aggregate adjustment for the period resulting from unrealized
    net losses on securitizations |   |       | (1,228 | )
|                           |                                                                                                 |   |      
|Balance, December 31, 2003 |                                                                                                 |   |      |       
|                           | Aggregate adjustment for the period resulting from unrealized
    net losses on securitizations |   |       |       |  
|                           |                                                                                                 |   |      
|Balance, December 31, 2004 |                                                                                                 | $ |      |       
|                           |                                                                                                 |   |      



|    |             
|--- | ------------
|(n) | Income Taxes





51



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                     
|--- | ------------------------------------
|(o) | Net Earnings (Loss) Per Common Share





|                                                                                     |                        |                         |        |      |      |   |        |      |  |   |        |       |  
|------------------------------------------------------------------------------------ | ---------------------- | ----------------------- | ------ | ---- | ---- | - | ------ | ---- |  | - | ------ | ----- | -
|                                                                                     |                        | 2004                    |        |      | 2003 |   |        |     
|                                                                                     |                        |                         |        |      |      |   |        |     
|                                                                                     |                        | Year Ended December 31, |       
|                                                                                     |                        |                         |       
|                                                                                     |                        |                         |        | 2002 |     
|                                                                                     |                        |                         |        |      |     
|Earnings from continuing operations                                                  |                        | $                       | 5,011  |      |      | $ | 4,358  |      |  | $ | 2,399  |      
|Less: accumulated preferred dividends in arrears                                     |                        |                         |       |      |      |   | (133   | )    |  |   | (2,478 | )    
|                                                                                     |                        |                         |        |      |      |   |        |      | 
|Earnings (loss) from continuing operations available to common
    stockholders      |                        | $                       | 5,011  |      |      | $ | 4,225  |      |  | $ | (79    | )    
|                                                                                     |                        |                         |        |      |      |   |        |      | 
|Weighted average outstanding shares of common stock                                  |                        |                         | 11,230 |      |      |   | 11,200 |      |  |   | 8,500  |      
|Dilutive effect of:                                                                  |                        |                         |        |      |      |   |        |      |  |   |        |      
|                                                                                     | Warrants               |                         |        | 302  |      |   |        | 79   |  |   |        |      |  
|                                                                                     | Employee stock options |                         |        | 308  |      |   |        | 70   |  |   |        |      |  
|                                                                                     |                        |                         |        |      |      |   |        |      | 
|Weighted average outstanding shares of common stock and common
    stock equivalents |                        |                         | 11,840 |      |      |   | 11,349 |      |  |   | 8,500  |      
|                                                                                     |                        |                         |        |      |      |   |        |      | 
|Earnings (loss) from continuing operations per share:                                |                        |                         |        |      |      |   |        |      |  |   |        |      
|                                                                                     | Basic                  |                         | $      | 0.45 |      |   | $      | 0.38 |  |   | $      | (0.01 | )
|                                                                                     |                        |                         |        |      |      |   |        |      | 
|                                                                                     | Diluted                |                         | $      | 0.42 |      |   | $      | 0.37 |  |   | $      | (0.01 | )
|                                                                                     |                        |                         |        |      |      |   |        |      | 



|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(p) | Impairment of Long-Lived Assets and Long-Lived Assets to
    Be Disposed Of



52



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                         
|--- | ------------------------
|(q) | Stock-Based Compensation

Accounting for Stock Issued to Employees, Accounting for Stock-Based
Compensation,


|                                                                                                                                            |  |                         |        |   |      |   |       |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                                                                                                                            |  | Year Ended December 31, |       
|                                                                                                                                            |  |                         |       
|                                                                                                                                            |  | 2004                    |        |   | 2003 |   |       | 2002 | 
|                                                                                                                                            |  |                         |        |   |      |   |       |      | 
|Net earnings (loss) to common stockholders, as reported                                                                                     |  | $                       | 63,634 |   |      | $ | 9,054 |      |  | $ | (6,249 | )
|Total stock-based employee compensation expense determined under
    fair value based method for all awards, net of related tax
    effects |  |                         | (346   | ) |      |   | (204  | )    |  |   | (208   | )
|                                                                                                                                            |  |                         |        |   |      |   |       |      | 
|Pro forma net earnings (loss) to common stockholders                                                                                        |  | $                       | 63,288 |   |      | $ | 8,850 |      |  | $ | (6,457 | )
|                                                                                                                                            |  |                         |        |   |      |   |       |      | 
|Net earnings (loss) per common share:                                                                                                       |  |                         |        |   |      |   |       |      |  |   |        |  
|Basic  as reported                                                                                                                         |  | $                       | 5.67   |   |      | $ | 0.81  |      |  | $ | (0.74  | )
|                                                                                                                                            |  |                         |        |   |      |   |       |      | 
|Basic  pro forma                                                                                                                           |  | $                       | 5.64   |   |      | $ | 0.79  |      |  | $ | (0.76  | )
|                                                                                                                                            |  |                         |        |   |      |   |       |      | 
|Diluted  as reported                                                                                                                       |  | $                       | 5.37   |   |      | $ | 0.80  |      |  | $ | (0.74  | )
|                                                                                                                                            |  |                         |        |   |      |   |       |      | 
|Diluted  pro forma                                                                                                                         |  | $                       | 5.35   |   |      | $ | 0.78  |      |  | $ | (0.76  | )
|                                                                                                                                            |  |                         |        |   |      |   |       |      | 



|                        |  |              |      |   |      |  |      |      |  |  |   | 
|----------------------- |  | ------------ | ---- | - | ---- |  | ---- | ---- |  |  | - | 
|                        |  | Year Ended   |     
|                        |  | December 31, |     
|                        |  |              |     
|                        |  | 2004         |      |   | 2003 |  |      | 2002 | 
|                        |  |              |      |   |      |  |      |      | 
|Volatility              |  |              | 90   | % |      |  | 94   | %    |  |  |  | 
|Risk-free interest rate |  |              | 4.85 | % |      |  | 3.96 | %    |  |  |  | 
|Expected life in years  |  |              | 10   |   |      |  | 10   |      |  |  |  | 
|Dividend yield          |  |              | Zero |   |      |  | Zero |      |  |  |  | 



|    |                                    
|--- | -----------------------------------
|(r) | Effects of New Accounting Standards

Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13,
and Technical Corrections


53



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity


Effective Date, Disclosures, and Transition
for Mandatorily Redeemable Financial Instruments of Certain
Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests under FASB Statement No. 150,
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity


Accounting for
Certain Loans or Debt Securities Acquired in a Transfer


Consolidation of Variable Interest Entities


Share-Based Payment.


54



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                  
|--- | -----------------
|(s) | Reclassifications





|   |                                             
|-- | --------------------------------------------
|2. | Restructure, Liquidity and Capital Resources







55



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


















|   |                        
|-- | -----------------------
|3. | Discontinued Operations



56



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                                                  |              |        |        |      |   |       |       |  |   |        |        |  
|-------- | ------------------------------------------------ | ------------ | ------ | ------ | ---- | - | ----- | ----- |  | - | ------ | ------ | -
|         |                                                  | December 31, |       
|         |                                                  |              |       
|         |                                                  | 2004         |        |        | 2003 |   |       | 2002  | 
|         |                                                  |              |        |        |      |   |       |       | 
|Mortgage |                                                  | $            | (3,840 | )      |      | $ | (520  | )     |  | $ | (9,714 | )     
|Consumer |                                                  |              | 62,463 |        |      |   | 5,349 |       |  |   | 3,544  |       
|         |                                                  |              |        |        |      |   |       |       | 
|         | Net earnings (loss) from discontinued operations |              | $      | 58,623 |      |   | $     | 4,829 |  |   | $      | (6,170 | )
|         |                                                  |              |        |        |      |   |       |       | 



| |         
| | --------
| | Mortgage

Accounting for the Impairment or Disposal of Long-Lived
Assets








| |         
| | --------
| | Consumer





57



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                           |                                                         |              |       |       |      |   |        |        | 
|-------------------------- | ------------------------------------------------------- | ------------ | ----- | ----- | ---- | - | ------ | ------ | 
|                           |                                                         | December 31, |      
|                           |                                                         |              |      
|                           |                                                         | 2004         |       |       | 2003 |  
|                           |                                                         |              |       |       |      |  
|Equity investment in Drive |                                                         | $            |      |       |      | $ | 15,667 |       
|Other assets               |                                                         |              |      |       |      |   |       |       
|                           |                                                         |              |       |       |      |  
|                           | Total consumer assets held for sale                     |              | $     |      |      |   | $      | 15,667 | 
|                           |                                                         |              |       |       |      |  
|Notes payable              |                                                         | $            |      |       |      | $ | 16,000 |       
|Minority interest          |                                                         |              |      |       |      |   | 3,131  |       
|Other liabilities          |                                                         |              | 9,033 |       |      |   | 1      |       
|                           |                                                         |              |       |       |      |  
|                           | Total liabilities from discontinued consumer operations |              | $     | 9,033 |      |   | $      | 19,132 | 
|                           |                                                         |              |       |       |      |  





|                                   |                                                |                         |         |        |      |   |        |       |  |   |       |       | 
|---------------------------------- | ---------------------------------------------- | ----------------------- | ------- | ------ | ---- | - | ------ | ----- |  | - | ----- | ----- | 
|                                   |                                                | Year Ended December 31, |        
|                                   |                                                |                         |        
|                                   |                                                | 2004                    |         |        | 2003 |   |        | 2002  | 
|                                   |                                                |                         |         |        |      |   |        |       | 
|Equity in earnings                 |                                                | $                       | 17,662  |        |      | $ | 7,237  |       |  | $ | (532  | )    
|Gain on sale of Drive              |                                                |                         | 67,158  |        |      |   |       |       |  |   |      |      
|Gain on sale of interest in sub    |                                                |                         |        |        |      |   |       |       |  |   | 4,000 |      
|Other income                       |                                                |                         |        |        |      |   |       |       |  |   | 1     |      
|Interest and fees on notes payable |                                                |                         | (2,040  | )      |      |   | (360   | )     |  |   | (18   | )    
|Other expenses                     |                                                |                         | (10     | )      |      |   | (27    | )     |  |   | (14   | )    
|Income taxes                       |                                                |                         | (1,759  | )      |      |   | (55    | )     |  |   |      |      
|Minority interest                  |                                                |                         | (18,548 | )      |      |   | (1,446 | )     |  |   | 107   |      
|                                   |                                                |                         |         |        |      |   |        |       | 
|                                   | Earnings from discontinued consumer operations |                         | $       | 62,463 |      |   | $      | 5,349 |  |   | $     | 3,544 | 
|                                   |                                                |                         |         |        |      |   |        |       | 



58



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                     |         |                              |       |             |     |   |       |           |  |   |       |        | 
|---------------------------------------------------- | ------- | ---------------------------- | ----- | ----------- | --- | - | ----- | --------- |  | - | ----- | ------ | 
|                                                     |         | Year Ended December 31, 2004 |      
|                                                     |         |                              |      
|                                                     |         |                              |       | Pro Forma   |     |   |      
|                                                     |         |                              |       | Adjustments |     |   |      
|                                                     |         | Historical                   |       |             | (A) |   |       | Pro Forma | 
|                                                     |         |                              |       |             |     |   |       |           | 
|                                                     |         | (Unaudited)                  |      
|Earnings from continuing operations                  |         | $                            | 5,011 |             |     | $ | 4,940 |           |  | $ | 9,951 |       
|                                                     |         |                              |       |             |     |   |       |           | 
|Earnings from continuing operations per common share |         |                              |       |             |     |   |       |           |  |   |       |       
|                                                     | Basic   |                              | $     | 0.45        |     |   |       |           |  |   | $     | 0.89   | 
|                                                     | Diluted |                              | $     | 0.42        |     |   |       |           |  |   | $     | 0.84   | 
|Weighted average common shares outstanding           |         |                              |       |             |     |   |       |           |  |   |       |       
|                                                     | Basic   |                              |       | 11,230      |     |   |       |           |  |   |       | 11,230 | 
|                                                     | Diluted |                              |       | 11,840      |     |   |       |           |  |   |       | 11,840 | 






|    |                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | To eliminate additional interest and fees on notes payable that
    would not have been incurred if the transaction had been
    completed at the beginning of the period (interest savings from
    paydown of $67.8 million x average rate of 7.65% x .833 =
    $4.3 million and amortization of loan fees of
    $.6 million).

|                                                        |         |                              |       |             |     |   |       |           |  |   |        |        | 
|------------------------------------------------------- | ------- | ---------------------------- | ----- | ----------- | --- | - | ----- | --------- |  | - | ------ | ------ | 
|                                                        |         | Year Ended December 31, 2003 |      
|                                                        |         |                              |      
|                                                        |         |                              |       | Pro Forma   |     |   |      
|                                                        |         |                              |       | Adjustments |     |   |      
|                                                        |         | Historical                   |       |             | (A) |   |       | Pro Forma | 
|                                                        |         |                              |       |             |     |   |       |           | 
|                                                        |         | (Unaudited)                  |      
|Earnings from continuing operations                     |         | $                            | 4,358 |             |     | $ | 5,993 |           |  | $ | 10,351 |       
|                                                        |         |                              |       |             |     |   |       |           | 
|Earnings from continuing operations per common share(B) |         |                              |       |             |     |   |       |           |  |   |        |       
|                                                        | Basic   |                              | $     | 0.38        |     |   |       |           |  |   | $      | 0.91   | 
|                                                        | Diluted |                              | $     | 0.37        |     |   |       |           |  |   | $      | 0.90   | 
|Weighted average common shares outstanding              |         |                              |       |             |     |   |       |           |  |   |        |       
|                                                        | Basic   |                              |       | 11,200      |     |   |       |           |  |   |        | 11,200 | 
|                                                        | Diluted |                              |       | 11,349      |     |   |       |           |  |   |        | 11,349 | 






|    |                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | To eliminate additional interest and fees on notes payable that
    would not have been incurred if the transaction had been
    completed at the beginning of the period (interest savings from
    paydown of $67.8 million x average rate of 7.70% =
    $5.2 million and amortization of loan fees of
    $.8 million).
|   
|(B) | Earnings from continuing operations per common share include the
    effects of $133 accumulated preferred dividends in arrears.                                                                                                                                                                                           

59



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                        |         |                              |       |             |     |   |       |           |  |   |       |       | 
|------------------------------------------------------- | ------- | ---------------------------- | ----- | ----------- | --- | - | ----- | --------- |  | - | ----- | ----- | 
|                                                        |         | Year Ended December 31, 2002 |      
|                                                        |         |                              |      
|                                                        |         |                              |       | Pro Forma   |     |   |      
|                                                        |         |                              |       | Adjustments |     |   |      
|                                                        |         | Historical                   |       |             | (A) |   |       | Pro Forma | 
|                                                        |         |                              |       |             |     |   |       |           | 
|                                                        |         | (Unaudited)                  |      
|Earnings from continuing operations                     |         | $                            | 2,399 |             |     | $ | 5,785 |           |  | $ | 8,184 |      
|                                                        |         |                              |       |             |     |   |       |           | 
|Earnings from continuing operations per common share(B) |         |                              |       |             |     |   |       |           |  |   |       |      
|                                                        | Basic   |                              | $     | (0.01       | )   |   |       |           |  |   | $     | 0.67  | 
|                                                        | Diluted |                              | $     | (0.01       | )   |   |       |           |  |   | $     | 0.67  | 
|Weighted average common shares outstanding              |         |                              |       |             |     |   |       |           |  |   |       |      
|                                                        | Basic   |                              |       | 8,500       |     |   |       |           |  |   |       | 8,500 | 
|                                                        | Diluted |                              |       | 8,500       |     |   |       |           |  |   |       | 8,500 | 






|    |                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | To eliminate additional interest and fees on notes payable that
    would not have been incurred if the transaction had been
    completed at the beginning of the period (interest savings from
    paydown of $83.8 million x average rate of 6.12% =
    $5.1 million and amortization of loan fees of
    $.7 million).
|   
|(B) | Earnings from continuing operations per common share include the
    effects of $2.5 million in accumulated preferred dividends
    in arrears.                                                                                                                                                                            



|   |                 
|-- | ----------------
|4. | Portfolio Assets



|                                                                                      |                        |              |         |        |      |   |         |        | 
|------------------------------------------------------------------------------------- | ---------------------- | ------------ | ------- | ------ | ---- | - | ------- | ------ | 
|                                                                                      |                        | December 31, |        
|                                                                                      |                        |              |        
|                                                                                      |                        | 2004         |         |        | 2003 |  
|                                                                                      |                        |              |         |        |      |  
|Non-performing Portfolio Assets                                                       |                        | $            | 62,221  |        |      | $ | 27,071  |       
|Performing Portfolio Assets                                                           |                        |              | 23,313  |        |      |   | 2,682   |       
|Real estate Portfolios                                                                |                        |              | 1,920   |        |      |   | 283     |       
|                                                                                      |                        |              |         |        |      |  
|                                                                                      | Total Portfolio Assets |              |         | 87,454 |      |   |         | 30,036 | 
|Adjusted purchase discount required to reflect Portfolio Assets
    at carrying value |                        |              | (49,502 | )      |      |   | (25,511 | )     
|                                                                                      |                        |              |         |        |      |  
|                                                                                      | Portfolio Assets, net  |              | $       | 37,952 |      |   | $       | 4,525  | 
|                                                                                      |                        |              |         |        |      |  



60



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                                       
|-- | ----------------------------------------------------------------------
|5. | Loans Receivable from Acquisition Partnerships Held for
    Investment



|              |  |              |        |  |      |   |        | 
|------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|              |  | December 31, |       
|              |  |              |       
|              |  | 2004         |        |  | 2003 |  
|              |  |              |        |  |      |  
|Latin America |  | $            | 19,170 |  |      | $ | 13,351 | 
|Europe        |  |              | 548    |  |      |   | 2,604  | 
|Domestic      |  |              | 1,537  |  |      |   | 1,358  | 
|              |  |              |        |  |      |  
|              |  | $            | 21,255 |  |      | $ | 17,313 | 
|              |  |              |        |  |      |  



Accounting by an Equity Method Investor for Investee Losses
When the Investor Has Loans to and Investments in Other
Securities of the Investee.




|   |                   
|-- | ------------------
|6. | Equity Investments



Condensed Combined Balance Sheets


|                                              |  |              |         |  |      |   |         | 
|--------------------------------------------- |  | ------------ | ------- |  | ---- | - | ------- | 
|                                              |  | December 31, |        
|                                              |  |              |        
|                                              |  | 2004         |         |  | 2003 |  
|                                              |  |              |         |  |      |  
|Assets                                        |  | $            | 479,776 |  |      | $ | 525,493 | 
|                                              |  |              |         |  |      |  
|Liabilities                                   |  | $            | 410,469 |  |      | $ | 441,677 | 
|Net equity                                    |  |              | 69,307  |  |      |   | 83,816  | 
|                                              |  |              |         |  |      |  
|                                              |  | $            | 479,776 |  |      | $ | 525,493 | 
|                                              |  |              |         |  |      |  
|Equity investment in Acquisition Partnerships |  | $            | 52,410  |  |      | $ | 53,098  | 
|Equity investment in servicing entities       |  |              | 5,405   |  |      |   | 4,381   | 
|                                              |  |              |         |  |      |  
|                                              |  | $            | 57,815  |  |      | $ | 57,479  | 
|                                              |  |              |         |  |      |  

