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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

|     |  |                                                                                          | 
|---- |  | ---------------------------------------------------------------------------------------- | 
|[X]  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934  | 
|    
|     |  | For the Quarterly Period Ended September 30, 2001 or                                     | 
|    
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 | 

Commission File Number 033-19694

FirstCity Financial Corporation
(Exact name of Registrant as Specified in Its Charter)

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or Other Jurisdiction of
Incorporation or Organization) |  | 76-0243729
(I.R.S. Employer
Identification No.)
|                                                                       
|6400 Imperial Drive,
Waco, TX
(Address of Principal Executive Offices)  |  | 76712
(Zip Code)                               

(254) 751-1750
(Registrants Telephone Number, Including Area Code)

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 [  ]

The number of shares of common stock, par value $.01 per share,
outstanding at November 14, 2001 was 8,376,500.



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PART I

FINANCIAL INFORMATION

ITEM 1.Financial Statements

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)

|                                                                 |                                                                                                                                                                                                                                         |                                                                        |        |               |         |   |              |        |         | 
|---------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ------ | ------------- | ------- | - | ------------ | ------ | ------- | 
|                                                                 |                                                                                                                                                                                                                                         |                                                                        |        | September 30, |         |   | December 31, |       
|                                                                 |                                                                                                                                                                                                                                         |                                                                        |        | 2001          |         |   | 2000         |       
|                                                                 |                                                                                                                                                                                                                                         |                                                                        |        |               |         |   |              |       
|ASSETS                                                           |                                                                                                                                                                                                                                         |                                                                        |        |               |         |   |              |       
|Cash and cash equivalents                                        |                                                                                                                                                                                                                                         | $                                                                      | 8,765  |               |         | $ | 8,043        |       
|Portfolio Assets, net                                            |                                                                                                                                                                                                                                         |                                                                        | 17,552 |               |         |   | 30,018       |       
|Loans receivable, net                                            |                                                                                                                                                                                                                                         |                                                                        | 20,259 |               |         |   | 14,539       |       
|Equity investments                                               |                                                                                                                                                                                                                                         |                                                                        | 49,957 |               |         |   | 39,022       |       
|Deferred tax benefit, net                                        |                                                                                                                                                                                                                                         |                                                                        | 20,101 |               |         |   | 20,101       |       
|Other assets, net                                                |                                                                                                                                                                                                                                         |                                                                        | 7,804  |               |         |   | 8,824        |       
|Net assets of discontinued operations                            |                                                                                                                                                                                                                                         |                                                                        | 18,458 |               |         |   | 20,444       |       
|                                                                 |                                                                                                                                                                                                                                         |                                                                        |        |               |         |  
|                                                                 |                                                                                                                                                                                                                                         | Total Assets                                                           |        | $             | 142,896 |   |              | $      | 140,991 | 
|                                                                 |                                                                                                                                                                                                                                         |                                                                        |        |               |         |  
|LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS EQUITY |                                                                                                                                                                                                                                         |                                                                        |        |               |         |   |              |       
|Liabilities:                                                     |                                                                                                                                                                                                                                         |                                                                        |        |               |         |   |              |       
|                                                                 | Notes payable                                                                                                                                                                                                                           |                                                                        | $      | 91,874        |         |   | $            | 93,764 |        
|                                                                 | Other liabilities                                                                                                                                                                                                                       |                                                                        |        | 11,493        |         |   |              | 9,216  |        
|                                                                 |                                                                                                                                                                                                                                         |                                                                        |        |               |         |  
|                                                                 |                                                                                                                                                                                                                                         | Total Liabilities                                                      |        |               | 103,367 |   |              |        | 102,980 | 
|Commitments and contingencies (Notes 2, 4, 9, 10)                |                                                                                                                                                                                                                                         |                                                                        |        |               |         |   |              |       
|Redeemable preferred stock:                                      |                                                                                                                                                                                                                                         |                                                                        |        |               |         |   |              |       
|                                                                 | Adjusting rate preferred stock, including accumulated
dividends in arrears of $5,778 and $3,852,
respectively (par value $.01; redemption value of $21
per share; 2,000,000 shares authorized; 1,222,901
shares issued and outstanding) |                                                                        |        | 31,459        |         |   |              | 29,533 |        
|Shareholders 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; issued and outstanding: 8,376,500
and 8,368,344 shares, respectively)                                                                                            |                                                                        |        | 84            |         |   |              | 84     |        
|                                                                 | Paid in capital                                                                                                                                                                                                                         |                                                                        |        | 79,645        |         |   |              | 79,634 |        
|                                                                 | Accumulated deficit                                                                                                                                                                                                                     |                                                                        |        | (74,173       | )       |   |              |        |        
|                                                                 |                                                                                                                                                                                                                                         |                                                                        |        |               |         |   | (71,131      | )     
|                                                                 | Accumulated other comprehensive income (loss)                                                                                                                                                                                           |                                                                        |        | 2,514         |         |   |              | (109   | )      
|                                                                 |                                                                                                                                                                                                                                         |                                                                        |        |               |         |  
|                                                                 |                                                                                                                                                                                                                                         | Total Shareholders Equity                                             |        |               | 8,070   |   |              |        | 8,478   | 
|                                                                 |                                                                                                                                                                                                                                         |                                                                        |        |               |         |  
|                                                                 |                                                                                                                                                                                                                                         | Total Liabilities, Redeemable Preferred Stock and
Shareholders Equity |        | $             | 142,896 |   |              | $      | 140,991 | 
|                                                                 |                                                                                                                                                                                                                                         |                                                                        |        |               |         |  

