<PAGE>   1
                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   (Mark one)


[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998

                                       or

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                         Commission File Number: 0-20677

                           FIRSTCITY LIQUIDATING TRUST
             (Exact name of registrant as specified in its charter)

                      Texas                             06-6414468
         (State or other jurisdiction of             (I.R.S. Employer
         incorporation or organization)             Identification No.)

      1021 Main, Suite 250, Houston, Texas                 77002
    (Address of principal executive offices)            (Zip Code)

       Registrant's telephone number, including area code: (713) 651-7841

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X  No
                                       ---   ---

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of June 30, 1998, 2,460,911
units of Class B Beneficial Interests and 738,273 units of Class C Beneficial
Interests were outstanding.



<PAGE>   2



PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                  FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                JUNE 30,   DECEMBER 31,
                                                                  1998       1997
                                                                -------    ------------ 
               Assets, at estimated fair value                (unaudited)
<S>                                                             <C>         <C>    
Cash and cash equivalents ....................................  $22,380    $      7,948
Trust assets, net ............................................   49,619          86,015
                                                                -------    ------------
       Total assets ..........................................   71,999          93,963
                                                                -------    ------------

               Less liabilities at face or estimated amount
Payables and accrued liabilities .............................    2,099           2,663
                                                                -------    ------------
       Total liabilities .....................................    2,099           2,663
                                                                -------    ------------
Commitments and contingencies ................................       --              --

               Trust net asset value attributable to:
Class "B" Certificate, 2,460,911 units outstanding ...........   69,900          91,300
Class "C" Certificate, 738,273 units outstanding .............       --              --
                                                                -------    ------------
       Total net asset value .................................  $69,900    $     91,300
                                                                =======    ============
</TABLE>


                      CONSOLIDATED STATEMENTS OF INCOME AND
                    CHANGES IN NET ASSET VALUE IN LIQUIDATION
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                     THREE MONTHS                   SIX MONTHS
                                                    ENDED JUNE 30,                ENDED JUNE 30,
                                              ------------------------      ------------------------
                                                 1998           1997           1998           1997
                                              ---------      ---------      ---------      ---------
<S>                                           <C>            <C>            <C>            <C>      
Changes in fair value of trust assets ......  $   2,712      $  16,508      $  27,478      $  28,269
Interest income on short-term investments ..        232            378            417            780
Interest expense ...........................         --             --             --           (155)
Administrative expense .....................     (1,843)        (1,351)        (3,768)        (9,273)
                                              ---------      ---------      ---------      ---------
       Net income ..........................      1,101         15,535         24,127         19,621
                                              ---------      ---------      ---------      ---------
Net asset value, beginning of period .......     97,100        115,129         91,300        121,317
Distributions on Class "A" Certificate .....         --        (26,899)            --        (37,173)
Distributions on Class "B" Certificate .....    (28,301)            --        (45,527)            --
                                              ---------      ---------      ---------      ---------
Net asset value, end of period .............  $  69,900      $ 103,765      $  69,900      $ 103,765
                                              =========      =========      =========      =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                        2

<PAGE>   3



                  FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                            SIX MONTHS ENDED JUNE 30,
                                                                                            -------------------------
                                                                                               1998           1997
                                                                                            ---------      ----------
<S>                                                                                          <C>           <C>     
Cash flows from operating activities:
    Net income .........................................................................     $ 24,127      $ 19,621
    Adjustments to reconcile net income to net cash provided
    by (used in) operating activities:
       Changes in fair value of trust assets ...........................................      (27,478)      (28,269)
       Collections on trust assets, net of advances ....................................       63,840        22,938
       Capital improvements on trust assets ............................................           --        (4,503)
       Decrease in payables and accrued liabilities ....................................         (530)       (1,595)
                                                                                             --------      --------
          Net cash provided by operating activities ....................................       59,959         8,192
                                                                                             --------      --------


Cash flows from financing activities:
    Distributions on Class "A" Certificate .............................................           --       (37,173)
    Distributions on Class "B" Certificate .............................................      (45,527)           --
                                                                                             --------      --------

          Net cash used in financing activities ........................................      (45,527)      (37,173)
                                                                                             --------      --------

    Net increase (decrease) in cash and cash equivalents ...............................     $ 14,432      $(28,981)
    Cash and cash equivalents, beginning of period .....................................        7,948        36,129
                                                                                             --------      --------
    Cash and cash equivalents, end of period ...........................................     $ 22,380      $  7,148
                                                                                             ========      ========
    Supplemental disclosure of cash flow information: Cash paid during the
       period for:
          Interest .....................................................................     $     --      $    155
                                                                                             ========      ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                        3

<PAGE>   4



                  FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                  June 30, 1998


(A)      Basis of Presentation

         The unaudited consolidated financial statements of FirstCity
         Liquidating Trust (the "Trust", formerly the "Debtor") reflect, in the
         opinion of management, all adjustments, consisting only of normal and
         recurring adjustments, necessary to present fairly the Trust's net
         assets in liquidation at June 30, 1998, and its changes in net asset
         value in liquidation and cash flows for the three month and six month
         periods ended June 30, 1998 and 1997.