61



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Condensed Combined Summary of Operations


|                                               |  |                         |         |  |      |   |         |      |  |   |         |  
|---------------------------------------------- |  | ----------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | -
|                                               |  | Year Ended December 31, |        
|                                               |  |                         |        
|                                               |  | 2004                    |         |  | 2003 |   |         | 2002 | 
|                                               |  |                         |         |  |      |   |         |      | 
|Proceeds from resolution of Portfolio Assets   |  | $                       | 259,620 |  |      | $ | 255,419 |      |  | $ | 271,929 |  
|Gain on resolution of Portfolio Assets         |  |                         | 95,779  |  |      |   | 98,126  |      |  |   | 89,824  |  
|Interest income on performing Portfolio Assets |  |                         | 11,478  |  |      |   | 9,631   |      |  |   | 14,380  |  
|Net earnings (loss)                            |  | $                       | 42,983  |  |      | $ | 15,148  |      |  | $ | (13,224 | )
|                                               |  |                         |         |  |      |   |         |      | 
|Equity in earnings of Acquisition Partnerships |  | $                       | 13,970  |  |      | $ | 13,588  |      |  | $ | 8,418   |  
|Equity in earnings of servicing entities       |  |                         | 943     |  |      |   | 586     |      |  |   | 794     |  
|                                               |  |                         |         |  |      |   |         |      | 
|                                               |  | $                       | 14,913  |  |      | $ | 14,174  |      |  | $ | 9,212   |  
|                                               |  |                         |         |  |      |   |         |      | 



|                                               |               |                                |         |         |         |   |         |         |         | 
|---------------------------------------------- | ------------- | ------------------------------ | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                               |               | December 31,                   |        
|                                               |               |                                |        
|                                               |               | 2004                           |         |         | 2003    |  
|                                               |               |                                |         |         |         |  
|Assets:                                        |               |                                |         |         |         |   |         |        
|                                               | Domestic:     |                                |         |         |         |   |         |         |        
|                                               |               | WAMCO Partnerships             |         | $       | 172,464 |   |         | $       | 205,134 | 
|                                               |               | MinnTex Investment Partners LP |         |         | 840     |   |         |         | 1,530   | 
|                                               |               | Other                          |         |         | 10,406  |   |         |         | 10,164  | 
|                                               | Latin America |                                |         | 207,455 |         |   |         | 186,431 |        
|                                               | Europe        |                                |         | 88,611  |         |   |         | 122,234 |        
|                                               |               |                                |         |         |         |  
|                                               |               | $                              | 479,776 |         |         | $ | 525,493 |        
|                                               |               |                                |         |         |         |  
|Equity (deficit):                              |               |                                |         |         |         |   |         |        
|                                               | Domestic:     |                                |         |         |         |   |         |         |        
|                                               |               | WAMCO Partnerships             |         | $       | 81,233  |   |         | $       | 84,589  | 
|                                               |               | MinnTex Investment Partners LP |         |         | 763     |   |         |         | 1,418   | 
|                                               |               | Other                          |         |         | 6,012   |   |         |         | 6,218   | 
|                                               | Latin America |                                |         | (85,789 | )       |   |         | (86,412 | )      
|                                               | Europe        |                                |         | 67,088  |         |   |         | 78,003  |        
|                                               |               |                                |         |         |         |  
|                                               |               | $                              | 69,307  |         |         | $ | 83,816  |        
|                                               |               |                                |         |         |         |  
|Equity investment in Acquisition Partnerships: |               |                                |         |         |         |   |         |        
|                                               | Domestic:     |                                |         |         |         |   |         |         |        
|                                               |               | WAMCO Partnerships             |         | $       | 34,521  |   |         | $       | 33,413  | 
|                                               |               | MinnTex Investment Partners LP |         |         | 252     |   |         |         | 468     | 
|                                               |               | Other                          |         |         | 2,916   |   |         |         | 3,083   | 
|                                               | Latin America |                                |         | 1,538   |         |   |         | 1,021   |        
|                                               | Europe        |                                |         | 13,183  |         |   |         | 15,113  |        
|                                               |               |                                |         |         |         |  
|                                               |               | $                              | 52,410  |         |         | $ | 53,098  |        
|                                               |               |                                |         |         |         |  

62



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                       |               |                                |         |        |        |   |         |         |        |   |         |         |        |  
|------------------------------------------------------ | ------------- | ------------------------------ | ------- | ------ | ------ | - | ------- | ------- | ------ | - | ------- | ------- | ------ | -
|                                                       |               | Year Ended December 31,        |        
|                                                       |               |                                |        
|                                                       |               | 2004                           |         |        | 2003   |   |         | 2002    |       
|                                                       |               |                                |         |        |        |   |         |         |       
|Revenues:                                              |               |                                |         |        |        |   |         |         |        |   |         |        
|                                                       | Domestic:     |                                |         |        |        |   |         |         |        |   |         |         |       
|                                                       |               | WAMCO Partnerships             |         | $      | 32,494 |   |         | $       | 35,730 |   |         | $       | 44,158 |  
|                                                       |               | MinnTex Investment Partners LP |         |        | 8,796  |   |         |         | 12,646 |   |         |         | 7,371  |  
|                                                       |               | Other                          |         |        | 75     |   |         |         | 5,635  |   |         |         | 894    |  
|                                                       | Latin America |                                |         | 22,658 |        |   |         | 23,383  |        |   |         | 37,230  |       
|                                                       | Europe        |                                |         | 46,492 |        |   |         | 32,112  |        |   |         | 16,899  |       
|                                                       |               |                                |         |        |        |   |         |         |       
|                                                       |               | $                              | 110,515 |        |        | $ | 109,506 |         |        | $ | 106,552 |        
|                                                       |               |                                |         |        |        |   |         |         |       
|Net earnings (loss):                                   |               |                                |         |        |        |   |         |         |        |   |         |        
|                                                       | Domestic:     |                                |         |        |        |   |         |         |        |   |         |         |       
|                                                       |               | WAMCO Partnerships             |         | $      | 17,419 |   |         | $       | 20,528 |   |         | $       | 27,541 |  
|                                                       |               | MinnTex Investment Partners LP |         |        | 7,850  |   |         |         | 11,184 |   |         |         | 5,397  |  
|                                                       |               | Other                          |         |        | (730   | ) |         |         | 3,511  |   |         |         | (189   | )
|                                                       | Latin America |                                |         | (5,333 | )      |   |         | (41,189 | )      |   |         | (56,480 | )     
|                                                       | Europe        |                                |         | 23,777 |        |   |         | 21,114  |        |   |         | 10,507  |       
|                                                       |               |                                |         |        |        |   |         |         |       
|                                                       |               | $                              | 42,983  |        |        | $ | 15,148  |         |        | $ | (13,224 | )      
|                                                       |               |                                |         |        |        |   |         |         |       
|Equity in earnings (loss) of Acquisition Partnerships: |               |                                |         |        |        |   |         |         |        |   |         |        
|                                                       | Domestic:     |                                |         |        |        |   |         |         |        |   |         |         |       
|                                                       |               | WAMCO Partnerships             |         | $      | 7,520  |   |         | $       | 8,282  |   |         | $       | 8,099  |  
|                                                       |               | MinnTex Investment Partners LP |         |        | 2,590  |   |         |         | 3,691  |   |         |         | 1,781  |  
|                                                       |               | Other                          |         |        | (205   | ) |         |         | 1,553  |   |         |         | 104    |  
|                                                       | Latin America |                                |         | (992   | )      |   |         | (4,028  | )      |   |         | (3,493  | )     
|                                                       | Europe        |                                |         | 5,057  |        |   |         | 4,090   |        |   |         | 1,927   |       
|                                                       |               |                                |         |        |        |   |         |         |       
|                                                       |               | $                              | 13,970  |        |        | $ | 13,588  |         |        | $ | 8,418   |        
|                                                       |               |                                |         |        |        |   |         |         |       

63



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |              
|-- | -------------
|7. | Notes Payable



|                            |                                                                                                               |                                                                               |                                                        |     |        |   |   |        |        |       | 
|--------------------------- | ------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------------------ | --- | ------ | - | - | ------ | ------ | ----- | 
|                            |                                                                                                               | December 31,                                                                  |                                                       
|                            |                                                                                                               |                                                                               |                                                       
|                            |                                                                                                               | 2004                                                                          |                                                        |     | 2003   |  
|                            |                                                                                                               |                                                                               |                                                        |     |        |  
|Notes payable  affiliates: |                                                                                                               |                                                                               |                                                        |     |        |   |   |       
|                            | Unsecured notes payable for purchase of minority interest in
    FirstCity Holdings, due 2011                 |                                                                               | $                                                      | 491 |        |   | $ | 1,276  |       
|                            |                                                                                                               |                                                                               |                                                        |     |        |  
|                            |                                                                                                               | Total notes payable  affiliates                                              |                                                        |     | 491    |   |   |        | 1,276  |      
|                            |                                                                                                               |                                                                               |                                                        |     |        |  
|Notes payable  other:      |                                                                                                               |                                                                               |                                                        |     |        |   |   |       
|                            | Senior Credit Facility , secured and with recourse to the
    Company:                                        |                                                                               |                                                        |     |        |   |   |        |       
|                            |                                                                                                               | LIBOR (2.4% at December 31, 2004) plus 2.5% to 2.75%, due
    November 2008   |                                                        |     | 50,680 |   |   |        |       |      
|                            |                                                                                                               | Prime (4.0% at December 31, 2003) plus 2.5%; fixed rate at
    8.8%, paid off |                                                        |     |       |   |   |        | 40,054 |      
|                            |                                                                                                               |                                                                               | LIBOR (1.1% at December 31, 2003) plus 2.75%, paid off |     |        |  |   |        |        | 4,116 | 
|                            | Acquisition facility secured by certain equity interests of the
    Company, fixed rate at 8.5%, matures 2005 |                                                                               |                                                        |    |        |   |   | 27,182 |       
|                            | Collateralized loans, secured by Portfolio Assets, bank prime
    plus .50%, paid off                         |                                                                               |                                                        |    |        |   |   | 2,254  |       
|                            | Unsecured notes payable, fixed rates between 5.36% and 5.85% due
    2005                                     |                                                                               |                                                        | 132 |        |   |   | 178    |       
|                            |                                                                                                               |                                                                               |                                                        |     |        |  
|                            |                                                                                                               | Total notes payable  other                                                   |                                                        |     | 50,812 |   |   |        | 73,784 |      
|                            |                                                                                                               |                                                                               |                                                        |     |        |  
|                            |                                                                                                               | Total notes payable                                                           |                                                        | $   | 51,303 |   |   | $      | 75,060 |      
|                            |                                                                                                               |                                                                               |                                                        |     |        |  







64



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                  
|-- | -----------------
|8. | Segment Reporting



|                                            |                                             |                                                     |       |        |        |        |   |        |        |        |   |        |        |        | 
|------------------------------------------- | ------------------------------------------- | --------------------------------------------------- | ----- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                            |                                             | Year Ended December 31,                             |      
|                                            |                                             |                                                     |      
|                                            |                                             | 2004                                                |       |        | 2003   |        |   | 2002   |       
|                                            |                                             |                                                     |       |        |        |        |   |        |       
|Portfolio Asset Acquisition and Resolution: |                                             |                                                     |       |        |        |        |   |        |        |        |   |       
|                                            | Revenues:                                   |                                                     |       |        |        |        |   |        |        |        |   |        |       
|                                            |                                             | Servicing fees                                      |       | $      | 13,747 |        |   | $      | 15,051 |        |   | $      | 12,665 |       
|                                            |                                             | Gain on resolution of Portfolio Assets              |       |        | 1,649  |        |   |        | 1,380  |        |   |        | 1,138  |       
|                                            |                                             | Gain on sale of interest in investment              |       |        |       |        |   |        |       |        |   |        | 1,779  |       
|                                            |                                             | Equity in earnings of investments                   |       |        | 14,913 |        |   |        | 14,174 |        |   |        | 9,212  |       
|                                            |                                             | Interest income                                     |       |        | 3,208  |        |   |        | 3,324  |        |   |        | 5,122  |       
|                                            |                                             | Other                                               |       |        | 1,933  |        |   |        | 1,197  |        |   |        | 2,185  |       
|                                            |                                             |                                                     |       |        |        |        |   |        |       
|                                            |                                             |                                                     | Total |        |        | 35,450 |   |        |        | 35,126 |   |        |        | 32,101 | 
|                                            | Expenses:                                   |                                                     |       |        |        |        |   |        |        |        |   |        |       
|                                            |                                             | Interest and fees on notes payable                  |       |        | 3,798  |        |   |        | 2,907  |        |   |        | 2,946  |       
|                                            |                                             | Salaries and benefits                               |       |        | 12,403 |        |   |        | 12,537 |        |   |        | 9,611  |       
|                                            |                                             | Provision for loan and impairment losses            |       |        | 30     |        |   |        | 98     |        |   |        | 295    |       
|                                            |                                             | Occupancy, data processing, communication and other |       |        | 4,745  |        |   |        | 4,953  |        |   |        | 6,504  |       
|                                            |                                             | Minority interest                                   |       |        | 63     |        |   |        | (10    | )      |   |        | 1,311  |       
|                                            |                                             |                                                     |       |        |        |        |   |        |       
|                                            |                                             |                                                     | Total |        |        | 21,039 |   |        |        | 20,485 |   |        |        | 20,667 | 
|                                            |                                             |                                                     |       |        |        |        |   |        |       
|                                            | Operating contribution before direct taxes  |                                                     | $     | 14,411 |        |        | $ | 14,641 |        |        | $ | 11,434 |       
|                                            |                                             |                                                     |       |        |        |        |   |        |       
|                                            | Operating contribution, net of direct taxes |                                                     | $     | 14,437 |        |        | $ | 14,497 |        |        | $ | 11,214 |       
|                                            |                                             |                                                     |       |        |        |        |   |        |       

65



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                    |                                                                                       |                         |   |        |      |  |   |        |   |  |   |        |  
|------------------- | ------------------------------------------------------------------------------------- | ----------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                    |                                                                                       | Year Ended December 31, |  
|                    |                                                                                       |                         |  
|                    |                                                                                       | 2004                    |   |        | 2003 |  |   | 2002   |  
|                    |                                                                                       |                         |   |        |      |  |   |        |  
|Corporate Overhead: |                                                                                       |                         |   |        |      |  |   |        |   |  |   |       
|                    | Other revenue                                                                         |                         |   | 604    |      |  |   | 366    |   |  |   | 418    |  
|                    | Corporate interest expense                                                            |                         |   | (3,378 | )    |  |   | (4,588 | ) |  |   | (3,858 | )
|                    | Salaries and benefits, occupancy, professional and other income
    and expenses, net |                         |   | (6,652 | )    |  |   | (5,917 | ) |  |   | (5,375 | )
|                    |                                                                                       |                         |   |        |      |  |   |        |  
|                    | Earnings from continuing operations                                                   |                         | $ | 5,011  |      |  | $ | 4,358  |   |  | $ | 2,399  |  
|                    |                                                                                       |                         |   |        |      |  |   |        |  



|              |       |                         |        |        |      |   |        |        |  |   |        |        | 
|------------- | ----- | ----------------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|              |       | Year Ended December 31, |       
|              |       |                         |       
|              |       | 2004                    |        |        | 2003 |   |        | 2002   | 
|              |       |                         |        |        |      |   |        |        | 
|Domestic      |       | $                       | 18,899 |        |      | $ | 21,084 |        |  | $ | 19,444 |       
|Latin America |       |                         | 10,189 |        |      |   | 9,049  |        |  |   | 8,011  |       
|Europe        |       |                         | 6,362  |        |      |   | 4,993  |        |  |   | 4,646  |       
|              |       |                         |        |        |      |   |        |        | 
|              | Total |                         | $      | 35,450 |      |   | $      | 35,126 |  |   | $      | 32,101 | 
|              |       |                         |        |        |      |   |        |        | 



|                                            |               |              |        |        |              |   |        |        |         | 
|------------------------------------------- | ------------- | ------------ | ------ | ------ | ------------ | - | ------ | ------ | ------- | 
|                                            |               | December 31, |        |        | December 31, |  
|                                            |               | 2004         |        |        | 2003         |  
|                                            |               |              |        |        |              |  
|Cash                                        |               | $            | 9,724  |        |              | $ | 2,745  |       
|Portfolio acquisition and resolution assets |               |              |        |        |              |   |        |       
|                                            | Domestic      |              |        | 77,280 |              |   |        | 42,872 |        
|                                            | Latin America |              |        | 20,876 |              |   |        | 14,468 |        
|                                            | Europe        |              |        | 19,859 |              |   |        | 23,088 |        
|Deferred tax asset, net                     |               |              | 20,101 |        |              |   | 20,101 |       
|Other non-earning assets, net               |               |              | 9,200  |        |              |   | 7,048  |       
|Discontinued mortgage assets                |               |              | 1,817  |        |              |   | 6,399  |       
|Discontinued consumer assets held for sale  |               |              |       |        |              |   | 15,667 |       
|                                            |               |              |        |        |              |  
|                                            |               | Total assets |        | $      | 158,857      |   |        | $      | 132,388 | 
|                                            |               |              |        |        |              |  

66



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                             |               |                         |   |        |        |  |   |        |        |  |   |        |        | 
|------------------------------------------------------------ | ------------- | ----------------------- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                             |               | Year Ended December 31, |  
|                                                             |               |                         |  
|                                                             |               | 2004                    |   |        | 2003   |  |   | 2002   |       
|                                                             |               |                         |   |        |        |  |   |        |       
|Average investment in Portfolio Assets and loans receivable: |               |                         |   |        |        |  |   |        |        |  |   |       
|                                                             | Domestic      |                         | $ | 19,028 |        |  | $ | 6,785  |        |  | $ | 13,068 |       
|                                                             | Latin America |                         |   | 16,568 |        |  |   | 14,656 |        |  |   | 18,534 |       
|                                                             | Europe        |                         |   | 1,112  |        |  |   | 2,120  |        |  |   |       |       
|                                                             |               |                         |   |        |        |  |   |        |       
|                                                             |               | Total                   |   | $      | 36,708 |  |   | $      | 23,561 |  |   | $      | 31,602 | 
|                                                             |               |                         |   |        |        |  |   |        |       
|Income from Portfolio Assets and loans receivable:           |               |                         |   |        |        |  |   |        |        |  |   |       
|                                                             | Domestic      |                         | $ | 2,653  |        |  | $ | 2,040  |        |  | $ | 2,208  |       
|                                                             | Latin America |                         |   | 2,017  |        |  |   | 2,540  |        |  |   | 3,910  |       
|                                                             | Europe        |                         |   | 64     |        |  |   | 96     |        |  |   |       |       
|                                                             |               |                         |   |        |        |  |   |        |       
|                                                             |               | Total                   |   | $      | 4,734  |  |   | $      | 4,676  |  |   | $      | 6,118  | 
|                                                             |               |                         |   |        |        |  |   |        |       