See accompanying notes to consolidated financial statements.

2



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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

|                                                                                                        |                                                                     |                |        |                    |       |   |                   |       |        |      |        |        |        |   |         |        |        | 
|------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | -------------- | ------ | ------------------ | ----- | - | ----------------- | ----- | ------ | ---- | ------ | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                                        |                                                                     |                |        | Three Months Ended |       |   | Nine Months Ended |      
|                                                                                                        |                                                                     |                |        | September 30,      |       |   | September 30,     |      
|                                                                                                        |                                                                     |                |        |                    |       |   |                   |      
|                                                                                                        |                                                                     |                |        | 2001               |       |   | 2000              |       |        | 2001 |        |        | 2000   |  
|                                                                                                        |                                                                     |                |        |                    |       |   |                   |       |        |      |        |        |        |  
|Revenues:                                                                                               |                                                                     |                |        |                    |       |   |                   |       |        |      |        |        |        |   |         |       
|                                                                                                        | Servicing fees                                                      |                | $      | 2,177              |       |   | $                 | 2,553 |        |      | $      | 7,846  |        |   | $       | 9,789  |       
|                                                                                                        | Gain on resolution of Portfolio Assets                              |                |        | 443                |       |   |                   | 993   |        |      |        | 875    |        |   |         | 2,763  |       
|                                                                                                        | Equity in earnings (loss) of investments                            |                |        | (519               | )     |   |                   | 1,570 |        |      |        | 11,967 |        |   |         | 5,440  |       
|                                                                                                        | Interest income                                                     |                |        | 1,739              |       |   |                   | 2,823 |        |      |        | 4,392  |        |   |         | 13,887 |       
|                                                                                                        | Gain on sale of interest in equity investment                       |                |        | 182                |       |   |                   |      |        |      |        | 3,316  |        |   |         |       |       
|                                                                                                        | Gain on sale of interest in subsidiary                              |                |        |                   |       |   |                   | 8,091 |        |      |        |       |        |   |         | 8,091  |       
|                                                                                                        | Gain on sale of automobile loans                                    |                |        |                   |       |   |                   |      |        |      |        |       |        |   |         | 2,836  |       
|                                                                                                        | Other income                                                        |                |        | 157                |       |   |                   | 156   |        |      |        | 705    |        |   |         | 1,446  |       
|                                                                                                        |                                                                     |                |        |                    |       |   |                   |       |        |      |        |       
|                                                                                                        |                                                                     | Total revenues |        |                    | 4,179 |   |                   |       | 16,186 |      |        |        | 29,101 |   |         |        | 44,252 | 
|Expenses:                                                                                               |                                                                     |                |        |                    |       |   |                   |       |        |      |        |        |        |   |         |       
|                                                                                                        | Interest and fees on notes payable                                  |                |        | 2,280              |       |   |                   | 4,350 |        |      |        | 7,034  |        |   |         | 16,053 |       
|                                                                                                        | Salaries and benefits                                               |                |        | 2,464              |       |   |                   | 4,587 |        |      |        | 7,456  |        |   |         | 14,201 |       
|                                                                                                        | Provision for loan and impairment losses                            |                |        | 1,000              |       |   |                   | 89    |        |      |        | 3,128  |        |   |         | 3,924  |       
|                                                                                                        | Occupancy, data processing, communication and other                 |                |        | 2,390              |       |   |                   | 4,198 |        |      |        | 7,857  |        |   |         | 14,085 |       
|                                                                                                        |                                                                     |                |        |                    |       |   |                   |       |        |      |        |       