         Management of the Trust has made certain estimates and assumptions
         relating to the reporting of assets and liabilities and the disclosure
         of contingent assets and liabilities to prepare these consolidated
         financial statements in conformity with generally accepted accounting
         principles. Actual results could differ from those estimates.

         Certain amounts in the financial statements for prior periods have been
         reclassified to conform with current financial statement presentation.

(B)      Trust Assets

         Trust assets are comprised of the following (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                       June 30,     December 31,
Estimated Gross Cash Flow by Type of Asset                                               1998          1997
                                                                                       --------     ------------
                                                                                      (unaudited)
<S>                                                                                    <C>           <C>     
Borrowers' obligation on outstanding balance of:
    Performing loans ................................................................  $ 20,043     $     50,450
    Nonperforming loans .............................................................     2,425            2,993
Receivable from the FDIC ............................................................     2,000            2,000
Real estate and other assets ........................................................    35,176           44,203
                                                                                       --------     ------------
    Total ...........................................................................    59,644           99,646
                                                                                       --------     ------------

    Discount required to reflect trust assets at
         estimated fair value .......................................................   (10,025)         (13,631)
                                                                                       --------     ------------

Trust assets, net ...................................................................  $ 49,619     $     86,015
                                                                                       ========     ============
</TABLE>

         For each asset, estimates of income, expense and net cash flow on a
         monthly basis through the expected final disposition date are prepared.
         The individual asset budget is developed based upon factors which
         include physical inspection of the asset or the collateral underlying
         the related loan, local market conditions, contractual payments or
         rents, and discussions with the relevant borrower. The Trust's
         management and the Portfolio Committee periodically reevaluate and
         revise projected monthly cash flows on an asset by asset basis. At June
         30, 1998 and December 31, 1997, the projected monthly cash flows were
         discounted at 11% to reflect the Trust assets at estimated fair value.
         The Trust assets are highly concentrated in Texas.


                                        4

<PAGE>   5




         In the first quarter of 1998, the Trust negotiated and received a
         settlement of approximately $22 million from its fidelity bond
         carriers. As a result of this settlement, there are no remaining claims
         of this nature.

(C)      Distribution Priorities

         The Trust is required to apply all proceeds from liquidation and
         disposition of the Trust's assets first to payment of normal operating
         expenses. Second, Trust proceeds totaling $188 million were distributed
         to FirstCity to retire the Class A Certificate. The third order of
         distribution of Trust proceeds is payments pursuant to employment and
         bonus agreements with certain former employees of the Debtor.

         Fourth, Class B Certificate holders are entitled to distributions up to
         the Pour-Over Level (as hereinafter defined). The bonus pool and
         executive long-term incentive plan provides for the payment of $735,000
         in bonuses to certain former employees of the Debtor after the Trust
         distributes $14.9 million to Class B Certificate holders, the payment
         of another $735,000 after approximately $30 million of additional
         distributions to Class B Certificate holders, and the payment of
         bonuses in the amount of 4.903% of any additional distributions to
         Class B Certificate holders. In the first six months of 1998, $45.5
         million, or $18.50 per certificate, was distributed to Class B
         Certificate holders and a $1.5 million bonus was paid to certain former
         employees of the Debtor. In July 1998, $17.2 million, or $7.00 per
         certificate, was distributed to Class B Certificate holders and a
         $834,000 bonus was paid to certain former employees of the Debtor.

         The Pour-Over Level (approximately $97 million at June 30, 1998) is the
         liquidation preference on July 3, 1995 of the Debtor's Series B and
         Series E preferred stock, less the nominal stated value of FirstCity
         special preferred stock and the book value of FirstCity common stock
         issued to the Series B and Series E holders, plus interest at an annual
         rate of 6.5% from July 3, 1995. The Pour-Over Level is also reduced for
         distributions to Class B Certificate holders. Lastly, Class C
         Certificate holders receive distributions, if any, after any remaining
         payments up to the Pour-Over Level (approximately $39.26 per unit as of
         June 30, 1998) to Class B Certificate holders. No distributions to
         Class C Certificate holders are anticipated.