9.     Preferred Stock,
Stockholders Equity and Earnings (Loss) Per Share
















67



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                 |  |        |         |          |       |   |       |        |          |  |         |   |  |          |       |  |       |  |         |   |  |   |       | 
|-------------------------------- |  | ------ | ------- | -------- | ----- | - | ----- | ------ | -------- |  | ------- | - |  | -------- | ----- |  | ----- |  | ------- | - |  | - | ----- | 
|                                 |  | 2004   |         |          | 2003  |   |       | 2002   |         
|                                 |  |        |         |          |       |   |       |        |         
|                                 |  |        |         | Weighted |       |   |       |        | Weighted |  |         |   |  | Weighted |      
|                                 |  |        |         | Average  |       |   |       |        | Average  |  |         |   |  | Average  |      
|                                 |  |        |         | Exercise |       |   |       |        | Exercise |  |         |   |  | Exercise |      
|                                 |  | Shares |         |          | Price |   |       | Shares |          |  | Price   |   |  | Shares   |       |  | Price | 
|                                 |  |        |         |          |       |   |       |        |          |  |         |   |  |          |       |  |       | 
|Outstanding at beginning of Year |  |        | 614,500 |          |       | $ | 7.59  |        |          |  | 599,250 |   |  | $        | 7.96  |  |       |  | 623,250 |   |  | $ | 8.07  | 
|Granted                          |  |        | 239,500 |          |       |   | 7.25  |        |          |  | 30,000  |   |  |          | 1.80  |  |       |  |        |   |  |   |      | 
|Exercised                        |  |        | (67,000 | )        |       |   | 2.94  |        |          |  | (6,250  | ) |  |          | 2.00  |  |       |  |        |   |  |   |      | 
|Cancelled                        |  |        |        |          |       |   |      |        |          |  |        |   |  |          |      |  |       |  |        |   |  |   |      | 
|Forfeited                        |  |        | (50,000 | )        |       |   | 18.10 |        |          |  | (8,500  | ) |  |          | 17.58 |  |       |  | (24,000 | ) |  |   | 10.76 | 
|                                 |  |        |         |          |       |   |       |        |          |  |         |   |  |          |       |  |       | 
|Outstanding at end of year       |  |        | 737,000 |          |       | $ | 7.19  |        |          |  | 614,500 |   |  | $        | 7.59  |  |       |  | 599,250 |   |  | $ | 7.96  | 
|                                 |  |        |         |          |       |   |       |        |          |  |         |   |  |          |       |  |       | 



|                  |  |         |           |  |           |  |         |           |  |                |           |   |  |              |          |   |          |  |         |  |  |   |       | 
|----------------- |  | ------- | --------- |  | --------- |  | ------- | --------- |  | -------------- | --------- | - |  | ------------ | -------- | - | -------- |  | ------- |  |  | - | ----- | 
|                  |  |         |           |  |           |  |         |           |  | Shares         |           |   | 
|                  |  |         |           |  |           |  |         |           |  | Outstanding at |           |   | 
|                  |  | Shares  |           |  | Shares    |  |         | Shares    |  |                | Shares    |   |  | December 31, |          |   | Exercise | 
|Date of Grant     |  | Granted |           |  | Exercised |  |         | Cancelled |  |                | Forfeited |   |  | 2004         |          |   | Price    | 
|                  |  |         |           |  |           |  |         |           |  |                |           |   |  |              |          |   |          | 
|October 27, 1995  |  |         | 229,600   |  |           |  | (17,850 | )         |  |                | (22,500   | ) |  |              | (121,950 | ) |          |  | 67,300  |  |  | $ | 20.00 | 
|October 24, 1996  |  |         | 18,000    |  |           |  |        |           |  |                |          |   |  |              | (18,000  | ) |          |  |        |  |  |   | 30.75 | 
|February 27, 1997 |  |         | 95,200    |  |           |  | (3,750  | )         |  |                |          |   |  |              | (51,500  | ) |          |  | 39,950  |  |  |   | 27.25 | 
|September 2, 1997 |  |         | 30,000    |  |           |  |        |           |  |                |          |   |  |              | (30,000  | ) |          |  |        |  |  |   | 24.00 | 
|May 21, 1998      |  |         | 15,000    |  |           |  |        |           |  |                |          |   |  |              | (7,500   | ) |          |  | 7,500   |  |  |   | 29.69 | 
|December 1, 2000  |  |         | 183,000   |  |           |  | (13,750 | )         |  |                |          |   |  |              | (10,000  | ) |          |  | 159,250 |  |  |   | 2.00  | 
|December 21, 2001 |  |         | 275,500   |  |           |  | (59,500 | )         |  |                |          |   |  |              | (7,500   | ) |          |  | 208,500 |  |  |   | 3.06  | 
|April 29, 2003    |  |         | 30,000    |  |           |  |        |           |  |                |          |   |  |              |         |   |          |  | 30,000  |  |  |   | 1.80  | 
|May 13, 2004      |  |         | 239,500   |  |           |  |        |           |  |                |          |   |  |              | (15,000  | ) |          |  | 224,500 |  |  |   | 7.25  | 
|                  |  |         |           |  |           |  |         |           |  |                |           |   |  |              |          |   |          | 
|                  |  |         | 1,115,800 |  |           |  | (94,850 | )         |  |                | (22,500   | ) |  |              | (261,450 | ) |          |  | 737,000 |  |  |   |       | 
|                  |  |         |           |  |           |  |         |           |  |                |           |   |  |              |          |   |          | 





|    |             
|--- | ------------
|10. | Income Taxes



|                                  |       |                         |     |     |      |   |      |      |   |   |      |      |  
|--------------------------------- | ----- | ----------------------- | --- | --- | ---- | - | ---- | ---- | - | - | ---- | ---- | -
|                                  |       | Year Ended December 31, |    
|                                  |       |                         |    
|                                  |       | 2004                    |     |     | 2003 |   |      | 2002 |  
|                                  |       |                         |     |     |      |   |      |      |  
|Federal and state current expense |       | $                       | (75 | )   |      | $ | (185 | )    |   | $ | (153 | )   
|Federal deferred expense          |       |                         |    |     |      |   |     |      |   |   |     |     
|                                  |       |                         |     |     |      |   |      |      |  
|                                  | Total |                         | $   | (75 | )    |   | $    | (185 | ) |   | $    | (153 | )
|                                  |       |                         |     |     |      |   |      |      |  

68



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                     |                                              |      |        |       |      |   |        |       |   |   |        |       |  
|---------------------------------------------------- | -------------------------------------------- | ---- | ------ | ----- | ---- | - | ------ | ----- | - | - | ------ | ----- | -
|                                                     |                                              | 2004 |        |       | 2003 |   |        | 2002  |  
|                                                     |                                              |      |        |       |      |   |        |       |  
|Computed expected tax expense                        |                                              | $    | (1,802 | )     |      | $ | (1,587 | )     |   | $ | (1,352 | )    
|(Increase) reduction in income taxes resulting from: |                                              |      |        |       |      |   |        |       |   |   |        |      
|                                                     | Change in valuation allowance                |      |        | 1,802 |      |   |        | 1,587 |   |   |        | 1,352 |  
|                                                     | Alternative minimum tax and state income tax |      |        | (75   | )    |   |        | (185  | ) |   |        | (153  | )
|                                                     |                                              |      |        |       |      |   |        |       |  
|                                                     |                                              | $    | (75    | )     |      | $ | (185   | )     |   | $ | (153   | )    
|                                                     |                                              |      |        |       |      |   |        |       |  



|                     |                                                                                                                               |                                 |   |          |         |  |   |          |         | 
|-------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | - | -------- | ------- |  | - | -------- | ------- | 
|                     |                                                                                                                               | 2004                            |   |          | 2003    | 
|                     |                                                                                                                               |                                 |   |          |         | 
|Deferred tax assets: |                                                                                                                               |                                 |   |          |         |  |   |         
|                     | Investments in Acquisition Partnerships, principally due to
    differences in basis for tax and financial reporting purposes |                                 | $ | 1,411    |         |  | $ | (26      | )      
|                     | Intangibles, principally due to differences in amortization                                                                   |                                 |   | 47       |         |  |   | 103      |        
|                     | Tax basis in fixed assets less than book                                                                                      |                                 |   | (110     | )       |  |   | (174     | )      
|                     | Other                                                                                                                         |                                 |   | (11,487  | )       |  |   | 9,179    |        
|                     | Federal net operating loss carryforwards                                                                                      |                                 |   | 210,956  |         |  |   | 193,537  |        
|                     |                                                                                                                               |                                 |   |          |         | 
|                     |                                                                                                                               | Total gross deferred tax assets |   |          | 200,817 |  |   |          | 202,619 | 
|                     | Valuation allowance                                                                                                           |                                 |   | (180,716 | )       |  |   | (182,518 | )      
|                     |                                                                                                                               |                                 |   |          |         | 
|                     |                                                                                                                               | Net deferred tax assets         |   | $        | 20,101  |  |   | $        | 20,101  | 
|                     |                                                                                                                               |                                 |   |          |         | 





69



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                      
|--- | ---------------------
|11. | Employee Benefit Plan



12.     Leases






|    |                                 
|--- | --------------------------------
|13. | Other Related Party Transactions









70



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                              
|--- | -----------------------------
|14. | Commitments and Contingencies





71



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                      
|--- | ---------------------
|15. | Financial Instruments

Disclosures about Fair Value of
Financial Instruments,




|    |                          
|--- | -------------------------
|(a) | Cash and Cash Equivalents





|    |                                      
|--- | -------------------------------------
|(b) | Portfolio Assets and Loans Receivable





|    |                                      
|--- | -------------------------------------
|(c) | Residual Interests in Securitizations



72



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |              
|--- | -------------
|(d) | Notes Payable





|    |                                                                                
|--- | -------------------------------------------------------------------------------
|(e) | Preferred Stock Subject to Mandatory Redemption/
    Redeemable Preferred Stock



73



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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity, Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections.




| |         
| | --------
| | KPMG LLP





74



---



##### 



FIRSTCITY FINANCIAL CORPORATION


SELECTED QUARTERLY FINANCIAL DATA


|                                                                  |  |                                               |       |  |         |   |       |         |  |   |         |  |  |         |        |  |         |   |       |         |  |   |         |  |  |   |       |  |  |   |        | 
|----------------------------------------------------------------- |  | --------------------------------------------- | ----- |  | ------- | - | ----- | ------- |  | - | ------- |  |  | ------- | ------ |  | ------- | - | ----- | ------- |  | - | ------- |  |  | - | ----- |  |  | - | ------ | 
|                                                                  |  | 2004                                          |       |  | 2003    |  
|                                                                  |  |                                               |       |  |         |  
|                                                                  |  | First                                         |       |  | Second  |   |       | Third   |  |   | Fourth  |  |  | First   |        |  | Second  |   |       | Third   |  |   | Fourth  | 
|                                                                  |  | Quarter                                       |       |  | Quarter |   |       | Quarter |  |   | Quarter |  |  | Quarter |        |  | Quarter |   |       | Quarter |  |   | Quarter | 
|                                                                  |  |                                               |       |  |         |   |       |         |  |   |         |  |  |         |        |  |         |   |       |         |  |   |         | 
|                                                                  |  | (Dollars in thousands, except per share data) |      
|                                                                  |  | (Unaudited)                                   |      
|Revenues                                                          |  | $                                             | 9,149 |  |         | $ | 7,629 |         |  | $ | 8,942   |  |  | $       | 10,334 |  |         | $ | 6,898 |         |  | $ | 9,896   |  |  | $ | 7,992 |  |  | $ | 10,706 | 
|Expenses                                                          |  |                                               | 7,305 |  |         |   | 7,188 |         |  |   | 7,967   |  |  |         | 8,445  |  |         |   | 7,376 |         |  |   | 7,535   |  |  |   | 7,870 |  |  |   | 8,178  | 
|Earnings (loss) from continuing operations                        |  |                                               | 1,734 |  |         |   | 386   |         |  |   | 952     |  |  |         | 1,939  |  |         |   | (594  | )       |  |   | 2,185   |  |  |   | 349   |  |  |   | 2,418  | 
|Earnings from discontinued operations                             |  |                                               | 3,115 |  |         |   | 2,913 |         |  |   | 1,956   |  |  |         | 50,639 |  |         |   | 575   |         |  |   | 1,632   |  |  |   | 1,491 |  |  |   | 1,131  | 
|Net earnings (loss)(1)                                            |  |                                               | 4,849 |  |         |   | 3,299 |         |  |   | 2,908   |  |  |         | 52,578 |  |         |   | (19   | )       |  |   | 3,817   |  |  |   | 1,840 |  |  |   | 3,549  | 
|Preferred dividends                                               |  |                                               |      |  |         |   |      |         |  |   |        |  |  |         |       |  |         |   | 66    |         |  |   | 67      |  |  |   |      |  |  |   |       | 
|Net earnings (loss) to common stockholders                        |  |                                               | 4,849 |  |         |   | 3,299 |         |  |   | 2,908   |  |  |         | 52,578 |  |         |   | (85   | )       |  |   | 3,750   |  |  |   | 1,840 |  |  |   | 3,549  | 
|Earnings (loss) from continuing operations per common
    share  |  |                                               |       |  |         |   |       |         |  |   |         |  |  |         |        |  |         |   |       |         |  |   |         |  |  |   |       |  |  |   |        | 
|Basic                                                             |  | $                                             | 0.15  |  |         | $ | 0.03  |         |  | $ | 0.09    |  |  | $       | 0.17   |  |         | $ | (0.06 | )       |  | $ | 0.18    |  |  | $ | 0.03  |  |  | $ | 0.22   | 
|Diluted                                                           |  | $                                             | 0.15  |  |         | $ | 0.03  |         |  | $ | 0.08    |  |  | $       | 0.16   |  |         | $ | (0.06 | )       |  | $ | 0.18    |  |  | $ | 0.03  |  |  | $ | 0.21   | 






|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In November 2004, FirstCity sold its remaining 31% interest in
    Drive (see discussion at note 3 of the consolidated
    financial statements).

75



---



##### 



WAMCO PARTNERSHIPS


COMBINED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002


(With Independent Auditors Report Thereon)


76



---



##### 



INDEPENDENT AUDITORS REPORT














| |         
| | --------
| | KPMG LLP





77



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##### 



WAMCO PARTNERSHIPS


COMBINED BALANCE SHEETS


December 31, 2004 and 2003


|                                                                                                 |                   |                        |         |        |      |   |         |         | 
|------------------------------------------------------------------------------------------------ | ----------------- | ---------------------- | ------- | ------ | ---- | - | ------- | ------- | 
|                                                                                                 |                   | 2004                   |         |        | 2003 |  
|                                                                                                 |                   |                        |         |        |      |  
|                                                                                                 |                   | (Dollars in thousands) |        
|ASSETS                                                                                          
|Cash                                                                                             |                   | $                      | 13,735  |        |      | $ | 15,044  |        
|Portfolio Assets, net                                                                            |                   |                        | 141,982 |        |      |   | 168,681 |        
|Investment in partnership                                                                        |                   |                        | 1,296   |        |      |   | 2,350   |        
|Deferred profit sharing                                                                          |                   |                        | 14,600  |        |      |   | 18,273  |        
|Other assets, net                                                                                |                   |                        | 851     |        |      |   | 786     |        
|                                                                                                 |                   |                        |         |        |      |  
|                                                                                                 |                   | $                      | 172,464 |        |      | $ | 205,134 |        
|                                                                                                 |                   |                        |         |        |      |  
|                                                                                                
|LIABILITIES AND PARTNERS CAPITAL                                                               
|Notes payable (including $37,545 and $71,224 to affiliates in
    2004 and 2003, respectively)   |                   | $                      | 70,350  |        |      | $ | 95,946  |        
|Deferred compensation                                                                            |                   |                        | 17,695  |        |      |   | 21,466  |        
|Other liabilities (including $1,613 and $1,603 to affiliates in
    2004 and 2003, respectively) |                   |                        | 3,186   |        |      |   | 3,133   |        
|                                                                                                 |                   |                        |         |        |      |  
|                                                                                                 | Total liabilities |                        |         | 91,231 |      |   |         | 120,545 | 
|Commitments and contingencies (notes 7 and 10)                                                   |                   |                        |         |        |      |   |         |        
|Partners capital                                                                                |                   |                        | 81,233  |        |      |   | 84,589  |        
|                                                                                                 |                   |                        |         |        |      |  
|                                                                                                 |                   | $                      | 172,464 |        |      | $ | 205,134 |        
|                                                                                                 |                   |                        |         |        |      |  



78



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##### 



WAMCO PARTNERSHIPS


COMBINED STATEMENTS OF OPERATIONS


Years Ended December 31, 2004, 2003, and 2002


|                                               |  |                        |        |   |      |   |        |      |  |   |         |  
|---------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                               |  | 2004                   |        |   | 2003 |   |        | 2002 | 
|                                               |  |                        |        |   |      |   |        |      | 
|                                               |  | (Dollars in thousands) |       
|Proceeds from resolution of Portfolio Assets   |  | $                      | 97,174 |   |      | $ | 89,819 |      |  | $ | 133,198 |  
|Cost of Portfolio Assets resolved              |  |                        | 71,110 |   |      |   | 61,921 |      |  |   | 102,170 |  
|                                               |  |                        |        |   |      |   |        |      | 
|Gain on resolution of Portfolio Assets         |  |                        | 26,064 |   |      |   | 27,898 |      |  |   | 31,028  |  
|Interest income on performing Portfolio Assets |  |                        | 5,798  |   |      |   | 6,731  |      |  |   | 11,280  |  
|Interest and fees on notes  affiliate         |  |                        | (2,352 | ) |      |   | (3,082 | )    |  |   | (5,187  | )
|Interest and fees on notes payable  other     |  |                        | (2,308 | ) |      |   | (1,733 | )    |  |   | (1,957  | )
|Provision for loan and impairment losses       |  |                        | (1,552 | ) |      |   | (1,025 | )    |  |   | (904    | )
|Servicing fees  affiliate                     |  |                        | (3,935 | ) |      |   | (3,606 | )    |  |   | (3,779  | )
|General, administrative and operating expenses |  |                        | (4,928 | ) |      |   | (5,756 | )    |  |   | (4,790  | )
|Other income, net                              |  |                        | 632    |   |      |   | 1,101  |      |  |   | 1,850   |  
|                                               |  |                        |        |   |      |   |        |      | 
|Net earnings                                   |  | $                      | 17,419 |   |      | $ | 20,528 |      |  | $ | 27,541  |  
|                                               |  |                        |        |   |      |   |        |      | 