|                                                                                                        |                                                                     | Total expenses |        |                    | 8,134 |   |                   |       | 13,224 |      |        |        | 25,475 |   |         |        | 48,263 | 
|Earnings (loss) from continuing operations
before income taxes, minority interest and
accounting change |                                                                     |                | (3,955 | )                  |       |   | 2,962             |       |        |      | 3,626  |        |        |   | (4,011  | )     
|Provision for income taxes                                                                              |                                                                     |                | (27    | )                  |       |   | (94               | )     |        |      | (19    | )      |        |   | (7,415  | )     
|                                                                                                        |                                                                     |                |        |                    |       |   |                   |       |        |      |        |       
|Earnings (loss) from continuing operations
before minority interest and accounting change               |                                                                     |                | (3,982 | )                  |       |   | 2,868             |       |        |      | 3,607  |        |        |   | (11,426 | )     
|Minority interest                                                                                       |                                                                     |                | 377    |                    |       |   | 17                |       |        |      | (1,419 | )      |        |   | 204     |       
|Cumulative effect of accounting change                                                                  |                                                                     |                |       |                    |       |   |                  |       |        |      | (304   | )      |        |   |        |       
|                                                                                                        |                                                                     |                |        |                    |       |   |                   |       |        |      |        |       
|Earnings (loss) from continuing operations                                                              |                                                                     |                | (3,605 | )                  |       |   | 2,885             |       |        |      | 1,884  |        |        |   | (11,222 | )     
|Loss from discontinued operations                                                                       |                                                                     |                | (2,000 | )                  |       |   |                  |       |        |      | (3,000 | )      |        |   | (5,000  | )     
|Extraordinary gain, net of income taxes                                                                 |                                                                     |                |       |                    |       |   | 833               |       |        |      |       |        |        |   | 833     |       
|                                                                                                        |                                                                     |                |        |                    |       |   |                   |       |        |      |        |       
|Net earnings (loss)                                                                                     |                                                                     |                | (5,605 | )                  |       |   | 3,718             |       |        |      | (1,116 | )      |        |   | (15,389 | )     
|Accumulated preferred dividends in arrears                                                              |                                                                     |                | (642   | )                  |       |   | (642              | )     |        |      | (1,926 | )      |        |   | (1,926  | )     
|                                                                                                        |                                                                     |                |        |                    |       |   |                   |       |        |      |        |       
|Net earnings (loss) to common shareholders                                                              |                                                                     | $              | (6,247 | )                  |       | $ | 3,076             |       |        | $    | (3,042 | )      |        | $ | (17,315 | )     
|                                                                                                        |                                                                     |                |        |                    |       |   |                   |       |        |      |        |       
|Basic and diluted earnings (loss) per common
share are as follows:                                      |                                                                     |                |        |                    |       |   |                   |       |        |      |        |        |        |   |         |       
|                                                                                                        | Earnings (loss) from continuing operations
before accounting change |                | $      | (0.51              | )     |   | $                 | 0.27  |        |      | $      | 0.03   |        |   | $       | (1.57  | )     
|                                                                                                        | Cumulative effect of accounting change                              |                |        |                   |       |   |                   |      |        |      |        | (0.03  | )      |   |         |       |       
|                                                                                                        | Discontinued operations                                             |                |        | (0.24              | )     |   |                   |      |        |      |        | (0.36  | )      |   |         | (0.60  | )     
|                                                                                                        | Extraordinary gain                                                  |                |        |                   |       |   |                   | 0.10  |        |      |        |       |        |   |         | 0.10   |       
|                                                                                                        | Net earnings (loss) per common share                                |                | $      | (0.75              | )     |   | $                 | 0.37  |        |      | $      | (0.36  | )      |   | $       | (2.07  | )     
|                                                                                                        | Weighted average common shares outstanding                          |                |        | 8,376              |       |   |                   | 8,357 |        |      |        | 8,374  |        |   |         | 8,346  |       