         The ultimate amounts to be distributed to the holders of the B and C
         Certificates will result from the cash flow actually realized from the
         liquidation of the non-cash Trust assets. The determination of the net
         asset value of the Trust in the accompanying consolidated statements of
         net assets in liquidation is based upon estimates of future cash flows.
         The actual cash

                                        5

<PAGE>   6


         flows and the timing of such cash flows may vary significantly from
         those estimates, thus affecting the final distributions to the
         Certificate holders.

(D)      Investment Management Agreement

         Pursuant to the Investment Management Agreement, FirstCity managed the
         liquidation of Trust assets and the Trust paid FirstCity a servicing
         fee on collections. In the first quarter of 1997, the Investment
         Management Agreement was terminated and, in consideration of this
         termination, the Trust paid FirstCity $6.8 million (included in
         administrative expense), plus interest at a rate of 10 percent per
         annum from January 1, 1997 until paid.

(E)      Contingencies

         The Trust is involved in various legal proceedings in the ordinary
         course of business. In the opinion of management of the Trust, the
         resolution of such matters should not have a material adverse impact on
         the financial position, results of operations or liquidity of the
         Trust.

         In 1996, the FDIC closed the receiverships of the Debtor's banks and
         distributed the remaining surplus of those receiverships to the Trust.
         In accordance with a conveyance and indemnification agreement, the
         Trust will be required, among other things, to provide indemnity until
         March 31, 1999 to the FDIC against any known or unknown liabilities,
         obligations or actual expenses associated with the receiverships, in an
         aggregate amount up to $12 million. Management of the Trust does not
         believe that, to the extent the Trust is obligated to pay certain
         claims or expenses associated with the past obligations of the Debtor's
         banks, such payments will have a material adverse impact on the
         financial position, results of operations or liquidity of the Trust.



                                        6

<PAGE>   7


Item 2.  Management's Discussion and Analysis of Financial Condition and 
Results of Operations.

                  The operations of the Trust for the second quarter and first
six months of 1998 and 1997 are summarized below (dollars in thousands):

<TABLE>
<CAPTION>
                                                     SECOND                      SIX MONTHS
                                                     QUARTER                   ENDED JUNE 30,
                                              ----------------------      ----------------------
                                                1998          1997          1998          1997
                                              --------      --------      --------      --------
<S>                                           <C>           <C>           <C>           <C>     
Changes in fair value of trust assets ......  $  2,712      $ 16,508      $ 27,478      $ 28,269
Interest income on short-term investments ..       232           378           417           780
Interest expense ...........................        --            --            --          (155)
Administrative expense .....................    (1,843)       (1,351)       (3,768)       (9,273)
                                              --------      --------      --------      --------
       Net income ..........................  $  1,101      $ 15,535      $ 24,127      $ 19,621
                                              ========      ========      ========      ========
</TABLE>

               SECOND QUARTER 1998 COMPARED TO SECOND QUARTER 1997

                  The estimated fair value of the Trust's assets increased $2.7
million in the second quarter of 1998 as compared to $16.5 million in the second
quarter of 1997. The estimated fair value in the second quarter of 1997
increased due to several factors, including approximately $7 million based on
the contract sales price of a downtown Houston office building (sale closed in
the fourth quarter of 1997). Other factors which contributed to the enhancement
of the net asset value of the Trust's assets in the second quarter of 1998 and
1997 include (i) the appreciation in value of certain assets attributable to a
favorable interest rate environment and the effect of such favorable interest
rates on the marketability of real estate and (ii) the increase in the estimated
market value of the Trust's assets that naturally occurs as the remaining life
of the Trust (and concomitantly the discount factor applied in calculating net
asset value) decreases.

                  Interest income on short-term investments decreased in the
second quarter of 1998 as compared to the second quarter of 1997 because less
excess funds were available.

                  Administrative expense totaled $1.8 million in the second
quarter of 1998 as compared to $1.4 million in the second quarter of 1997. A
$763,000 bonus, based on distributions to Class B Certificate holders, was paid
in the second quarter of 1998 (there was no bonus in 1997). Professional fees
totaled $.4 million in the second quarter of 1998 as compared to $.6 million in
the second quarter of 1997.

    SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

                  The estimated fair value of the Trust's assets increased $27.5
million in the first six months of 1998 as compared to $28.3 million in the
first six months of 1997, an increase attributable to several factors, including
a settlement of approximately $22 million from the Trust's fidelity bond
carriers. The estimated fair value in the first six months of 1997 increased, in
part due to the elimination of servicing fees to FirstCity (which were netted
against future cash flows) because the Investment Management Agreement was
terminated and $7 million related to a contract sales price (discussed above).
Other factors which contributed to the enhancement of the net asset value of the
Trust's assets in the first six months of 1998 and 1997 include (i) the
appreciation in value of certain

                                        7

<PAGE>   8


assets attributable to a favorable interest rate environment and the effect of
such favorable interest rates on the marketability of real estate and (ii) the
increase in the estimated market value of the Trust's assets that naturally
occurs as the remaining life of the Trust (and concomitantly the discount factor
applied in calculating net asset value) decreases.

                  Interest income on short-term investments decreased in 1998 as
compared to 1997 because less excess funds were available. Interest expense in
the first six months of 1997 resulted from the termination of the Investment
Management Agreement, as discussed below.

                  Administrative expense totaled $3.8 million in the first six
months of 1998 as compared to $9.3 million in the first six months of 1997. In
the first quarter of 1997, the Investment Management Agreement was terminated
and, in consideration of this termination, the Trust paid FirstCity $6.8
million, plus interest at a rate of 10 percent per annum from January 1, 1997
until paid (resulting in no servicing fees in 1998). A $1.5 million bonus, based
on distributions to Class B Certificate holders, was paid in the first six
months of 1998 (there was no bonus in 1997). Professional fees totaled $.6
million in the first six months of 1998 as compared to $1.0 million in the first
six months of 1997.

                  In the first six months of 1998, the Trust distributed $45.5
million, or $18.50 per certificate, to Class B Certificate holders. This
distribution was made possible principally by $63.8 million in net collections
on Trust assets in 1998. The Class B Beneficial Interests were valued at $69.9
million at June 30, 1998. In July 1998, the Trust distributed an additional
$17.2 million, or $7.00 per certificate, to Class B Certificate holders.

                  Non-cash trust assets at June 30, 1998 and December 31, 1997
were comprised of the following (dollars in thousands):

<TABLE>
<CAPTION>
                                                     June 30,     December 31,
Estimated Gross Cash Flow by Type of Asset             1998          1997
                                                     --------     ------------
<S>                                                  <C>           <C>     
Borrowers' obligation on outstanding balance of:
    Performing loans ..............................  $ 20,043     $     50,450
    Nonperforming loans ...........................     2,425            2,993
Receivable from the FDIC ..........................     2,000            2,000
Real estate and other assets ......................    35,176           44,203
                                                     --------     ------------
    Total .........................................    59,644           99,646
                                                     --------     ------------
    Discount required to reflect trust assets at
         estimated fair value .....................   (10,025)         (13,631)
                                                     --------     ------------
Trust assets, net .................................  $ 49,619     $     86,015
                                                     ========     ============
</TABLE>

                  For each asset, estimates of income, expense and net cash flow
on a monthly basis through the expected final disposition date are prepared by
management of the Trust. The individual asset budget is developed based upon
factors which include physical inspection of the asset or the collateral
underlying the related loan, local market conditions, contractual payments or
rents, and discussions with the relevant borrower. The Trust's management
periodically reevaluates and revises its projected monthly cash flows on an
asset by asset basis. At June 30, 1998 and December 31, 1997, the projected
monthly cash flows were discounted at 11% to reflect the Trust assets at
estimated fair value.

                                        8

<PAGE>   9


                  One of the most significant assets of the Trust is a 67%
interest in a partnership which owns a downtown Houston office building. The 67%
interest was under contract for sale to one party for a price of $18.5 million.
A second party (the 33% partnership interest owner) had certain rights of first
refusal and consent to transfer which may or may not have been properly
exercised, and prevented closing with the first party under the original
contract which expired on October 14, 1997. The original buyer has sued the
Trust and the 33% partnership interest owner for specific performance. Although
neither party is quarreling with the Trust about the sales price, the matter is
now in litigation and may lead to considerable delays in disposition of the
asset. After a favorable refinancing of debt of the office building, which
included additional investment by the Trust, and based on current appraisals,
cash flow and profitability, the partnership interest was valued at $21 million
on June 30, 1998.

                  In the first quarter of 1998, the Trust negotiated and
received a settlement of approximately $22 million from its fidelity bond
carriers. As a result of this settlement, there are no remaining claims of this
nature.

                  In June 1998, the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division, extended the life of the Trust from
December 31, 1998 to January 3, 2000. The extension allows the Trust more time
to settle some ongoing litigation and indemnity issues as well as to bring
additional value to certain assets as a result of holding such assets for a
longer period of time. Also, Rick R. Hagelstein resigned as a member of the
Portfolio Committee. Joe S. Greak, Senior Vice President, Tax Director and
Secretary of FirstCity Financial Corporation, has been appointed to replace Mr.
Hagelstein.