79



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##### 



WAMCO PARTNERSHIPS


COMBINED STATEMENTS OF CHANGES IN PARTNERS CAPITAL


Years Ended December 31, 2004, 2003, and 2002


|                             |                                       |                        |     |         |          |   |       |          |   |   |          |      |   |          |       |      |       |   |        |         |   |   |        |         |  
|---------------------------- | ------------------------------------- | ---------------------- | --- | ------- | -------- | - | ----- | -------- | - | - | -------- | ---- | - | -------- | ----- | ---- | ----- | - | ------ | ------- | - | - | ------ | ------- | -
|                             |                                       |                        |     | Class B |          |   |       |          |   |   |         
|                             |                                       | Class A Equity         |     |         | Equity   |   |       |          |   |   |          |     
|                             |                                       |                        |     |         |          |   |       |          |   |   |          |     
|                             |                                       | General                |     |         | Limited  |   |       | Limited  |   |   | General  |      |   | Limited  |       |      |      
|                             |                                       | Partners               |     |         | Partners |   |       | Partners |   |   | Partners |      |   | Partners |       |      | Total |  
|                             |                                       |                        |     |         |          |   |       |          |   |   |          |      |   |          |       |      |       |  
|                             |                                       | (Dollars in thousands) |    
|Balance at December 31, 2001 |                                       | $                      | 131 |         |          | $ | 6,402 |          |   | $ | 1,108    |      |   | $        | 1,082 |      |       | $ | 81,526 |         |   | $ | 90,249 |        
|                             | Contributions                         |                        |     |        |          |   |       |         |   |   |          |     |   |          |       | 159  |       |   |        | 15,812  |   |   |        | 15,971  |  
|                             | Distributions                         |                        |     | (43     | )        |   |       | (2,119   | ) |   |          | (126 | ) |          |       | (605 | )     |   |        | (51,305 | ) |   |        | (54,198 | )
|                             | Comprehensive income:                 |                        |     |         |          |   |       |          |   |   |          |      |   |          |       |      |       |   |        |         |   |   |        |         |  
|                             | Net earnings                          |                        |     | 28      |          |   |       | 1,376    |   |   |          | 76   |   |          |       | 300  |       |   |        | 25,761  |   |   |        | 27,541  |  
|                             | Unrealized net gain on securitization |                        |     | 7       |          |   |       | 351      |   |   |          | 5    |   |          |       | 3    |       |   |        | 130     |   |   |        | 496     |  
|                             |                                       |                        |     |         |          |   |       |          |   |   |          |      |   |          |       |      |       |  
|                             | Total comprehensive income            |                        |     | 35      |          |   |       | 1,727    |   |   |          | 81   |   |          |       | 303  |       |   |        | 25,891  |   |   |        | 28,037  |  
|                             |                                       |                        |     |         |          |   |       |          |   |   |          |      |   |          |       |      |       |  
|Balance at December 31, 2002 |                                       |                        | 123 |         |          |   | 6,010 |          |   |   | 1,063    |      |   |          | 939   |      |       |   | 71,924 |         |   |   | 80,059 |        
|                             | Contributions                         |                        |     |        |          |   |       |         |   |   |          |     |   |          |       | 332  |       |   |        | 29,850  |   |   |        | 30,182  |  
|                             | Distributions                         |                        |     | (98     | )        |   |       | (4,788   | ) |   |          | (322 | ) |          |       | (546 | )     |   |        | (38,987 | ) |   |        | (44,741 | )
|                             | Comprehensive income:                 |                        |     |         |          |   |       |          |   |   |          |      |   |          |       |      |       |   |        |         |   |   |        |         |  
|                             | Net earnings                          |                        |     | 41      |          |   |       | 1,989    |   |   |          | 55   |   |          |       | 280  |       |   |        | 18,163  |   |   |        | 20,528  |  
|                             | Unrealized net loss on securitization |                        |     | (21     | )        |   |       | (1,018   | ) |   |          | (5   | ) |          |       | (17  | )     |   |        | (378    | ) |   |        | (1,439  | )
|                             |                                       |                        |     |         |          |   |       |          |   |   |          |      |   |          |       |      |       |  
|                             | Total comprehensive income            |                        |     | 20      |          |   |       | 971      |   |   |          | 50   |   |          |       | 263  |       |   |        | 17,785  |   |   |        | 19,089  |  
|                             |                                       |                        |     |         |          |   |       |          |   |   |          |      |   |          |       |      |       |  
|Balance at December 31, 2003 |                                       |                        | 45  |         |          |   | 2,193 |          |   |   | 791      |      |   |          | 988   |      |       |   | 80,572 |         |   |   | 84,589 |        
|                             | Contributions                         |                        |     |        |          |   |       |         |   |   |          |     |   |          |       | 234  |       |   |        | 23,496  |   |   |        | 23,730  |  
|                             | Distributions                         |                        |     | (76     | )        |   |       | (3,716   | ) |   |          | (59  | ) |          |       | (523 | )     |   |        | (40,131 | ) |   |        | (44,505 | )
|                             | Comprehensive income:                 |                        |     |         |          |   |       |          |   |   |          |      |   |          |       |      |       |   |        |         |   |   |        |         |  
|                             | Net earnings                          |                        |     | 31      |          |   |       | 1,523    |   |   |          | 57   |   |          |       | 195  |       |   |        | 15,613  |   |   |        | 17,419  |  
|                             |                                       |                        |     |         |          |   |       |          |   |   |          |      |   |          |       |      |       |  
|                             | Total comprehensive income            |                        |     | 31      |          |   |       | 1,523    |   |   |          | 57   |   |          |       | 195  |       |   |        | 15,613  |   |   |        | 17,419  |  
|                             |                                       |                        |     |         |          |   |       |          |   |   |          |      |   |          |       |      |       |  
|Balance at December 31, 2004 |                                       | $                      |    |         |          | $ |      |          |   | $ | 789      |      |   | $        | 894   |      |       | $ | 79,550 |         |   | $ | 81,233 |        
|                             |                                       |                        |     |         |          |   |       |          |   |   |          |      |   |          |       |      |       |  



80



---



##### 



WAMCO PARTNERSHIPS


COMBINED STATEMENTS OF CASH FLOWS


Years Ended December 31, 2004, 2003, and 2002


|                                      |                                                                                         |                                                                   |        |         |         |   |        |         |         |   |        |          |         |  
|------------------------------------- | --------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------ | ------- | ------- | - | ------ | ------- | ------- | - | ------ | -------- | ------- | -
|                                      |                                                                                         | 2004                                                              |        |         | 2003    |   |        | 2002    |        
|                                      |                                                                                         |                                                                   |        |         |         |   |        |         |        
|                                      |                                                                                         | (Dollars in thousands)                                            |       
|Cash flows from operating activities: |                                                                                         |                                                                   |        |         |         |   |        |         |         |   |        |         
|                                      | Net earnings                                                                            |                                                                   | $      | 17,419  |         |   | $      | 20,528  |         |   | $      | 27,541   |        
|                                      | Adjustments to reconcile net earnings to net cash provided by
    operating activities: |                                                                   |        |         |         |   |        |         |         |   |        |          |        
|                                      |                                                                                         | Amortization of loan origination and commitment fees              |        |         | 470     |   |        |         | 425     |   |        |          | 522     |  
|                                      |                                                                                         | Amortization of deferred profit sharing                           |        |         | 1,610   |   |        |         | 2,411   |   |        |          | 720     |  
|                                      |                                                                                         | Accretion of unrealized gain on trust certificates                |        |         |        |   |        |         | (197    | ) |        |          | (287    | )
|                                      |                                                                                         | Provision for loan and impairment losses                          |        |         | 1,552   |   |        |         | 1,025   |   |        |          | 904     |  
|                                      |                                                                                         | Gain on resolution of Portfolio Assets                            |        |         | (26,064 | ) |        |         | (27,898 | ) |        |          | (31,028 | )
|                                      |                                                                                         | Purchase of Portfolio Assets                                      |        |         | (53,116 | ) |        |         | (95,819 | ) |        |          | (48,713 | )
|                                      |                                                                                         | Net receipts on Portfolio Asset lines of credit                   |        |         | (39     | ) |        |         | 184     |   |        |          |        |  
|                                      |                                                                                         | Capitalized costs on Portfolio Assets                             |        |         | (1,455  | ) |        |         | (1,465  | ) |        |          | (4,059  | )
|                                      |                                                                                         | Capitalized interest on Portfolio Assets                          |        |         | (1,102  | ) |        |         | (976    | ) |        |          | (897    | )
|                                      |                                                                                         | Proceeds from resolution of Portfolio Assets                      |        |         | 97,174  |   |        |         | 89,819  |   |        |          | 133,198 |  
|                                      |                                                                                         | Principal payments on Performing Portfolio Assets                 |        |         | 9,749   |   |        |         | 20,037  |   |        |          | 21,640  |  
|                                      |                                                                                         | Excess of distribution over cost from partnership carried at cost |        |         | (593    | ) |        |         |        |   |        |          |        |  
|                                      |                                                                                         | (Increase) decrease in deferred profit sharing                    |        |         | 2,063   |   |        |         | (3,013  | ) |        |          | (2,885  | )
|                                      |                                                                                         | (Increase) decrease in other assets                               |        |         | (535    | ) |        |         | (334    | ) |        |          | 170     |  
|                                      |                                                                                         | (Increase) decrease in deferred compensation                      |        |         | (2,063  | ) |        |         | 3,013   |   |        |          | 2,885   |  
|                                      |                                                                                         | Deferred compensation and profit sharing paid                     |        |         | (1,713  | ) |        |         | (3,253  | ) |        |          | (1,730  | )
|                                      |                                                                                         | (Increase) decrease in other liabilities                          |        |         | 58      |   |        |         | (259    | ) |        |          | (458    | )
|                                      |                                                                                         |                                                                   |        |         |         |   |        |         |        
|                                      |                                                                                         | Net cash provided by operating activities                         |        |         | 43,415  |   |        |         | 4,228   |   |        |          | 97,523  |  
|                                      |                                                                                         |                                                                   |        |         |         |   |        |         |        
|Cash flows from investing activities: |                                                                                         |                                                                   |        |         |         |   |        |         |         |   |        |         
|                                      |                                                                                         | Contribution to partnership                                       |        |         | (12     | ) |        |         | (48     | ) |        |          |        |  
|                                      |                                                                                         | Distributions from partnership                                    |        |         | 1,659   |   |        |         |        |   |        |          |        |  
|                                      |                                                                                         | Change in trust certificates                                      |        |         |        |   |        |         | 676     |   |        |          | 1,123   |  
|                                      |                                                                                         |                                                                   |        |         |         |   |        |         |        
|                                      |                                                                                         | Net cash provided by in investing activities                      |        |         | 1,647   |   |        |         | 628     |   |        |          | 1,123   |  
|                                      |                                                                                         |                                                                   |        |         |         |   |        |         |        
|Cash flows from financing activities: |                                                                                         |                                                                   |        |         |         |   |        |         |         |   |        |         
|                                      | Borrowing of debt  affiliate                                                           |                                                                   |        | 33,420  |         |   |        | 63,462  |         |   |        | 53,143   |        
|                                      | Borrowing of debt                                                                       |                                                                   |        | 43,900  |         |   |        | 26,000  |         |   |        | 28,500   |        
|                                      | Repayment of debt  affiliate                                                           |                                                                   |        | (67,099 | )       |   |        | (42,534 | )       |   |        | (108,184 | )      
|                                      | Repayment of debt                                                                       |                                                                   |        | (35,817 | )       |   |        | (35,032 | )       |   |        | (33,979  | )      
|                                      | Capitalized interest on preferred equity                                                |                                                                   |        |        |         |   |        |        |         |   |        | 150      |        
|                                      | Repayment of preferred equity                                                           |                                                                   |        |        |         |   |        | (184    | )       |   |        | (411     | )      
|                                      | Capital contributions                                                                   |                                                                   |        | 23,730  |         |   |        | 30,182  |         |   |        | 15,971   |        
|                                      | Capital distributions                                                                   |                                                                   |        | (44,505 | )       |   |        | (44,741 | )       |   |        | (54,198  | )      
|                                      |                                                                                         |                                                                   |        |         |         |   |        |         |        
|                                      |                                                                                         | Net cash used in financing activities                             |        |         | (46,371 | ) |        |         | (2,847  | ) |        |          | (99,008 | )
|                                      |                                                                                         |                                                                   |        |         |         |   |        |         |        
|Net increase (decrease) in cash       |                                                                                         |                                                                   | (1,309 | )       |         |   | 2,009  |         |         |   | (362   | )       
|Cash at beginning of year             |                                                                                         |                                                                   | 15,044 |         |         |   | 13,035 |         |         |   | 13,397 |         
|                                      |                                                                                         |                                                                   |        |         |         |   |        |         |        
|Cash at end of year                   |                                                                                         | $                                                                 | 13,735 |         |         | $ | 15,044 |         |         | $ | 13,035 |         
|                                      |                                                                                         |                                                                   |        |         |         |   |        |         |        







81



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##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL STATEMENTS


December 31, 2004, 2003, and 2002


(Dollars in thousands)




|   |                                        
|-- | ---------------------------------------
|1. | Organization and Partnership Agreements











82



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)




|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



|    |                 
|--- | ----------------
|(a) | Portfolio Assets







| |                                
| | -------------------------------
| | Non-Performing Portfolio Assets









| |                            
| | ---------------------------
| | Performing Portfolio Assets





83



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##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)








| |                       
| | ----------------------
| | Real Estate Portfolios







|    |                                 
|--- | --------------------------------
|(b) | Investment in Trust Certificates

Accounting for Certain Investments in Debt and Equity
Securities.


Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets,


84



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)






|    |             
|--- | ------------
|(c) | Income Taxes





|    |                 
|--- | ----------------
|(d) | Use of Estimates





|    |                  
|--- | -----------------
|(e) | Reclassifications



85



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##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)




|   |                               
|-- | ------------------------------
|3. | Combining Financial Statements



Combining Balance Sheets


December 31, 2004


|                                                                |                   |        |        |     |       |   |        |       |  |   |        |        |  |              |        |        |          |   |        |        |  |   |         |        | 
|--------------------------------------------------------------- | ----------------- | ------ | ------ | --- | ----- | - | ------ | ----- |  | - | ------ | ------ |  | ------------ | ------ | ------ | -------- | - | ------ | ------ |  | - | ------- | ------ | 
|                                                                |                   | WAMCO  |        |     | WAMCO |   |        | WAMCO |  |   | WAMCO  |        |  | Other        |        |        |         
|                                                                |                   | XXVIII |        |     | XXX   |   |        | 31    |  |   | 33     |        |  | Partnerships |        |        | Combined |  
|                                                                |                   |        |        |     |       |   |        |       |  |   |        |        |  |              |        |        |          |  
|ASSETS                                                         
|Cash                                                            |                   | $      | 2,124  |     |       | $ | 495    |       |  | $ | 2,999  |        |  | $            | 2,087  |        |          | $ | 6,030  |        |  | $ | 13,735  |       
|Portfolio Assets, net                                           |                   |        | 8,128  |     |       |   | 11,509 |       |  |   | 35,249 |        |  |              | 41,138 |        |          |   | 45,958 |        |  |   | 141,982 |       
|Investment in partnership                                       |                   |        |       |     |       |   |       |       |  |   |       |        |  |              |       |        |          |   | 1,296  |        |  |   | 1,296   |       
|Deferred profit sharing                                         |                   |        |       |     |       |   |       |       |  |   |       |        |  |              |       |        |          |   | 14,600 |        |  |   | 14,600  |       
|Other assets, net                                               |                   |        | 5      |     |       |   | 47     |       |  |   | 271    |        |  |              | 73     |        |          |   | 455    |        |  |   | 851     |       
|                                                                |                   |        |        |     |       |   |        |       |  |   |        |        |  |              |        |        |          |  
|                                                                |                   | $      | 10,257 |     |       | $ | 12,051 |       |  | $ | 38,519 |        |  | $            | 43,298 |        |          | $ | 68,339 |        |  | $ | 172,464 |       
|                                                                |                   |        |        |     |       |   |        |       |  |   |        |        |  |              |        |        |          |  
|                                                               
|LIABILITIES AND PARTNERS CAPITAL                              
|Notes payable                                                   |                   | $      | 619    |     |       | $ | 4,658  |       |  | $ | 24,880 |        |  | $            | 30,971 |        |          | $ | 9,222  |        |  | $ | 70,350  |       
|Deferred compensation                                           |                   |        |       |     |       |   |       |       |  |   |       |        |  |              |       |        |          |   | 17,695 |        |  |   | 17,695  |       
|Other liabilities                                               |                   |        | 319    |     |       |   | 146    |       |  |   | 753    |        |  |              | 426    |        |          |   | 1,542  |        |  |   | 3,186   |       
|                                                                |                   |        |        |     |       |   |        |       |  |   |        |        |  |              |        |        |          |  
|                                                                | Total liabilities |        |        | 938 |       |   |        | 4,804 |  |   |        | 25,633 |  |              |        | 31,397 |          |   |        | 28,459 |  |   |         | 91,231 | 
|Partners capital                                               |                   |        | 9,319  |     |       |   | 7,247  |       |  |   | 12,886 |        |  |              | 11,901 |        |          |   | 39,880 |        |  |   | 81,233  |       
|                                                                |                   |        |        |     |       |   |        |       |  |   |        |        |  |              |        |        |          |  
|                                                                |                   | $      | 10,257 |     |       | $ | 12,051 |       |  | $ | 38,519 |        |  | $            | 43,298 |        |          | $ | 68,339 |        |  | $ | 172,464 |       
|                                                                |                   |        |        |     |       |   |        |       |  |   |        |        |  |              |        |        |          |  
|Notes payable owed to affiliates included in above balances     |                   | $      |       |     |       | $ |       |       |  | $ |       |        |  | $            | 30,971 |        |          | $ | 6,574  |        |  | $ | 37,545  |       
|Other liabilities owed to affiliates included in above balances |                   |        | 203    |     |       |   | 116    |       |  |   | 405    |        |  |              | 336    |        |          |   | 553    |        |  |   | 1,613   |       

86



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##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)


Combining Balance Sheets


December 31, 2003


|                                                                |                   |        |        |       |       |   |        |        |  |   |        |        |  |              |        |        |          |   |        |        |  |   |         |         | 
|--------------------------------------------------------------- | ----------------- | ------ | ------ | ----- | ----- | - | ------ | ------ |  | - | ------ | ------ |  | ------------ | ------ | ------ | -------- | - | ------ | ------ |  | - | ------- | ------- | 
|                                                                |                   | WAMCO  |        |       | WAMCO |   |        | WAMCO  |  |   | WAMCO  |        |  | Other        |        |        |         
|                                                                |                   | XXVIII |        |       | XXX   |   |        | 31     |  |   | 33     |        |  | Partnerships |        |        | Combined |  
|                                                                |                   |        |        |       |       |   |        |        |  |   |        |        |  |              |        |        |          |  
|ASSETS                                                         
|Cash                                                            |                   | $      | 539    |       |       | $ | 3,897  |        |  | $ | 7,313  |        |  | $            | 102    |        |          | $ | 3,193  |        |  | $ | 15,044  |        
|Portfolio Assets, net                                           |                   |        | 17,780 |       |       |   | 19,086 |        |  |   | 60,557 |        |  |              | 15,356 |        |          |   | 55,902 |        |  |   | 168,681 |        
|Investment in partnership                                       |                   |        |       |       |       |   |       |        |  |   |       |        |  |              |       |        |          |   | 2,350  |        |  |   | 2,350   |        
|Deferred profit sharing                                         |                   |        |       |       |       |   |       |        |  |   |       |        |  |              |       |        |          |   | 18,273 |        |  |   | 18,273  |        
|Other assets, net                                               |                   |        | 101    |       |       |   | 187    |        |  |   | 155    |        |  |              |       |        |          |   | 343    |        |  |   | 786     |        
|                                                                |                   |        |        |       |       |   |        |        |  |   |        |        |  |              |        |        |          |  
|                                                                |                   | $      | 18,420 |       |       | $ | 23,170 |        |  | $ | 68,025 |        |  | $            | 15,458 |        |          | $ | 80,061 |        |  | $ | 205,134 |        
|                                                                |                   |        |        |       |       |   |        |        |  |   |        |        |  |              |        |        |          |  
|                                                               
|LIABILITIES AND PARTNERS CAPITAL                              
|Notes payable                                                   |                   |        | 6,829  |       |       |   | 13,393 |        |  |   | 47,800 |        |  |              | 12,223 |        |          |   | 15,701 |        |  |   | 95,946  |        
|Deferred compensation                                           |                   |        |       |       |       |   |       |        |  |   |       |        |  |              |       |        |          |   | 21,466 |        |  |   | 21,466  |        
|Other liabilities                                               |                   |        | 987    |       |       |   | 209    |        |  |   | 667    |        |  |              | 68     |        |          |   | 1,202  |        |  |   | 3,133   |        
|                                                                |                   |        |        |       |       |   |        |        |  |   |        |        |  |              |        |        |          |  
|                                                                | Total liabilities |        |        | 7,816 |       |   |        | 13,602 |  |   |        | 48,467 |  |              |        | 12,291 |          |   |        | 38,369 |  |   |         | 120,545 | 
|Partners capital                                               |                   |        | 10,604 |       |       |   | 9,568  |        |  |   | 19,558 |        |  |              | 3,167  |        |          |   | 41,692 |        |  |   | 84,589  |        
|                                                                |                   |        |        |       |       |   |        |        |  |   |        |        |  |              |        |        |          |  
|                                                                |                   | $      | 18,420 |       |       | $ | 23,170 |        |  | $ | 68,025 |        |  | $            | 15,458 |        |          | $ | 80,061 |        |  | $ | 205,134 |        
|                                                                |                   |        |        |       |       |   |        |        |  |   |        |        |  |              |        |        |          |  
|Notes payable owed to affiliates included in above balances     |                   | $      |       |       |       | $ |       |        |  | $ | 47,800 |        |  | $            | 12,223 |        |          | $ | 11,201 |        |  | $ | 71,224  |        
|Other liabilities owed to affiliates included in above balances |                   |        | 572    |       |       |   | 163    |        |  |   | 466    |        |  |              | 16     |        |          |   | 386    |        |  |   | 1,603   |        

87



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)