See accompanying notes to consolidated financial statements.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
(Unaudited)

|                                                        |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   |         |         |  
|------------------------------------------------------- | ------------------------------------------ |  | --------- | - |  | ------ | -- | - | ------- | - | ------ | ----------- |  | - | ------- | ------- | - | ------------- | ----------- | ----- | ----- | - | ------- | ------- | -
|                                                        |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               | Accumulated |       |       |   |         |        
|                                                        |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               | Other       |       |       |   |         |        
|                                                        |                                            |  | Number of |   |  |        |    |   |         |   |        |             |  |   |         |         |   | Comprehensive |             |       | Total |  
|                                                        |                                            |  | Common    |   |  | Common |    |   | Paid in |   |        | Accumulated |  |   | Income  |         |   | Shareholders' |            
|                                                        |                                            |  | Shares    |   |  | Stock  |    |   | Capital |   |        | Deficit     |  |   | (Loss)  |         |   | Equity        |            
|                                                        |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |            
|Balances, December 31, 1999                             |                                            |  | 8,333,300 |   |  | $      | 83 |   |         | $ | 79,562 |             |  | $ | (52,663 | )       |   | $             | (395        | )     |       | $ | 26,587  |        
|Purchase of shares through
employee stock purchase plan |                                            |  | 35,044    |   |  |        | 1  |   |         |   | 72     |             |  |   |        |         |   |               |            |       |       |   | 73      |        
|Comprehensive loss:                                     |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   |         |        
|                                                        | Net loss for 2000                          |  |           |  |  |        |    |  |         |   |        |            |  |   |         | (15,900 | ) |               |             |      |       |   |         | (15,900 | )
|                                                        | Foreign currency items                     |  |           |  |  |        |    |  |         |   |        |            |  |   |         |        |   |               |             | 286   |       |   |         | 286     |  
|                                                        |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   |        
|Total comprehensive loss                                |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   | (15,614 | )      
|                                                        |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   |        
|Preferred dividends                                     |                                            |  |          |   |  |        |   |   |         |   |       |             |  |   | (2,568  | )       |   |               |            |       |       |   | (2,568  | )      
|                                                        |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |              
|Balances, December 31, 2000                             |                                            |  | 8,368,344 |   |  |        | 84 |   |         |   | 79,634 |             |  |   | (71,131 | )       |   |               | (109        | )     |       |   | 8,478   |        
|Purchase of shares through
employee stock purchase plan |                                            |  | 8,156     |   |  |        |   |   |         |   | 11     |             |  |   |        |         |   |               |            |       |       |   | 11      |        
|Comprehensive income:                                   |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   |         |        
|                                                        | Net loss for the first
nine months of 2001 |  |           |  |  |        |    |  |         |   |        |            |  |   |         | (1,116  | ) |               |             |      |       |   |         | (1,116  | )
|                                                        | Foreign currency items                     |  |           |  |  |        |    |  |         |   |        |            |  |   |         |        |   |               |             | (53   | )     |   |         | (53     | )
|                                                        | Unrealized gain of equity
investment       |  |           |  |  |        |    |  |         |   |        |            |  |   |         |        |   |               |             | 2,676 |       |   |         | 2,676   |  
|                                                        |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   |        
|Total comprehensive income                              |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   | 1,507   |        
|                                                        |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   |        
|Preferred dividends                                     |                                            |  |          |   |  |        |   |   |         |   |       |             |  |   | (1,926  | )       |   |               |            |       |       |   | (1,926  | )      
|                                                        |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |              
|Balances, September 30, 2001                            |                                            |  | 8,376,500 |   |  | $      | 84 |   |         | $ | 79,645 |             |  | $ | (74,173 | )       |   | $             | 2,514       |       |       | $ | 8,070   |        
|                                                        |                                            |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |              