                                        9

<PAGE>   10


Item 6. Exhibits and Reports on Form 8-K.

         (a) Exhibits

         Exhibit
           No.                 Description
         2.1(1)   Joint Plan of Reorganization for First City Bancorporation of
                  Texas, Inc., as modified, under Chapter 11 of the United
                  States Bankruptcy Code, as confirmed by the U.S. Bankruptcy
                  Court for the Northern District of Texas, Dallas Division on
                  May 31, 1995.
         3.1(1)   The Liquidating Trust Agreement, dated as of July 3, 1995, by
                  and between First City Bancorporation of Texas, Inc. and
                  Shawmut Bank Connecticut, National Association (subsequently
                  Fleet National Bank, now State Street Bank and Trust Company),
                  as Trustee.
         10.1(3)  Employment Agreement, effective as of July 3, 1995, by and
                  between FCLT Loans Asset Corp. and Robert W. Brown, as amended
                  May 1, 1996.
         10.2(2)  Settlement Agreement, dated as of June 22, 1994, as amended as
                  of January 30, 1995, by and among FDIC-Corporate, the
                  FDIC-Receivers and the First City Parties.
         10.3(3)  Conveyance and Indemnification Agreement, dated December 23,
                  1996, between FDIC-Corporate, the FDIC-Receivers, FCLT Loans,
                  L.P. and the Trust.
         27.1     Financial Data Schedule.

-----------------------------------------

         (1) Filed as the exhibit indicated to the Registration Statement on
         Form 10 filed with the Securities and Exchange Commission on May 1,
         1996 and incorporated herein by reference.

         (2) Filed as the exhibit indicated to the Registration Statement on
         Form 10/A filed with the Securities and Exchange Commission on July 10,
         1996 and incorporated herein by reference.

         (3) Filed as the exhibit indicated to the Form 10-K for the fiscal year
         ended December 31, 1996 filed with the Securities and Exchange
         Commission and incorporated herein by reference.

         (b) Reports on Form 8-K. No report on Form 8-K was filed by the
         Registrant with the Commission during the quarterly period ended June
         30, 1998.


                                       10

<PAGE>   11

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                          STATE STREET BANK AND TRUST
                                          COMPANY, as Trustee



Date: July 28, 1998                       /s/ Susan T. Keller
                                          --------------------------------------
                                          Name: Susan T. Keller
                                                --------------------------------
                                          Title: Vice President
                                                 -------------------------------



                                       11

<PAGE>   12
                               Index to Exhibits



<TABLE>
<CAPTION>
 Exhibit
   No.            Description
-------- -----------------------------------------------------------------------
<S>      <C>
2.1(1)   Joint Plan of Reorganization for First City Bancorporation of Texas, 
         Inc., as modified, under Chapter 11 of the United States Bankruptcy
         Code, as confirmed by the U.S. Bankruptcy Court for the Northern
         District of Texas, Dallas Division on May 31, 1995.
3.1(1)   The Liquidating Trust Agreement, dated as of July 3, 1995, by and 
         between First City Bancorporation of Texas, Inc. and Shawmut Bank
         Connecticut, National Association (subsequently Fleet National Bank,
         now State Street Bank and Trust Company), as Trustee.
10.1(3)  Employment Agreement, effective as of July 3, 1995, by and between 
         FCLT Loans Asset Corp. and Robert W. Brown, as amended May 1, 1996.
10.2(2)  Settlement Agreement, dated as of June 22, 1994, as amended as of 
         January 30, 1995, by and among FDIC-Corporate, the FDIC-Receivers and
         the First City Parties.
10.3(3)  Conveyance and Indemnification Agreement, dated December 23, 1996, 
         between FDIC-Corporate, the FDIC-Receivers, FCLT Loans, L.P. and the
         Trust.
27.1     Financial Data Schedule.
</TABLE>

----------------

(1) Filed as the exhibit indicated to the Registration Statement on Form 10
filed with the Securities and Exchange Commission on May 1, 1996 and
incorporated herein by reference.

(2) Filed as the exhibit indicated to the Registration Statement on Form 10/A
filed with the Securities and Exchange Commission on July 10, 1996 and
incorporated herein by reference.

(3) Filed as the exhibit indicated to the Form 10-K for the fiscal year ended
December 31, 1996 filed with the Securities and Exchange Commission and
incorporated herein by reference.