Combining Statements of Operations


Year Ended December 31, 2004


|                                               |              |        |        |       |       |   |        |       |  |   |        |       |  |              |        |       |          |   |        |       |  |   |        |        | 
|---------------------------------------------- | ------------ | ------ | ------ | ----- | ----- | - | ------ | ----- |  | - | ------ | ----- |  | ------------ | ------ | ----- | -------- | - | ------ | ----- |  | - | ------ | ------ | 
|                                               |              | WAMCO  |        |       | WAMCO |   |        | WAMCO |  |   | WAMCO  |       |  | Other        |        |       |         
|                                               |              | XXVIII |        |       | XXX   |   |        | 31    |  |   | 33     |       |  | Partnerships |        |       | Combined |  
|                                               |              |        |        |       |       |   |        |       |  |   |        |       |  |              |        |       |          |  
|Proceeds from resolution of Portfolio Assets   |              | $      | 10,454 |       |       | $ | 10,205 |       |  | $ | 22,736 |       |  | $            | 20,943 |       |          | $ | 32,836 |       |  | $ | 97,174 |       
|Cost of Portfolio Assets resolved              |              |        | 8,000  |       |       |   | 7,685  |       |  |   | 18,542 |       |  |              | 16,805 |       |          |   | 20,078 |       |  |   | 71,110 |       
|                                               |              |        |        |       |       |   |        |       |  |   |        |       |  |              |        |       |          |  
|Gain on resolution of Portfolio Assets         |              |        | 2,454  |       |       |   | 2,520  |       |  |   | 4,194  |       |  |              | 4,138  |       |          |   | 12,758 |       |  |   | 26,064 |       
|Interest income on performing Portfolio Assets |              |        | 214    |       |       |   |       |       |  |   | 1,629  |       |  |              | 843    |       |          |   | 3,112  |       |  |   | 5,798  |       
|Interest and fees expense  affiliate          |              |        | (431   | )     |       |   |       |       |  |   | (133   | )     |  |              | (1,076 | )     |          |   | (712   | )     |  |   | (2,352 | )     
|Interest and fees expense  other              |              |        | (224   | )     |       |   | (440   | )     |  |   | (1,462 | )     |  |              |       |       |          |   | (182   | )     |  |   | (2,308 | )     
|Provision for loan and impairment losses       |              |        |       |       |       |   | (295   | )     |  |   | (100   | )     |  |              |       |       |          |   | (1,157 | )     |  |   | (1,552 | )     
|Service fees  affiliate                       |              |        | (426   | )     |       |   | (378   | )     |  |   | (820   | )     |  |              | (725   | )     |          |   | (1,586 | )     |  |   | (3,935 | )     
|General, administrative and operating expenses |              |        | (281   | )     |       |   | (116   | )     |  |   | (413   | )     |  |              | (441   | )     |          |   | (3,677 | )     |  |   | (4,928 | )     
|Other income, net                              |              |        | 5      |       |       |   | 7      |       |  |   | 13     |       |  |              |       |       |          |   | 607    |       |  |   | 632    |       
|                                               |              |        |        |       |       |   |        |       |  |   |        |       |  |              |        |       |          |  
|                                               | Net earnings |        | $      | 1,311 |       |   | $      | 1,298 |  |   | $      | 2,908 |  |              | $      | 2,739 |          |   | $      | 9,163 |  |   | $      | 17,419 | 
|                                               |              |        |        |       |       |   |        |       |  |   |        |       |  |              |        |       |          |  

Combining Statements of Operations


Year Ended December 31, 2003


|                                               |              |        |        |       |       |   |        |       |  |   |        |       |  |              |     |     |          |   |        |       |  |   |        |        | 
|---------------------------------------------- | ------------ | ------ | ------ | ----- | ----- | - | ------ | ----- |  | - | ------ | ----- |  | ------------ | --- | --- | -------- | - | ------ | ----- |  | - | ------ | ------ | 
|                                               |              | WAMCO  |        |       | WAMCO |   |        | WAMCO |  |   | WAMCO  |       |  | Other        |     |     |         
|                                               |              | XXVIII |        |       | XXX   |   |        | 31    |  |   | 33     |       |  | Partnerships |     |     | Combined |  
|                                               |              |        |        |       |       |   |        |       |  |   |        |       |  |              |     |     |          |  
|Proceeds from resolution of Portfolio Assets   |              | $      | 16,638 |       |       | $ | 33,277 |       |  | $ | 13,125 |       |  | $            | 641 |     |          | $ | 26,138 |       |  | $ | 89,819 |       
|Cost of Portfolio Assets resolved              |              |        | 12,080 |       |       |   | 25,006 |       |  |   | 9,459  |       |  |              | 514 |     |          |   | 14,862 |       |  |   | 61,921 |       
|                                               |              |        |        |       |       |   |        |       |  |   |        |       |  |              |     |     |          |  
|Gain on resolution of Portfolio Assets         |              |        | 4,558  |       |       |   | 8,271  |       |  |   | 3,666  |       |  |              | 127 |     |          |   | 11,276 |       |  |   | 27,898 |       
|Interest income on performing Portfolio Assets |              |        | 1,159  |       |       |   |       |       |  |   | 1,378  |       |  |              |    |     |          |   | 4,194  |       |  |   | 6,731  |       
|Interest and fees expense  affiliate          |              |        | (665   | )     |       |   | (596   | )     |  |   | (727   | )     |  |              | (16 | )   |          |   | (1,078 | )     |  |   | (3,082 | )     
|Interest and fees expense  other              |              |        | (677   | )     |       |   | (567   | )     |  |   |       |       |  |              |    |     |          |   | (489   | )     |  |   | (1,733 | )     
|Provision for loan and impairment losses       |              |        | (301   | )     |       |   |       |       |  |   |       |       |  |              |    |     |          |   | (724   | )     |  |   | (1,025 | )     
|Service fees  affiliate                       |              |        | (614   | )     |       |   | (1,122 | )     |  |   | (615   | )     |  |              |    |     |          |   | (1,255 | )     |  |   | (3,606 | )     
|General, administrative and operating expenses |              |        | (517   | )     |       |   | (656   | )     |  |   | (138   | )     |  |              |    |     |          |   | (4,445 | )     |  |   | (5,756 | )     
|Other income, net                              |              |        | 8      |       |       |   | 12     |       |  |   | 9      |       |  |              |    |     |          |   | 1,072  |       |  |   | 1,101  |       
|                                               |              |        |        |       |       |   |        |       |  |   |        |       |  |              |     |     |          |  
|                                               | Net earnings |        | $      | 2,951 |       |   | $      | 5,342 |  |   | $      | 3,573 |  |              | $   | 111 |          |   | $      | 8,551 |  |   | $      | 20,528 | 
|                                               |              |        |        |       |       |   |        |       |  |   |        |       |  |              |     |     |          |  

88



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)


Combining Statements of Operations


Year Ended December 31, 2002


|                                               |              |        |        |        |       |   |       |       |  |       |   |              |  |   |          |   |  |   |        |        |  |   |         |        | 
|---------------------------------------------- | ------------ | ------ | ------ | ------ | ----- | - | ----- | ----- |  | ----- | - | ------------ |  | - | -------- | - |  | - | ------ | ------ |  | - | ------- | ------ | 
|                                               |              | WAMCO  |        |        | WAMCO |   |       | WAMCO |  | WAMCO |   | Other        |  |   |         
|                                               |              | XXVIII |        |        | XXX   |   |       | 31    |  | 33    |   | Partnerships |  |   | Combined |  
|                                               |              |        |        |        |       |   |       |       |  |       |   |              |  |   |          |  
|Proceeds from resolution of Portfolio Assets   |              | $      | 47,892 |        |       | $ | 6,852 |       |  | $     |  |              |  | $ |         |   |  | $ | 78,454 |        |  | $ | 133,198 |       
|Cost of Portfolio Assets resolved              |              |        | 34,418 |        |       |   | 4,770 |       |  |       |  |              |  |   |         |   |  |   | 62,982 |        |  |   | 102,170 |       
|                                               |              |        |        |        |       |   |       |       |  |       |   |              |  |   |          |   |  |  
|Gain on resolution of Portfolio Assets         |              |        | 13,474 |        |       |   | 2,082 |       |  |       |  |              |  |   |         |   |  |   | 15,472 |        |  |   | 31,028  |       
|Interest income on performing Portfolio Assets |              |        | 2,767  |        |       |   |      |       |  |       |  |              |  |   |         |   |  |   | 8,513  |        |  |   | 11,280  |       
|Interest and fees expense  affiliate          |              |        | (1,826 | )      |       |   | (596  | )     |  |       |  |              |  |   |         |   |  |   | (2,765 | )      |  |   | (5,187  | )     
|Interest and fees expense  other              |              |        | (585   | )      |       |   |      |       |  |       |  |              |  |   |         |   |  |   | (1,372 | )      |  |   | (1,957  | )     
|Provision for loan and impairment losses       |              |        |       |        |       |   |      |       |  |       |  |              |  |   |         |   |  |   | (904   | )      |  |   | (904    | )     
|Service fees  affiliate                       |              |        | (1,574 | )      |       |   | (250  | )     |  |       |  |              |  |   |         |   |  |   | (1,955 | )      |  |   | (3,779  | )     
|General, administrative and operating expenses |              |        | (1,488 | )      |       |   | (138  | )     |  |       |  |              |  |   |         |   |  |   | (3,164 | )      |  |   | (4,790  | )     
|Other income, net                              |              |        | 34     |        |       |   | 21    |       |  |       |  |              |  |   |         |   |  |   | 1,795  |        |  |   | 1,850   |       
|                                               |              |        |        |        |       |   |       |       |  |       |   |              |  |   |          |   |  |  
|                                               | Net earnings |        | $      | 10,802 |       |   | $     | 1,119 |  |       | $ |             |  |   | $        |  |  |   | $      | 15,620 |  |   | $       | 27,541 | 
|                                               |              |        |        |        |       |   |       |       |  |       |   |              |  |   |          |   |  |  

89



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)


Combining Statements of Changes in Partners Capital


Years Ended December 31, 2004, 2003, and 2002


|                             |                                       |        |        |         |       |   |        |        |   |   |        |        |   |              |        |        |          |   |        |         |   |   |        |         |  
|---------------------------- | ------------------------------------- | ------ | ------ | ------- | ----- | - | ------ | ------ | - | - | ------ | ------ | - | ------------ | ------ | ------ | -------- | - | ------ | ------- | - | - | ------ | ------- | -
|                             |                                       | WAMCO  |        |         | WAMCO |   |        | WAMCO  |   |   | WAMCO  |        |   | Other        |        |        |         
|                             |                                       | XXVIII |        |         | XXX   |   |        | 31     |   |   | 33     |        |   | Partnerships |        |        | Combined |  
|                             |                                       |        |        |         |       |   |        |        |   |   |        |        |   |              |        |        |          |  
|Balance at December 31, 2001 |                                       | $      | 24,810 |         |       | $ |       |        |   | $ |       |        |   | $            |       |        |          | $ | 65,439 |         |   | $ | 90,249 |        
|                             | Contributions                         |        |        |        |       |   |        | 15,942 |   |   |        |       |   |              |        |       |          |   |        | 29      |   |   |        | 15,971  |  
|                             | Distributions                         |        |        | (20,668 | )     |   |        | (4,910 | ) |   |        |       |   |              |        |       |          |   |        | (28,620 | ) |   |        | (54,198 | )
|                             | Net earnings                          |        |        | 10,802  |       |   |        | 1,119  |   |   |        |       |   |              |        |       |          |   |        | 15,620  |   |   |        | 27,541  |  
|                             | Unrealized net gain on securitization |        |        |        |       |   |        |       |   |   |        |       |   |              |        |       |          |   |        | 496     |   |   |        | 496     |  
|                             |                                       |        |        |         |       |   |        |        |   |   |        |        |   |              |        |        |          |  
|                             | Total comprehensive income            |        |        | 10,802  |       |   |        | 1,119  |   |   |        |       |   |              |        |       |          |   |        | 16,116  |   |   |        | 28,037  |  
|                             |                                       |        |        |         |       |   |        |        |   |   |        |        |   |              |        |        |          |  
|Balance at December 31, 2002 |                                       |        | 14,944 |         |       |   | 12,151 |        |   |   |       |        |   |              |       |        |          |   | 52,964 |         |   |   | 80,059 |        
|                             |                                       |        |        |         |       |   |        |        |   |   |        |        |   |              |        |        |          |  
|                             | Contributions                         |        |        |        |       |   |        |       |   |   |        | 21,527 |   |              |        | 3,056  |          |   |        | 5,599   |   |   |        | 30,182  |  
|                             | Distributions                         |        |        | (7,291  | )     |   |        | (7,925 | ) |   |        | (5,542 | ) |              |        |       |          |   |        | (23,983 | ) |   |        | (44,741 | )
|                             | Net earnings                          |        |        | 2,951   |       |   |        | 5,342  |   |   |        | 3,573  |   |              |        | 111    |          |   |        | 8,551   |   |   |        | 20,528  |  
|                             | Unrealized net gain on securitization |        |        |        |       |   |        |       |   |   |        |       |   |              |        |       |          |   |        | (1,439  | ) |   |        | (1,439  | )
|                             |                                       |        |        |         |       |   |        |        |   |   |        |        |   |              |        |        |          |  
|                             | Total comprehensive income            |        |        | 2,951   |       |   |        | 5,342  |   |   |        | 3,573  |   |              |        | 111    |          |   |        | 7,112   |   |   |        | 19,089  |  
|                             |                                       |        |        |         |       |   |        |        |   |   |        |        |   |              |        |        |          |  
|Balance at December 31, 2003 |                                       |        | 10,604 |         |       |   | 9,568  |        |   |   | 19,558 |        |   |              | 3,167  |        |          |   | 41,692 |         |   |   | 84,589 |        
|                             |                                       |        |        |         |       |   |        |        |   |   |        |        |   |              |        |        |          |  
|                             | Contributions                         |        |        |        |       |   |        |       |   |   |        |       |   |              |        | 10,653 |          |   |        | 13,077  |   |   |        | 23,730  |  
|                             | Distributions                         |        |        | (2,596  | )     |   |        | (3,619 | ) |   |        | (9,580 | ) |              |        | (4,658 | )        |   |        | (24,052 | ) |   |        | (44,505 | )
|                             | Net earnings                          |        |        | 1,311   |       |   |        | 1,298  |   |   |        | 2,908  |   |              |        | 2,739  |          |   |        | 9,163   |   |   |        | 17,419  |  
|                             |                                       |        |        |         |       |   |        |        |   |   |        |        |   |              |        |        |          |  
|                             | Total comprehensive income            |        |        | 1,311   |       |   |        | 1,298  |   |   |        | 2,908  |   |              |        | 2,739  |          |   |        | 9,163   |   |   |        | 17,419  |  
|                             |                                       |        |        |         |       |   |        |        |   |   |        |        |   |              |        |        |          |  
|Balance at December 31, 2004 |                                       | $      | 9,319  |         |       | $ | 7,247  |        |   | $ | 12,886 |        |   | $            | 11,901 |        |          | $ | 39,880 |         |   | $ | 81,233 |        
|                             |                                       |        |        |         |       |   |        |        |   |   |        |        |   |              |        |        |          |  

90



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)


Combining Statements of Cash Flows


Year Ended December 31, 2004


|                                                                                        |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |         |       |         |         |         |        |         |         |         |  
|--------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | --------------------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------- | ------ | ------- | ------ | ------------ | ----- | ------- | -------- | ------- | ----- | ------- | ------- | ------- | ------ | ------- | ------- | ------- | -
|                                                                                        |                                                                                                   | WAMCO                                                             |                                                     |        | WAMCO  |        |        | WAMCO  |        |         | WAMCO  |         |        | Other        |       |         |         
|                                                                                        |                                                                                                   | XXVIII                                                            |                                                     |        | XXX    |        |        | 31     |        |         | 33     |         |        | Partnerships |       |         | Combined |        
|                                                                                        |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |        
|Cash flows from operating activities:                                                   |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |         |       |         |         |         |        |        
|                                                                                        | Net earnings                                                                                      |                                                                   | $                                                   | 1,311  |        |        | $      | 1,298  |        |         | $      | 2,908   |        |              | $     | 2,739   |          |         | $     | 9,163   |         |         | $      | 17,419  |        
|                                                                                        | Adjustments to reconcile net earnings to net cash provided by
    (used in) operating activities: |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |         |       |         |         |         |        |         |        
|                                                                                        |                                                                                                   | Amortization of loan origination and commitment fees              |                                                     |        | 92     |        |        |        | 141    |         |        |         | 185    |              |       |         |         |         |       |         | 52      |         |        |         | 470     |        
|                                                                                        |                                                                                                   | Amortization of deferred profit sharing                           |                                                     |        |       |        |        |        |       |         |        |         |       |              |       |         |         |         |       |         | 1,610   |         |        |         | 1,610   |        
|                                                                                        |                                                                                                   | Provision for loan and impairment losses                          |                                                     |        | 295    |        |        |        |       |         |        |         | 100    |              |       |         |         |         |       |         | 1,157   |         |        |         | 1,552   |        
|                                                                                        |                                                                                                   | Gain on resolution of Portfolio Assets                            |                                                     |        | (2,454 | )      |        |        | (2,520 | )       |        |         | (4,194 | )            |       |         | (4,138   | )       |       |         | (12,758 | )       |        |         | (26,064 | )      
|                                                                                        |                                                                                                   | Purchase of Portfolio Assets                                      |                                                     |        |       |        |        |        |       |         |        |         |       |              |       |         | (44,187  | )       |       |         | (8,929  | )       |        |         | (53,116 | )      
|                                                                                        |                                                                                                   | Transfer of Portfolio Assets at cost                              |                                                     |        |       |        |        |        |       |         |        |         | 3,145  |              |       |         |         |         |       |         | (3,145  | )       |        |         |        |        
|                                                                                        |                                                                                                   | Net receipts on Portfolio Asset lines of credit                   |                                                     |        |       |        |        |        |       |         |        |         |       |              |       |         |         |         |       |         | (39     | )       |        |         | (39     | )      
|                                                                                        |                                                                                                   | Capitalized costs on Portfolio Assets                             |                                                     |        |       |        |        |        | (108   | )       |        |         | (272   | )            |       |         | (60      | )       |       |         | (1,015  | )       |        |         | (1,455  | )      
|                                                                                        |                                                                                                   | Capitalized interest on Portfolio Assets                          |                                                     |        | (1     | )      |        |        |       |         |        |         | (57    | )            |       |         |         |         |       |         | (1,044  | )       |        |         | (1,102  | )      
|                                                                                        |                                                                                                   | Proceeds from resolution of Portfolio Assets                      |                                                     |        | 10,454 |        |        |        | 10,205 |         |        |         | 22,736 |              |       |         | 20,943   |         |       |         | 32,836  |         |        |         | 97,174  |        
|                                                                                        |                                                                                                   | Principal payments on Performing Portfolio Assets                 |                                                     |        | 1,358  |        |        |        |       |         |        |         | 3,850  |              |       |         | 1,661    |         |       |         | 2,880   |         |        |         | 9,749   |        
|                                                                                        |                                                                                                   | Excess of distribution over cost from partnership carried at cost |                                                     |        |       |        |        |        |       |         |        |         |       |              |       |         |         |         |       |         | (593    | )       |        |         | (593    | )      
|                                                                                        |                                                                                                   | Decrease in deferred profit sharing                               |                                                     |        |       |        |        |        |       |         |        |         |       |              |       |         |         |         |       |         | 2,063   |         |        |         | 2,063   |        
|                                                                                        |                                                                                                   | (Increase) decrease in other assets                               |                                                     |        | 4      |        |        |        | (1     | )       |        |         | (301   | )            |       |         | (73      | )       |       |         | (164    | )       |        |         | (535    | )      
|                                                                                        |                                                                                                   | Decrease in deferred compensation                                 |                                                     |        |       |        |        |        |       |         |        |         |       |              |       |         |         |         |       |         | (2,063  | )       |        |         | (2,063  | )      
|                                                                                        |                                                                                                   | Deferred compensation and profit sharing paid                     |                                                     |        |       |        |        |        |       |         |        |         |       |              |       |         |         |         |       |         | (1,713  | )       |        |         | (1,713  | )      
|                                                                                        |                                                                                                   | Increase (decrease) in other liabilities                          |                                                     |        | (668   | )      |        |        | (63    | )       |        |         | 86     |              |       |         | 357      |         |       |         | 346     |         |        |         | 58      |        
|                                                                                        |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |        
|                                                                                        |                                                                                                   |                                                                   | Net cash provided by (used in) operating Activities |        |        | 10,391 |        |        |        | 8,952   |        |         |        | 28,186       |       |         |          | (22,758 | )     |         |         | 18,644  |        |         |         | 43,415  |  
|                                                                                        |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |        
|Cash flows from investing activities:                                                   |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |         |       |         |         |         |        |        
|                                                                                        | Contribution to partnership                                                                       |                                                                   |                                                     |       |        |        |        |       |        |         |        |        |        |              |       |        |          |         |       | (12     | )       |         |        | (12     | )      
|                                                                                        | Distributions from partnership                                                                    |                                                                   |                                                     |       |        |        |        |       |        |         |        |        |        |              |       |        |          |         |       | 1,659   |         |         |        | 1,659   |        
|                                                                                        |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |        
|                                                                                        |                                                                                                   |                                                                   | Net cash provided by investing activities           |        |        |       |        |        |        |        |        |         |        |             |       |         |          |        |       |         |         | 1,647   |        |         |         | 1,647   |  
|                                                                                        |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |        
|Cash flows from financing activities:                                                   |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |         |       |         |         |         |        |        
|                                                                                        | Borrowing of debt  affiliate                                                                     |                                                                   |                                                     |       |        |        |        |       |        |         |        |        |        |              |       | 33,420  |          |         |       |        |         |         |        | 33,420  |        
|                                                                                        | Borrowing of debt                                                                                 |                                                                   |                                                     |       |        |        |        |       |        |         |        | 43,900  |        |              |       |        |          |         |       |        |         |         |        | 43,900  |        
|                                                                                        | Repayment of debt  affiliate                                                                     |                                                                   |                                                     |       |        |        |        |       |        |         |        | (47,800 | )      |              |       | (14,672 | )        |         |       | (4,627  | )       |         |        | (67,099 | )      
|                                                                                        | Repayment of debt                                                                                 |                                                                   |                                                     | (6,210 | )      |        |        | (8,735 | )      |         |        | (19,020 | )      |              |       |        |          |         |       | (1,852  | )       |         |        | (35,817 | )      
|                                                                                        | Capital contributions                                                                             |                                                                   |                                                     |       |        |        |        |       |        |         |        |        |        |              |       | 10,652  |          |         |       | 13,078  |         |         |        | 23,730  |        
|                                                                                        | Capital distributions                                                                             |                                                                   |                                                     | (2,596 | )      |        |        | (3,619 | )      |         |        | (9,580  | )      |              |       | (4,657  | )        |         |       | (24,053 | )       |         |        | (44,505 | )      
|                                                                                        |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |        
|                                                                                        |                                                                                                   |                                                                   | Net cash provided by (used in) financing activities |        |        | (8,806 | )      |        |        | (12,354 | )      |         |        | (32,500      | )     |         |          | 24,743  |       |         |         | (17,454 | )      |         |         | (46,371 | )
|                                                                                        |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |        
|Net increase (decrease) in cash                                                         |                                                                                                   |                                                                   | 1,585                                               |        |        |        | (3,402 | )      |        |         | (4,314 | )       |        |              | 1,985 |         |          |         | 2,837 |         |         |         | (1,309 | )      
|Cash at beginning of year                                                               |                                                                                                   |                                                                   | 539                                                 |        |        |        | 3,897  |        |        |         | 7,313  |         |        |              | 102   |         |          |         | 3,193 |         |         |         | 15,044 |        
|                                                                                        |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |        
|Cash at end of year                                                                     |                                                                                                   | $                                                                 | 2,124                                               |        |        | $      | 495    |        |        | $       | 2,999  |         |        | $            | 2,087 |         |          | $       | 6,030 |         |         | $       | 13,735 |        
|                                                                                        |                                                                                                   |                                                                   |                                                     |        |        |        |        |        |        |         |        |         |        |              |       |         |          |        
|Supplemental disclosure of cash flow information Approximate
    cash paid for interest |                                                                                                   | $                                                                 | 603                                                 |        |        | $      | 317    |        |        | $       | 1,403  |         |        | $            | 1,018 |         |          | $       | 944   |         |         | $       | 4,285  |        

91



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)


Combining Statements of Cash Flows


Year Ended December 31, 2003


|                                                 |                                                                                                   |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |         |        |         |         |         |        |         |         |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | --------------------------------------------------- | ------- | ------ | ------- | ----- | ------- | ------ | ------- | ----- | ------ | ------- | ------------ | --- | ------ | -------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | ------ | -
|                                                 |                                                                                                   | WAMCO                                                |                                                     |         | WAMCO  |         |       | WAMCO   |        |         | WAMCO |        |         | Other        |     |        |         
|                                                 |                                                                                                   | XXVIII                                               |                                                     |         | XXX    |         |       | 31      |        |         | 33    |        |         | Partnerships |     |        | Combined |        
|                                                 |                                                                                                   |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |        
|Cash flows from operating activities:            |                                                                                                   |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |         |        |         |         |         |        |        
|                                                 | Net earnings                                                                                      |                                                      | $                                                   | 2,951   |        |         | $     | 5,342   |        |         | $     | 3,573  |         |              | $   | 111    |          |         | $      | 8,551   |         |         | $      | 20,528  |        
|                                                 | Adjustments to reconcile net earnings to net cash provided by
    (used in) operating activities: |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |         |        |         |         |         |        |         |        
|                                                 |                                                                                                   | Amortization of loan origination and commitment fees |                                                     |         | 175    |         |       |         | 105    |         |       |        |        |              |     |        |         |         |        |         | 145     |         |        |         | 425     |       
|                                                 |                                                                                                   | Amortization of deferred profit sharing              |                                                     |         |       |         |       |         |       |         |       |        |        |              |     |        |         |         |        |         | 2,411   |         |        |         | 2,411   |       
|                                                 |                                                                                                   | Accretion of unrealized gain on trust certificates   |                                                     |         |       |         |       |         |       |         |       |        |        |              |     |        |         |         |        |         | (197    | )       |        |         | (197    | )     
|                                                 |                                                                                                   | Provision for loan and impairment losses             |                                                     |         | 301    |         |       |         |       |         |       |        |        |              |     |        |         |         |        |         | 724     |         |        |         | 1,025   |       
|                                                 |                                                                                                   | Gain on resolution of Portfolio Assets               |                                                     |         | (4,558 | )       |       |         | (8,271 | )       |       |        | (3,666  | )            |     |        | (127     | )       |        |         | (11,276 | )       |        |         | (27,898 | )     
|                                                 |                                                                                                   | Purchase of Portfolio Assets                         |                                                     |         |       |         |       |         |       |         |       |        | (73,894 | )            |     |        | (15,871  | )       |        |         | (6,054  | )       |        |         | (95,819 | )     
|                                                 |                                                                                                   | Net receipts on Portfolio Asset lines of credit      |                                                     |         |       |         |       |         |       |         |       |        | 184     |              |     |        |         |         |        |         |        |         |        |         | 184     |       
|                                                 |                                                                                                   | Capitalized costs on Portfolio Assets                |                                                     |         | (328   | )       |       |         | (90    | )       |       |        | (62     | )            |     |        |         |         |        |         | (985    | )       |        |         | (1,465  | )     
|                                                 |                                                                                                   | Capitalized interest on Portfolio Assets             |                                                     |         | (107   | )       |       |         |       |         |       |        | (17     | )            |     |        |         |         |        |         | (852    | )       |        |         | (976    | )     
|                                                 |                                                                                                   | Proceeds from resolution of Portfolio Assets         |                                                     |         | 16,638 |         |       |         | 33,277 |         |       |        | 13,125  |              |     |        | 641      |         |        |         | 26,138  |         |        |         | 89,819  |       
|                                                 |                                                                                                   | Principal payments on Performing Portfolio Assets    |                                                     |         | 2,615  |         |       |         |       |         |       |        | 3,773   |              |     |        |         |         |        |         | 13,649  |         |        |         | 20,037  |       
|                                                 |                                                                                                   | Increase in deferred profit sharing                  |                                                     |         |        |         |       |         |       |         |       |        |         |              |     |        |         |         |        |         | (3,013  | )       |        |         | (3,013  | )     
|                                                 |                                                                                                   | (Increase) decrease in other assets                  |                                                     |         | 70     |         |       |         | (292   | )       |       |        | (2      | )            |     |        |         |         |        |         | (110    | )       |        |         | (334    | )     
|                                                 |                                                                                                   | Increase in deferred compensation                    |                                                     |         |       |         |       |         |       |         |       |        |        |              |     |        |         |         |        |         | 3,013   |         |        |         | 3,013   |       
|                                                 |                                                                                                   | Deferred compensation and profit sharing paid        |                                                     |         |       |         |       |         |       |         |       |        |        |              |     |        |         |         |        |         | (3,253  | )       |        |         | (3,253  | )     
|                                                 |                                                                                                   | Increase (decrease) in other liabilities             |                                                     |         | (314   | )       |       |         | (315   | )       |       |        | 514     |              |     |        | 69       |         |        |         | (213    | )       |        |         | (259    | )     
|                                                 |                                                                                                   |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |        
|                                                 |                                                                                                   |                                                      | Net cash provided by (used in) operating Activities |         |        | 17,443  |       |         |        | 29,756  |       |        |         | (56,472      | )   |        |          | (15,177 | )      |         |         | 28,678  |        |         |         | 4,228  |  
|Cash flows from investing activities:            |                                                                                                   |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |         |        |         |         |         |        |        
|                                                 | Contribution to subsidiaries                                                                      |                                                      |                                                     |        |        |         |       |        |        |         |       |       |         |              |     |       |          |         |        | (48     | )       |         |        | (48     | )      
|                                                 | Change in trust certificates                                                                      |                                                      |                                                     |        |        |         |       |        |        |         |       |       |         |              |     |       |          |         |        | 676     |         |         |        | 676     |        
|                                                 |                                                                                                   |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |        
|                                                 |                                                                                                   |                                                      | Net cash provided by investing activities           |         |        |        |       |         |        |        |       |        |         |             |     |        |          |        |        |         |         | 628     |        |         |         | 628    |  
|Cash flows from financing activities:            |                                                                                                   |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |         |        |         |         |         |        |        
|                                                 | Borrowing of debt  affiliate                                                                     |                                                      |                                                     |        |        |         |       | 118     |        |         |       | 51,110 |         |              |     | 12,223 |          |         |        | 11      |         |         |        | 63,462  |        
|                                                 | Borrowing of debt                                                                                 |                                                      |                                                     |        |        |         |       | 26,000  |        |         |       |       |         |              |     |       |          |         |        |        |         |         |        | 26,000  |        
|                                                 | Repayment of debt  affiliate                                                                     |                                                      |                                                     |        |        |         |       | (35,066 | )      |         |       | (3,310 | )       |              |     |       |          |         |        | (4,158  | )       |         |        | (42,534 | )      
|                                                 | Repayment of debt                                                                                 |                                                      |                                                     | (12,053 | )      |         |       | (12,607 | )      |         |       |       |         |              |     |       |          |         |        | (10,372 | )       |         |        | (35,032 | )      
|                                                 | Repayment of preferred equity                                                                     |                                                      |                                                     |        |        |         |       |        |        |         |       |       |         |              |     |       |          |         |        | (184    | )       |         |        | (184    | )      
|                                                 | Capital contributions                                                                             |                                                      |                                                     |        |        |         |       |        |        |         |       | 21,527 |         |              |     | 3,056  |          |         |        | 5,599   |         |         |        | 30,182  |        
|                                                 | Capital distributions                                                                             |                                                      |                                                     | (7,291  | )      |         |       | (7,925  | )      |         |       | (5,542 | )       |              |     |       |          |         |        | (23,983 | )       |         |        | (44,741 | )      
|                                                 |                                                                                                   |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |        
|                                                 |                                                                                                   |                                                      | Net cash provided by (used in) financing Activities |         |        | (19,344 | )     |         |        | (29,480 | )     |        |         | 63,785       |     |        |          | 15,279  |        |         |         | (33,087 | )      |         |         | (2,847 | )
|                                                 |                                                                                                   |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |        
|Net increase (decrease) in cash                  |                                                                                                   |                                                      | (1,901                                              | )       |        |         | 276   |         |        |         | 7,313 |        |         |              | 102 |        |          |         | (3,781 | )       |         |         | 2,009  |        
|Cash at beginning of year                        |                                                                                                   |                                                      | 2,440                                               |         |        |         | 3,621 |         |        |         |      |        |         |              |    |        |          |         | 6,974  |         |         |         | 13,035 |        
|                                                 |                                                                                                   |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |        
|Cash at end of year                              |                                                                                                   | $                                                    | 539                                                 |         |        | $       | 3,897 |         |        | $       | 7,313 |        |         | $            | 102 |        |          | $       | 3,193  |         |         | $       | 15,044 |        
|                                                 |                                                                                                   |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |        
|Supplemental disclosure of cash flow information |                                                                                                   |                                                      |                                                     |         |        |         |       |         |        |         |       |        |         |              |     |        |          |         |        |         |         |         |        |        
|                                                 | Approximate cash paid for interest                                                                |                                                      | $                                                   | 1,211   |        |         | $     | 982     |        |         | $     | 663    |         |              | $   |       |          |         | $      | 1,467   |         |         | $      | 4,323   |        
|                                                 | Preferred equity converted to note payable                                                        |                                                      |                                                     |        |        |         |       |        |        |         |       |       |         |              |     |       |          |         |        | 4,160   |         |         |        | 4,160   |        

92



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)


Combining Statements of Cash Flows


Year Ended December 31, 2002


|                                                 |                                                                                                   |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |   |   |   |        |         |         |         |        |          |         |         |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | --------------------------------------------------- | ------- | ------- | ------- | ----- | ------- | ------- | ------- | - | ------------ | - | - | -------- | - | - | - | ------ | ------- | ------- | ------- | ------ | -------- | ------- | ------- | -
|                                                 |                                                                                                   | WAMCO                                                |                                                     |         | WAMCO   |         |       | WAMCO   |         | WAMCO   |   | Other        |   |   |         
|                                                 |                                                                                                   | XXVIII                                               |                                                     |         | XXX     |         |       | 31      |         | 33      |   | Partnerships |   |   | Combined |  
|                                                 |                                                                                                   |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |  
|Cash flows from operating activities:            |                                                                                                   |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |   |   |   |        |         |         |         |        |         
|                                                 | Net earnings                                                                                      |                                                      | $                                                   | 10,802  |         |         | $     | 1,119   |         |         | $ |             |   |   | $        |  |   |   | $      | 15,620  |         |         | $      | 27,541   |        
|                                                 | Adjustments to reconcile net earnings to net cash provided by
    (used in) operating activities: |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |   |   |   |        |         |         |         |        |          |        
|                                                 |                                                                                                   | Amortization of loan origination and commitment fees |                                                     |         | 87      |         |       |         |        |         |   |              |  |   |          |   |  |   |        |         | 435     |         |        |          | 522     |        
|                                                 |                                                                                                   | Amortization of deferred profit sharing              |                                                     |         |        |         |       |         |        |         |   |              |  |   |          |   |  |   |        |         | 720     |         |        |          | 720     |        
|                                                 |                                                                                                   | Accretion of unrealized gain on trust certificates   |                                                     |         |        |         |       |         |        |         |   |              |  |   |          |   |  |   |        |         | (287    | )       |        |          | (287    | )      
|                                                 |                                                                                                   | Provision for loan and impairment losses             |                                                     |         |        |         |       |         |        |         |   |              |  |   |          |   |  |   |        |         | 904     |         |        |          | 904     |        
|                                                 |                                                                                                   | Gain on resolution of Portfolio Assets               |                                                     |         | (13,474 | )       |       |         | (2,082  | )       |   |              |  |   |          |   |  |   |        |         | (15,472 | )       |        |          | (31,028 | )      
|                                                 |                                                                                                   | Purchase of Portfolio Assets                         |                                                     |         |        |         |       |         | (48,713 | )       |   |              |  |   |          |   |  |   |        |         |        |         |        |          | (48,713 | )      
|                                                 |                                                                                                   | Capitalized costs on Portfolio Assets                |                                                     |         | (2,177  | )       |       |         | (59     | )       |   |              |  |   |          |   |  |   |        |         | (1,823  | )       |        |          | (4,059  | )      
|                                                 |                                                                                                   | Capitalized interest on Portfolio Assets             |                                                     |         | (102    | )       |       |         |        |         |   |              |  |   |          |   |  |   |        |         | (795    | )       |        |          | (897    | )      
|                                                 |                                                                                                   | Proceeds from resolution of Portfolio Assets         |                                                     |         | 47,892  |         |       |         | 6,852   |         |   |              |  |   |          |   |  |   |        |         | 78,454  |         |        |          | 133,198 |        
|                                                 |                                                                                                   | Principal payments on Performing Portfolio Assets    |                                                     |         | 5,803   |         |       |         |        |         |   |              |  |   |          |   |  |   |        |         | 15,837  |         |        |          | 21,640  |        
|                                                 |                                                                                                   | Increase in deferred profit sharing                  |                                                     |         |        |         |       |         |        |         |   |              |  |   |          |   |  |   |        |         | (2,885  | )       |        |          | (2,885  | )      
|                                                 |                                                                                                   | (Increase) decrease in other assets                  |                                                     |         | (295    | )       |       |         |        |         |   |              |  |   |          |   |  |   |        |         | 465     |         |        |          | 170     |        
|                                                 |                                                                                                   | Increase in deferred compensation                    |                                                     |         |        |         |       |         |        |         |   |              |  |   |          |   |  |   |        |         | 2,885   |         |        |          | 2,885   |        
|                                                 |                                                                                                   | Deferred compensation and profit sharing paid        |                                                     |         |        |         |       |         |        |         |   |              |  |   |          |   |  |   |        |         | (1,730  | )       |        |          | (1,730  | )      
|                                                 |                                                                                                   | Increase (decrease) in other liabilities             |                                                     |         | 144     |         |       |         | 524     |         |   |              |  |   |          |   |  |   |        |         | (1,126  | )       |        |          | (458    | )      
|                                                 |                                                                                                   |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |   |   |  
|                                                 |                                                                                                   |                                                      | Net cash provided by (used in) operating Activities |         |         | 48,680  |       |         |         | (42,359 | ) |              |   |  |          |   |   |  |        |         |         | 91,202  |        |          |         | 97,523  |  
|Cash flows from investing activities:            |                                                                                                   |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |   |   |   |        |         |         |         |        |         
|                                                 | Change in trust certificates                                                                      |                                                      |                                                     |        |         |         |       |        |         |         |   |             |   |   |          |  |   |   |        | 1,123   |         |         |        | 1,123    |        
|                                                 |                                                                                                   |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |   |   |  
|                                                 |                                                                                                   |                                                      | Net cash provided by investing activities           |         |         |        |       |         |         |        |   |              |   |  |          |   |   |  |        |         |         | 1,123   |        |          |         | 1,123   |  
|Cash flows from financing activities:            |                                                                                                   |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |   |   |   |        |         |         |         |        |         
|                                                 | Borrowing of debt  affiliate                                                                     |                                                      |                                                     |        |         |         |       | 53,143  |         |         |   |             |   |   |          |  |   |   |        |        |         |         |        | 53,143   |        
|                                                 | Borrowing of debt                                                                                 |                                                      |                                                     | 28,500  |         |         |       |        |         |         |   |             |   |   |          |  |   |   |        |        |         |         |        | 28,500   |        
|                                                 | Repayment of debt  affiliate                                                                     |                                                      |                                                     | (47,964 | )       |         |       | (18,195 | )       |         |   |             |   |   |          |  |   |   |        | (42,025 | )       |         |        | (108,184 | )      
|                                                 | Repayment of debt                                                                                 |                                                      |                                                     | (9,618  | )       |         |       |        |         |         |   |             |   |   |          |  |   |   |        | (24,361 | )       |         |        | (33,979  | )      
|                                                 | Capitalized interest on preferred equity                                                          |                                                      |                                                     |        |         |         |       |        |         |         |   |             |   |   |          |  |   |   |        | 150     |         |         |        | 150      |        
|                                                 | Repayment of preferred equity                                                                     |                                                      |                                                     |        |         |         |       |        |         |         |   |             |   |   |          |  |   |   |        | (411    | )       |         |        | (411     | )      
|                                                 | Capital contributions                                                                             |                                                      |                                                     |        |         |         |       | 15,942  |         |         |   |             |   |   |          |  |   |   |        | 29      |         |         |        | 15,971   |        
|                                                 | Capital distributions                                                                             |                                                      |                                                     | (20,668 | )       |         |       | (4,910  | )       |         |   |             |   |   |          |  |   |   |        | (28,620 | )       |         |        | (54,198  | )      
|                                                 |                                                                                                   |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |   |   |  
|                                                 |                                                                                                   |                                                      | Net cash provided by (used in) financing activities |         |         | (49,750 | )     |         |         | 45,980  |   |              |   |  |          |   |   |  |        |         |         | (95,238 | )      |          |         | (99,008 | )
|                                                 |                                                                                                   |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |   |   |  
|Net increase (decrease) in cash                  |                                                                                                   |                                                      | (1,070                                              | )       |         |         | 3,621 |         |         |         |  |              |   |   |         |   |   |   | (2,913 | )       |         |         | (362   | )       
|Cash at beginning of year                        |                                                                                                   |                                                      | 3,510                                               |         |         |         |      |         |         |         |  |              |   |   |         |   |   |   | 9,887  |         |         |         | 13,397 |         
|                                                 |                                                                                                   |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |   |   |  
|Cash at end of year                              |                                                                                                   | $                                                    | 2,440                                               |         |         | $       | 3,621 |         |         | $       |  |              |   | $ |         |   |   | $ | 6,974  |         |         | $       | 13,035 |         
|                                                 |                                                                                                   |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |   |   |  
|Supplemental disclosure of cash flow information |                                                                                                   |                                                      |                                                     |         |         |         |       |         |         |         |   |              |   |   |          |   |   |   |        |         |         |         |        |         
|                                                 | Approximate cash paid for interest                                                                |                                                      | $                                                   | 2,412   |         |         | $     | 524     |         |         | $ |             |   |   | $        |  |   |   | $      | 3,846   |         |         | $      | 6,782    |        

93



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##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)




|   |                 
|-- | ----------------
|4. | Portfolio Assets



|                                                                |                        |                   |         |        |       |   |         |        |  |   |         |        |  |              |         |        |          |   |         |         |  |   |          |         | 
|--------------------------------------------------------------- | ---------------------- | ----------------- | ------- | ------ | ----- | - | ------- | ------ |  | - | ------- | ------ |  | ------------ | ------- | ------ | -------- | - | ------- | ------- |  | - | -------- | ------- | 
|                                                                |                        | December 31, 2004 |        
|                                                                |                        |                   |        
|                                                                |                        | WAMCO             |         |        | WAMCO |   |         | WAMCO  |  |   | WAMCO   |        |  | Other        |         |        |         
|                                                                |                        | XXVIII            |         |        | XXX   |   |         | 31     |  |   | 33      |        |  | Partnerships |         |        | Combined |  
|                                                                |                        |                   |         |        |       |   |         |        |  |   |         |        |  |              |         |        |          |  
|Non-performing Portfolio Assets                                 |                        | $                 | 26,020  |        |       | $ | 34,437  |        |  | $ | 36,628  |        |  | $            | 47,784  |        |          | $ | 74,700  |         |  | $ | 219,569  |        
|Performing Portfolio Assets                                     |                        |                   | 8,473   |        |       |   |        |        |  |   | 17,009  |        |  |              | 18,174  |        |          |   | 32,534  |         |  |   | 76,190   |        
|Real estate Portfolios                                          |                        |                   |        |        |       |   |        |        |  |   |        |        |  |              |        |        |          |   | 13,769  |         |  |   | 13,769   |        
|                                                                |                        |                   |         |        |       |   |         |        |  |   |         |        |  |              |         |        |          |  
|                                                                | Total Portfolio Assets |                   |         | 34,493 |       |   |         | 34,437 |  |   |         | 53,637 |  |              |         | 65,958 |          |   |         | 121,003 |  |   |          | 309,528 | 
|Discount required to reflect Portfolio Assets at carrying value |                        |                   | (26,365 | )      |       |   | (22,928 | )      |  |   | (18,388 | )      |  |              | (24,820 | )      |          |   | (75,045 | )       |  |   | (167,546 | )      
|                                                                |                        |                   |         |        |       |   |         |        |  |   |         |        |  |              |         |        |          |  
|                                                                | Portfolio Assets, net  |                   | $       | 8,128  |       |   | $       | 11,509 |  |   | $       | 35,249 |  |              | $       | 41,138 |          |   | $       | 45,958  |  |   | $        | 141,982 | 
|                                                                |                        |                   |         |        |       |   |         |        |  |   |         |        |  |              |         |        |          |  

|                                                                |                        |                   |         |        |       |   |         |        |  |   |         |        |  |              |         |        |          |   |         |         |  |   |          |         | 
|--------------------------------------------------------------- | ---------------------- | ----------------- | ------- | ------ | ----- | - | ------- | ------ |  | - | ------- | ------ |  | ------------ | ------- | ------ | -------- | - | ------- | ------- |  | - | -------- | ------- | 
|                                                                |                        | December 31, 2003 |        
|                                                                |                        |                   |        
|                                                                |                        | WAMCO             |         |        | WAMCO |   |         | WAMCO  |  |   | WAMCO   |        |  | Other        |         |        |         
|                                                                |                        | XXVIII            |         |        | XXX   |   |         | 31     |  |   | 33      |        |  | Partnerships |         |        | Combined |  
|                                                                |                        |                   |         |        |       |   |         |        |  |   |         |        |  |              |         |        |          |  
|Non-performing Portfolio Assets                                 |                        | $                 | 37,230  |        |       | $ | 50,542  |        |  | $ | 55,870  |        |  | $            | 33,277  |        |          | $ | 44,887  |         |  | $ | 221,806  |        
|Performing Portfolio Assets                                     |                        |                   | 10,209  |        |       |   |        |        |  |   | 26,496  |        |  |              |        |        |          |   | 45,077  |         |  |   | 81,782   |        
|Real estate Portfolios                                          |                        |                   |        |        |       |   |        |        |  |   |        |        |  |              |        |        |          |   | 17,554  |         |  |   | 17,554   |        
|                                                                |                        |                   |         |        |       |   |         |        |  |   |         |        |  |              |         |        |          |  
|                                                                | Total Portfolio Assets |                   |         | 47,439 |       |   |         | 50,542 |  |   |         | 82,366 |  |              |         | 33,277 |          |   |         | 107,518 |  |   |          | 321,142 | 
|Discount required to reflect Portfolio Assets at carrying value |                        |                   | (29,659 | )      |       |   | (31,456 | )      |  |   | (21,809 | )      |  |              | (17,921 | )      |          |   | (51,616 | )       |  |   | (152,461 | )      
|                                                                |                        |                   |         |        |       |   |         |        |  |   |         |        |  |              |         |        |          |  
|                                                                | Portfolio Assets, net  |                   | $       | 17,780 |       |   | $       | 19,086 |  |   | $       | 60,557 |  |              | $       | 15,356 |          |   | $       | 55,902  |  |   | $        | 168,681 | 
|                                                                |                        |                   |         |        |       |   |         |        |  |   |         |        |  |              |         |        |          |  





|   |                                                                
|-- | ---------------------------------------------------------------
|5. | Interest Related to Residual Interest in
    Trust Certificates





|   |                                                  
|-- | -------------------------------------------------
|6. | Deferred Profit Sharing and Deferred Compensation



94



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)






|   |              
|-- | -------------
|7. | Notes Payable



|                                                                              |                                                                     |             |        |        |        |   |        |        |        | 
|----------------------------------------------------------------------------- | ------------------------------------------------------------------- | ----------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                              |                                                                     | 2004        |        |        | 2003   |  
|                                                                              |                                                                     |             |        |        |        |  
|London Interbank Offering Rate (LIBOR) (2.4% at
    December 31, 2004) based: |                                                                     |             |        |        |        |   |        |       
|                                                                              | WAMCO XXVIII (LIBOR plus 2.5%)                                      |             | $      | 619    |        |   | $      | 6,829  |       
|                                                                              | WAMCO XXX (LIBOR plus 2.5%)                                         |             |        | 4,658  |        |   |        | 13,393 |       
|                                                                              | WAMCO 31 (LIBOR plus 2.5%)                                          |             |        | 24,880 |        |   |        |       |       
|                                                                              | WAMCO 31 (LIBOR plus 4%)  affiliate                                |             |        |       |        |   |        | 47,800 |       
|                                                                              | WAMCO 33 (LIBOR plus 4%)  affiliate                                |             |        | 30,971 |        |   |        | 12,223 |       
|                                                                              | Other Partnerships (LIBOR plus 4% to 5%)  affiliate                |             |        |       |        |   |        | 4,073  |       
|                                                                              | Other Partnerships (LIBOR plus 2.5% to 3%)                          |             |        | 2,647  |        |   |        | 4,500  |       
|                                                                              | Other Partnerships (LIBOR plus 5%, with floor 6.3%) 
    affiliate |             |        | 2,575  |        |   |        | 3,128  |       
|                                                                              |                                                                     |             |        |        |        |  
|                                                                              |                                                                     | Total LIBOR |        |        | 66,350 |   |        |        | 91,946 | 
|Fixed rate:                                                                   |                                                                     |             |        |        |        |   |        |       
|                                                                              | Other Partnerships (10.17%)  affiliate                             |             |        | 4,000  |        |   |        | 4,000  |       
|                                                                              |                                                                     |             |        |        |        |  
|                                                                              |                                                                     | $           | 70,350 |        |        | $ | 95,946 |       
|                                                                              |                                                                     |             |        |        |        |  





|                         |  |        |     |  |       |   |       |       |  |   |        |  |  |              |        |  |          |   |       |  |  |   |        | 
|------------------------ |  | ------ | --- |  | ----- | - | ----- | ----- |  | - | ------ |  |  | ------------ | ------ |  | -------- | - | ----- |  |  | - | ------ | 
|                         |  | WAMCO  |     |  | WAMCO |   |       | WAMCO |  |   | WAMCO  |  |  | Other        |        |  |         
|                         |  | XXVIII |     |  | XXX   |   |       | 31    |  |   | 33     |  |  | Partnerships |        |  | Combined |  
|                         |  |        |     |  |       |   |       |       |  |   |        |  |  |              |        |  |          |  
|Year Ending December 31: |  |        |     |  |       |   |       |       |  |   |        |  |  |              |        |  |          |   |       |  |  |   |        | 
|2005                     |  | $      |    |  |       | $ | 4,658 |       |  | $ |       |  |  | $            | 6,086  |  |          | $ | 5,222 |  |  | $ | 15,966 | 
|2006                     |  |        | 619 |  |       |   |      |       |  |   | 24,880 |  |  |              | 24,885 |  |          |   |      |  |  |   | 50,384 | 
|2007                     |  |        |    |  |       |   |      |       |  |   |       |  |  |              |       |  |          |   | 4,000 |  |  |   | 4,000  | 
|                         |  |        |     |  |       |   |       |       |  |   |        |  |  |              |        |  |          |  
|                         |  | $      | 619 |  |       | $ | 4,658 |       |  | $ | 24,880 |  |  | $            | 30,971 |  |          | $ | 9,222 |  |  | $ | 70,350 | 
|                         |  |        |     |  |       |   |       |       |  |   |        |  |  |              |        |  |          |  







95



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)




|   |                             
|-- | ----------------------------
|8. | Transactions with Affiliates











|   |                                    
|-- | -----------------------------------
|9. | Fair Value of Financial Instruments

Disclosures about Fair Value of Financial Instruments,




|    |                           
|--- | --------------------------
|(a) | Cash and Other Liabilities





|    |                 
|--- | ----------------
|(b) | Portfolio Assets





|    |              
|--- | -------------
|(c) | Notes Payable





|    |                              
|--- | -----------------------------
|10. | Commitments and Contingencies





96



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED FINANCIAL
STATEMENTS  (Continued)








|    |                   
|--- | ------------------
|11. | Interest Rate Swap









Accounting for Derivative Instruments and
Hedging Activities;




|         |       |  |               |  |            |            |  |              |               |              |              |                                             |              |      |     |  |  |   |     | 
|-------- | ----- |  | ------------- |  | ---------- | ---------- |  | ------------ | ------------- | ------------ | ------------ | ------------------------------------------- | ------------ | ---- | --- |  |  | - | --- | 
|         |       |  |               |  |            |            |  | Swap         |               |              | Swap         |                                            
|         |       |  |               |  |            |            |  | Liability at |               |              | Liability at |                                            
|Notional |       |  | Contact       |  |            |            |  |              |               | December 31, |              |                                             | December 31, |     
|Amount   |       |  | Maturity Date |  |            | Fixed Rate |  |              | Floating Rate |              | 2004         |                                             |              | 2003 |    
|         |       |  |               |  |            |            |  |              |               |              |              |                                             |              |      |    
|$        | 4,510 |  |               |  | 12/15/2004 |            |  |              | 6.167%        |              |              | One Month LIBOR (2.4% at December 31, 2004) |              | $    |    |  |  | $ | 199 | 
|         | 4,510 |  |               |  | 12/15/2005 |            |  |              | 6.195%        |              |              | One Month LIBOR (2.4% at December 31, 2004) |              |      | 129 |  |  |   | 351 | 
|         |       |  |               |  |            |            |  |              |               |              |              |                                             |              |      |    
|$        | 9,020 |  |               |  |            |            |  |              |               |              |              |                                             |              | $    | 129 |  |  | $ | 550 | 
|         |       |  |               |  |            |            |  |              |               |              |              |                                             |              |      |    

97



---



##### 



MINNTEX INVESTMENT PARTNERS LP


(A Texas Limited Partnership)


FINANCIAL STATEMENTS


December 31, 2004, 2003, and 2002


(With Independent Auditors Report Thereon)


98



---



##### 



INDEPENDENT AUDITORS REPORT














| |         
| | --------
| | KPMG LLP





99



---



##### 



MINNTEX INVESTMENT PARTNERS LP


(A Texas Limited Partnership)


BALANCE SHEETS


December 31, 2004 and 2003


|                                          |             |                |     |    |      |   |       |     | 
|----------------------------------------- | ----------- | -------------- | --- | -- | ---- | - | ----- | --- | 
|                                          |             | 2004           |     |    | 2003 |  
|                                          |             |                |     |    |      |  
|                                          |             | (In thousands) |    
|ASSETS                                   
|Cash                                      |             | $              | 738 |    |      | $ | 1,053 |    
|Portfolio Asset, net (note 3)             |             |                | 102 |    |      |   | 477   |    
|                                          |             |                |     |    |      |  
|                                          |             | $              | 840 |    |      | $ | 1,530 |    
|                                          |             |                |     |    |      |  
|                                         
|LIABILITIES AND PARTNERS CAPITAL        
|Accounts payable and accrued liabilities  |             | $              | 8   |    |      | $ | 14    |    
|Service fees payable  affiliate (note 4) |             |                | 69  |    |      |   | 98    |    
|                                          |             |                |     |    |      |  
|                                          | Liabilities |                |     | 77 |      |   |       | 112 | 
|Partners capital                         |             |                | 763 |    |      |   | 1,418 |    
|                                          |             |                |     |    |      |  
|                                          |             | $              | 840 |    |      | $ | 1,530 |    
|                                          |             |                |     |    |      |  



100



---



##### 



MINNTEX INVESTMENT PARTNERS LP


(A Texas Limited Partnership)


STATEMENTS OF OPERATIONS


The Years Ended December 31, 2004 and 2003 and the
Period March 11, 2002


(date of inception) through December 31, 2002


|                                                         |            |                |       |       |      |   |        |        |  |   |        |       | 
|-------------------------------------------------------- | ---------- | -------------- | ----- | ----- | ---- | - | ------ | ------ |  | - | ------ | ----- | 
|                                                         |            | 2004           |       |       | 2003 |   |        | 2002   | 
|                                                         |            |                |       |       |      |   |        |        | 
|                                                         |            | (In thousands) |      
|Proceeds from resolution of Portfolio Asset              |            | $              | 9,167 |       |      | $ | 14,294 |        |  | $ | 16,655 |      
|Cost of Portfolio Asset resolved                         |            |                | 375   |       |      |   | 1,653  |        |  |   | 9,292  |      
|                                                         |            |                |       |       |      |   |        |        | 
|Gain on resolution of Portfolio Asset                    |            |                | 8,792 |       |      |   | 12,641 |        |  |   | 7,363  |      
|Interest expense  affiliate (note 4)                    |            |                |      |       |      |   |       |        |  |   | (201   | )    
|General, administrative, and operating expenses (note 4) |            |                | (946  | )     |      |   | (1,462 | )      |  |   | (1,773 | )    
|Other income                                             |            |                | 4     |       |      |   | 5      |        |  |   | 8      |      
|                                                         |            |                |       |       |      |   |        |        | 
|                                                         | Net income |                | $     | 7,850 |      |   | $      | 11,184 |  |   | $      | 5,397 | 
|                                                         |            |                |       |       |      |   |        |        | 



101



---



##### 



MINNTEX INVESTMENT PARTNERS LP


(A Texas Limited Partnership)


STATEMENTS OF CHANGES IN PARTNERS CAPITAL


The Years Ended December 31, 2004 and 2003 and the
Period March 11, 2002


(date of inception) through December 31, 2002


|                              |  |                |      |   |                  |   |        |          |  |   |         |   |  |       |        |   |  |   |         |  
|----------------------------- |  | -------------- | ---- | - | ---------------- | - | ------ | -------- |  | - | ------- | - |  | ----- | ------ | - |  | - | ------- | -
|                              |  | General        |      |   | Limited Partners |   |        |          |  |  
|                              |  | Partner        |      |   |                  |   |        |          |  |  
|                              |  |                |      |   | FirstCity        |   |        | CFSC     |  |   |         |   | 
|                              |  | MinnTex        |      |   | Holdings of      |   |        | Capital  |  |   | Lenders |   |  |      
|                              |  | GP Corp.       |      |   | Minnesota        |   |        | Corp. II |  |   | Trust   |   |  | Total |       
|                              |  |                |      |   |                  |   |        |          |  |   |         |   |  |       |       
|                              |  | (In thousands) |     
|Inception Date March 11, 2002 |  | $              |     |   |                  | $ |       |          |  | $ |        |   |  | $     |       |   |  | $ |        |  
|Contributions                 |  |                | 39   |   |                  |   | 1,264  |          |  |   | 1,264   |   |  |       | 1,264  |   |  |   | 3,831   |  
|Distributions                 |  |                | (58  | ) |                  |   | (1,867 | )        |  |   | (1,867  | ) |  |       | (1,867 | ) |  |   | (5,659  | )
|Net income                    |  |                | 54   |   |                  |   | 1,781  |          |  |   | 1,781   |   |  |       | 1,781  |   |  |   | 5,397   |  
|                              |  |                |      |   |                  |   |        |          |  |   |         |   |  |       |       
|Balance at December 31, 2002  |  |                | 35   |   |                  |   | 1,178  |          |  |   | 1,178   |   |  |       | 1,178  |   |  |   | 3,569   |  
|Distributions                 |  |                | (132 | ) |                  |   | (4,401 | )        |  |   | (4,401  | ) |  |       | (4,401 | ) |  |   | (13,335 | )
|Net income                    |  |                | 111  |   |                  |   | 3,691  |          |  |   | 3,691   |   |  |       | 3,691  |   |  |   | 11,184  |  
|                              |  |                |      |   |                  |   |        |          |  |   |         |   |  |       |       
|Balance at December 31, 2003  |  |                | 14   |   |                  |   | 468    |          |  |   | 468     |   |  |       | 468    |   |  |   | 1,418   |  
|Distributions                 |  |                | (84  | ) |                  |   | (2,807 | )        |  |   | (2,807  | ) |  |       | (2,807 | ) |  |   | (8,505  | )
|Net income                    |  |                | 77   |   |                  |   | 2,591  |          |  |   | 2,591   |   |  |       | 2,591  |   |  |   | 7,850   |  
|                              |  |                |      |   |                  |   |        |          |  |   |         |   |  |       |       
|Balance at December 31, 2004  |  | $              | 7    |   |                  | $ | 252    |          |  | $ | 252     |   |  | $     | 252    |   |  | $ | 763     |  
|                              |  |                |      |   |                  |   |        |          |  |   |         |   |  |       |       



102



---



##### 



MINNTEX INVESTMENT PARTNERS LP


(A Texas Limited Partnership)


STATEMENTS OF CASH FLOWS


The Years Ended December 31, 2004 and 2003 and the
Period March 11, 2002


(date of inception) through December 31, 2002


|                                                  |                                                                                       |                                                                 |                                           |        |        |        |       |         |         |         |       |        |         |        |  
|------------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------- | ------ | ------ | ------ | ----- | ------- | ------- | ------- | ----- | ------ | ------- | ------ | -
|                                                  |                                                                                       | 2004                                                            |                                           |        | 2003   |        |       | 2002    |        
|                                                  |                                                                                       |                                                                 |                                           |        |        |        |       |         |        
|                                                  |                                                                                       | (In thousands)                                                  |                                          
|Cash flows from operating activities:             |                                                                                       |                                                                 |                                           |        |        |        |       |         |         |         |       |       
|                                                  | Net income                                                                            |                                                                 | $                                         | 7,850  |        |        | $     | 11,184  |         |         | $     | 5,397  |        
|                                                  | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                                 |                                           |        |        |        |       |         |         |         |       |        |        
|                                                  |                                                                                       | Purchase of Portfolio Asset                                     |                                           |        |       |        |       |         |        |         |       |        | (11,422 | )     
|                                                  |                                                                                       | Gain on resolution of Portfolio Asset                           |                                           |        | (8,792 | )      |       |         | (12,641 | )       |       |        | (7,363  | )     
|                                                  |                                                                                       | Proceeds from resolution of Portfolio Asset                     |                                           |        | 9,167  |        |       |         | 14,294  |         |       |        | 16,655  |       
|                                                  |                                                                                       | Increase (decrease) in service fees payable  affiliate         |                                           |        | (30    | )      |       |         | (54     | )       |       |        | 152     |       
|                                                  |                                                                                       | Increase (decrease) in accounts payable and accrued liabilities |                                           |        | (5     | )      |       |         | 2       |         |       |        | 12      |       
|                                                  |                                                                                       |                                                                 |                                           |        |        |        |       |         |        
|                                                  |                                                                                       |                                                                 | Net cash provided by operating activities |        |        | 8,190  |       |         |         | 12,785  |       |        |         | 3,431  |  
|                                                  |                                                                                       |                                                                 |                                           |        |        |        |       |         |        
|Cash flows from financing activities:             |                                                                                       |                                                                 |                                           |        |        |        |       |         |         |         |       |       
|                                                  | Borrowing on long-term debt  affiliate                                               |                                                                 |                                           |       |        |        |       |        |         |         |       | 8,939  |        
|                                                  | Repayment of long-term debt  affiliate                                               |                                                                 |                                           |       |        |        |       |        |         |         |       | (8,939 | )      
|                                                  | Capital contributions                                                                 |                                                                 |                                           |       |        |        |       |        |         |         |       | 3,831  |        
|                                                  | Capital distributions                                                                 |                                                                 |                                           | (8,505 | )      |        |       | (13,335 | )       |         |       | (5,659 | )      
|                                                  |                                                                                       |                                                                 |                                           |        |        |        |       |         |        
|                                                  |                                                                                       |                                                                 | Net cash used in financing activities     |        |        | (8,505 | )     |         |         | (13,335 | )     |        |         | (1,828 | )
|                                                  |                                                                                       |                                                                 |                                           |        |        |        |       |         |        
|                                                  |                                                                                       |                                                                 | Net increase (decrease) in cash           |        |        | (315   | )     |         |         | (550    | )     |        |         | 1,603  |  
|Cash, beginning of period                         |                                                                                       |                                                                 | 1,053                                     |        |        |        | 1,603 |         |         |         |      |       
|                                                  |                                                                                       |                                                                 |                                           |        |        |        |       |         |        
|Cash, end of period                               |                                                                                       | $                                                               | 738                                       |        |        | $      | 1,053 |         |         | $       | 1,603 |       
|                                                  |                                                                                       |                                                                 |                                           |        |        |        |       |         |        
|Supplemental disclosure of cash flow information: |                                                                                       |                                                                 |                                           |        |        |        |       |         |         |         |       |       
|                                                  | Cash paid for interest                                                                |                                                                 | $                                         |       |        |        | $     |        |         |         | $     | 201    |        



103



---



##### 



MINNTEX INVESTMENT PARTNERS LP


NOTES TO FINANCIAL STATEMENTS


December 31, 2004, 2003, and 2002


(Dollars in thousands)




|   |                                       
|-- | --------------------------------------
|1. | Organization and Partnership Agreement









|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



|    |                
|--- | ---------------
|(a) | Portfolio Asset









104



---



##### 



MINNTEX INVESTMENT PARTNERS LP


NOTES TO FINANCIAL STATEMENTS  (Continued)




|    |             
|--- | ------------
|(b) | Income Taxes





|    |                 
|--- | ----------------
|(c) | Use of Estimates





|   |                 
|-- | ----------------
|3. | Portfolio Assets



|       |                                                                          |                     |                       |         |        |     |        |         |        |     | 
|------ | ------------------------------------------------------------------------ | ------------------- | --------------------- | ------- | ------ | --- | ------ | ------- | ------ | --- | 
|       |                                                                          | 2004                |                       |         | 2003   |    
|       |                                                                          |                     |                       |         |        |    
|Loans: |                                                                          |                     |                       |         |        |     |        |        
|       | Borrowers obligations on outstanding balance of:                        |                     |                       |         |        |     |        |         |       
|       |                                                                          | Performing loans    |                       | $       | 4,286  |     |        | $       | 11,052 |    
|       |                                                                          | Nonperforming loans |                       |         | 33,699 |     |        |         | 35,518 |    
|       |                                                                          |                     |                       |         |        |    
|       |                                                                          |                     | 37,985                |         |        |     | 46,570 |        
|       | Discount required to reflect the Portfolio Asset at unamortized
    cost |                     |                       | (37,883 | )      |     |        | (46,093 | )     
|       |                                                                          |                     |                       |         |        |    
|       |                                                                          |                     | Portfolio Assets, net |         | $      | 102 |        |         | $      | 477 | 
|       |                                                                          |                     |                       |         |        |    



|   |                             
|-- | ----------------------------
|4. | Transactions With Affiliates





105



---



##### 








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure.








|         |                         
|-------- | ------------------------
|Item 9A. | Controls and Procedures.










|         |                   
|-------- | ------------------
|Item 9B. | Other Information.






PART III







|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant.








|         |                        
|-------- | -----------------------
|Item 11. | Executive Compensation.








|         |                                                                                                    
|-------- | ---------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters.








|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions.








|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Accountant Fees and Services.






PART IV







|         |                                            
|-------- | -------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules.



Financial Statements




106



---



##### 



Financial Statement Schedules




Exhibits


|        |    |    |  |   |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | -- | -- |  | - | ---------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |    |  |   |                       
|Number  |    |    |  |   | Description of Exhibit
|        |    |    |  |   |                       
|        | 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).                                                                                                                                                                                                                                                                                             
|       
|        | 9  | .1 |  |  |                        | Shareholder Voting Agreement, dated as of June 29, 1995,
    among ATARA I Ltd., James R. Hawkins, James T. Sartain and
    Cargill Financial Services Corporation. (incorporated herein by
    reference to Exhibit 9.1 of the Companys Form 10-K
    dated March 24, 1998 filed with the Commission on
    March 26, 1998).                                                                                                                                                             
|       
|        | 10 | .1 |  |  |                        | Contribution and Assumption Agreement by and between Funding LP
    and Drive dated as of August 18, 2000. (incorporated herein
    by reference to Exhibit 10.42 of the Companys
    Form 8-K dated August 25, 2000, filed with the
    Commission on September 11, 2000).                                                                                                                                                                                                               
|       
|        | 10 | .2 |  |  |                        | Amendment to Loan Agreement and extension of Promissory Note,
    dated January 12, 2001, by and between FirstCity Holdings
    Corporation and CSFC Capital Corp. XXX (incorporated herein by
    reference to Exhibit 10.45 of the Companys Form 10-K
    dated April 13, 2001, filed with the Commission on
    April 13, 2001).                                                                                                                                                       
|       
|        |    |    |  |   |                        | Separation Agreement and Release, dated March 31, 2004, by                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .3 |  |  |                        | Separation Agreement and Release, dated March 31, 2004, by
    and between G. Stephen Fillip, FirstCity Servicing Corporation
    and FirstCity Financial Corporation (incorporated herein by
    reference to Exhibit 10.19 of the Companys Form 10-Q
    dated May 14, 2004).                                                                                                                                                                                                           
|       
|        | 10 | .4 |  |  |                        | Consultant Agreement, dated April 1, 2004, by and between
    FirstCity Servicing Corporation and G. Stephen Fillip
    (incorporated herein by reference to Exhibit 10.20 of the
    Companys Form 10-Q dated May 14, 2004).                                                                                                                                                                                                                                                             
|       
|        | 10 | .5 |  |  |                        | Securities Purchase Agreement dated as of September 21,
    2004 by and among FirstCity Financial Corporation and certain
    affiliates of FirstCity and IFA Drive GP Holdings LLC, IFA Drive
    LP Holdings LLC, Drive Management LP and certain affiliates of
    those persons. (incorporated herein by reference to
    Exhibit 10.1 of the Companys Form 8-K dated
    September 27, 2004)                                                                                         
|       
|        | 10 | .6 |  |  |                        | Letter agreements dated as of November 1, 2004, between
    FirstCity, Consumer Corp. and BoS-UK relating to extension of
    time for and waiver related to payment of any fee under Fee
    Letter. (incorporated herein by reference to Exhibit 10.1
    of the Companys Form 8-K dated November 5, 2004)                                                                                                                                                                              
|       
|        | 10 | .7 |  |  |                        | Letter agreement dated November 1, 2004 between Bank of
    Scotland, acting through its New York branch, and FirstCity
    providing for deposit of funds in cash collateral account.
    (incorporated herein by reference to Exhibit 10.2 of the
    Companys Form 8-K dated November 5, 2004)                                                                                                                                                                                         

107



---



##### 



|        |    |     |  |   |                        |                                                                                                                                                                                                                                                                                                        
|------- | -- | --- |  | - | ---------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |   |                       
|Number  |    |     |  |   | Description of Exhibit
|        |    |     |  |   |                       
|       
|        | 10 | .8  |  |  |                        | Revolving Credit Agreement, dated November 12, 2004, among
    FirstCity Financial Corporation as Borrower and the Lenders
    named therein, as Lenders, and Bank of Scotland, as Agent
    (incorporated herein by reference to Exhibit 10.12 of the
    Companys Form 10-Q dated November 15, 2004)
|       
|        | 21 | .1* |  |  |                        | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                         
|       
|        | 23 | .1* |  |  |                        | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                   
|       
|        | 23 | .2* |  |  |                        | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                   
|       
|        | 23 | .3* |  |  |                        | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                   
|       
|        | 31 | .1* |  |  |                        | Certification of James T. Sartain, Chief Executive Officer of
    the Company, pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                                          
|       
|        | 31 | .2* |  |  |                        | Certification of J. Bryan Baker, Chief Financial Officer of the
    Company, pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                                            
|        | 32 | .1* |  |  |                        | Certification of James T. Sartain, Chief Executive Officer of
    the Company, pursuant to 18 U.S.C Section 1350 as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    and relating to the Annual Report on Form 10-K for the year
    ended December 31, 2004.                 
|       
|        | 32 | .2* |  |  |                        | Certification of J. Bryan Baker, Chief Financial Officer of the
    Company, pursuant to 18 U.S.C Section 1350 as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    and relating to the Annual Report on Form 10-K for the year
    ended December 31, 2004.                   






|  |                
|- | ---------------
|* | Filed herewith.

108



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##### 






SIGNATURES






| |                                
| | -------------------------------
| | FIRSTCITY FINANCIAL CORPORATION



| |     |                     
| | --- | --------------------
| | By: | /s/ JAMES T. SARTAIN

| |                                      
| | -------------------------------------
| |                                      
| | James T. Sartain                     
| | President and Chief Executive Officer





|                                             |  |                                                                                     |  |                |  | 
|-------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                    |  | Title                                                                               |  | Date          
|                                             |  |                                                                                     |  |               
|                                            
|/s/ JAMES R. HAWKINSJames
    R. Hawkins     |  | Chairman of the Board and Director                                                  |  | March 16, 2005
|                                            
|/s/ JAMES T. SARTAINJames
    T. Sartain     |  | President, Chief Executive Officer and Director (Principal
    Executive Officer)   |  | March 16, 2005
|                                            
|/s/ J. BRYAN BAKERJ.
    Bryan Baker         |  | Senior Vice President and Chief Financial Officer (Principal
    Financial Officer) |  | March 16, 2005
|                                            
|/s/ C. IVAN WILSONC.
    Ivan Wilson         |  | Vice Chairman of the Board and Director                                             |  | March 16, 2005
|                                            
|/s/ RICHARD E. BEANRichard
    E. Bean       |  | Director                                                                            |  | March 16, 2005
|                                            
|/s/ ROBERT E. GARRISONRobert
    E. Garrison |  | Director                                                                            |  | March 16, 2005
|                                            
|/s/ DANE FULMERDane
    Fulmer               |  | Director                                                                            |  | March 16, 2005
|                                            
|/s/ JEFFERY D. LEUJeffery
    D. Leu         |  | Director                                                                            |  | March 16, 2005

109



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##### 






EXHIBIT INDEX


|        |    |     |  |   |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | -- | --- |  | - | ---------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |   |                       
|Number  |    |     |  |   | Description of Exhibit
|        |    |     |  |   |                       
|        | 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).                                                                                                                                                                                                                                                                                             
|        | 9  | .1  |  |  |                        | Shareholder Voting Agreement, dated as of June 29, 1995,
    among ATARA I Ltd., James R. Hawkins, James T. Sartain and
    Cargill Financial Services Corporation. (incorporated herein by
    reference to Exhibit 9.1 of the Companys Form 10-K
    dated March 24, 1998 filed with the Commission on
    March 26, 1998).                                                                                                                                                             
|        | 10 | .1  |  |  |                        | Contribution and Assumption Agreement by and between Funding LP
    and Drive dated as of August 18, 2000. (incorporated herein
    by reference to Exhibit 10.42 of the Companys
    Form 8-K dated August 25, 2000, filed with the
    Commission on September 11, 2000).                                                                                                                                                                                                               
|        | 10 | .2  |  |  |                        | Amendment to Loan Agreement and extension of Promissory Note,
    dated January 12, 2001, by and between FirstCity Holdings
    Corporation and CSFC Capital Corp. XXX (incorporated herein by
    reference to Exhibit 10.45 of the Companys Form 10-K
    dated April 13, 2001, filed with the Commission on
    April 13, 2001).                                                                                                                                                       
|        |    |     |  |   |                        | Separation Agreement and Release, dated March 31, 2004, by                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .3  |  |  |                        | Separation Agreement and Release, dated March 31, 2004, by
    and between G. Stephen Fillip, FirstCity Servicing Corporation
    and FirstCity Financial Corporation (incorporated herein by
    reference to Exhibit 10.19 of the Companys Form 10-Q
    dated May 14, 2004).                                                                                                                                                                                                           
|        | 10 | .4  |  |  |                        | Consultant Agreement, dated April 1, 2004, by and between
    FirstCity Servicing Corporation and G. Stephen Fillip
    (incorporated herein by reference to Exhibit 10.20 of the
    Companys Form 10-Q dated May 14, 2004).                                                                                                                                                                                                                                                             
|        | 10 | .5  |  |  |                        | Securities Purchase Agreement dated as of September 21,
    2004 by and among FirstCity Financial Corporation and certain
    affiliates of FirstCity and IFA Drive GP Holdings LLC, IFA Drive
    LP Holdings LLC, Drive Management LP and certain affiliates of
    those persons. (incorporated herein by reference to
    Exhibit 10.1 of the Companys Form 8-K dated
    September 27, 2004)                                                                                         
|        | 10 | .6  |  |  |                        | Letter agreements dated as of November 1, 2004, between
    FirstCity, Consumer Corp. and BoS-UK relating to extension of
    time for and waiver related to payment of any fee under Fee
    Letter. (incorporated herein by reference to Exhibit 10.1
    of the Companys Form 8-K dated November 5, 2004)                                                                                                                                                                              
|        | 10 | .7  |  |  |                        | Letter agreement dated November 1, 2004 between Bank of
    Scotland, acting through its New York branch, and FirstCity
    providing for deposit of funds in cash collateral account.
    (incorporated herein by reference to Exhibit 10.2 of the
    Companys Form 8-K dated November 5, 2004)                                                                                                                                                                                         
|        | 10 | .8  |  |  |                        | Revolving Credit Agreement, dated November 12, 2004, among
    FirstCity Financial Corporation as Borrower and the Lenders
    named therein, as Lenders, and Bank of Scotland, as Agent
    (incorporated herein by reference to Exhibit 10.12 of the
    Companys Form 10-Q dated November 15, 2004)                                                                                                                                                                                    
|        | 21 | .1* |  |  |                        | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 23 | .1* |  |  |                        | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

110



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##### 



|        |    |     |  |   |                        |                                                                                                                                                                                                                                                                                       
|------- | -- | --- |  | - | ---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |   |                       
|Number  |    |     |  |   | Description of Exhibit
|        |    |     |  |   |                       
|        | 23 | .2* |  |  |                        | Consent of KPMG LLP.                                                                                                                                                                                                                                                                  
|        | 23 | .3* |  |  |                        | Consent of KPMG LLP.                                                                                                                                                                                                                                                                  
|        | 31 | .1* |  |  |                        | Certification of James T. Sartain, Chief Executive Officer of
    the Company, pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                         
|        | 31 | .2* |  |  |                        | Certification of J. Bryan Baker, Chief Financial Officer of the
    Company, pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                           
|        | 32 | .1* |  |  |                        | Certification of James T. Sartain, Chief Executive Officer of
    the Company, pursuant to 18 U.S.C Section 1350 as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    and relating to the Annual Report on Form 10-K for the year
    ended December 31, 2004.
|        | 32 | .2* |  |  |                        | Certification of J. Bryan Baker, Chief Financial Officer of the
    Company, pursuant to 18 U.S.C Section 1350 as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    and relating to the Annual Report on Form 10-K for the year
    ended December 31, 2004.  

111