See accompanying notes to consolidated financial statements

4



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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

|                                                     |                                                                             |                                                                                   |                                            |         |                   |        |        |          |          |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------- | ------ | ------ | -------- | -------- | ------- | -
|                                                     |                                                                             |                                                                                   |                                            |         | Nine Months Ended |       
|                                                     |                                                                             |                                                                                   |                                            |         | September 30,     |       
|                                                     |                                                                             |                                                                                   |                                            |         |                   |       
|                                                     |                                                                             |                                                                                   |                                            |         | 2001              |        |        | 2000     |         
|                                                     |                                                                             |                                                                                   |                                            |         |                   |        |        |          |         
|Cash flows from operating activities:                |                                                                             |                                                                                   |                                            |         |                   |        |        |         
|                                                     | Net loss                                                                    |                                                                                   | $                                          | (1,116  | )                 |        | $      | (15,389  | )       
|                                                     | Adjustments to reconcile net loss to net cash used in
operating activities: |                                                                                   |                                            |         |                   |        |        |          |         
|                                                     |                                                                             | Loss from discontinued operations                                                 |                                            |         | 3,000             |        |        |          | 5,000    |        
|                                                     |                                                                             | Proceeds from resolution of Portfolio Assets                                      |                                            |         | 7,289             |        |        |          | 11,781   |        
|                                                     |                                                                             | Gain on resolution of Portfolio Assets                                            |                                            |         | (875              | )      |        |          | (2,763   | )      
|                                                     |                                                                             | Purchase of Portfolio Assets and loans receivable, net                            |                                            |         | (11,083           | )      |        |          | (11,512  | )      
|                                                     |                                                                             | Origination of automobile receivables, net of purchase
discount                   |                                            |         |                  |        |        |          | (106,311 | )      
|                                                     |                                                                             | Provision for loan and impairment losses                                          |                                            |         | 3,128             |        |        |          | 3,924    |        
|                                                     |                                                                             | Equity in earnings of investments                                                 |                                            |         | (11,967           | )      |        |          | (5,440   | )      
|                                                     |                                                                             | Proceeds from performing Portfolio Assets and loans
receivable, net               |                                            |         | 8,326             |        |        |          | 51,716   |        
|                                                     |                                                                             | Decrease in net deferred tax asset                                                |                                            |         |                  |        |        |          | 7,000    |        
|                                                     |                                                                             | Depreciation and amortization                                                     |                                            |         | 660               |        |        |          | 1,753    |        
|                                                     |                                                                             | (Increase) decrease in other assets                                               |                                            |         | (1,912            | )      |        |          | 1,114    |        
|                                                     |                                                                             | Gain on sale of interest in equity investment                                     |                                            |         | (3,316            | )      |        |          |         |        
|                                                     |                                                                             | Deferred gain from sale of interest in subsidiary                                 |                                            |         |                  |        |        |          | (4,000   | )      
|                                                     |                                                                             | Gain on sale of interest in subsidiary                                            |                                            |         |                  |        |        |          | (8,091   | )      
|                                                     |                                                                             | Increase (decrease) in other liabilities                                          |                                            |         | 5,064             |        |        |          | (1,717   | )      
|                                                     |                                                                             |                                                                                   |                                            |         |                   |       
|                                                     |                                                                             |                                                                                   | Net cash used in operating activities      |         |                   | (2,802 | )      |          |          | (72,935 | )
|                                                     |                                                                             |                                                                                   |                                            |         |                   |       
|Cash flows from investing activities:                |                                                                             |                                                                                   |                                            |         |                   |        |        |         
|                                                     | Proceeds from sale of interest in subsidiary                                |                                                                                   |                                            |        |                   |        |        | 15,000   |         
|                                                     | Proceeds on notes receivable from sale of interest in
subsidiary            |                                                                                   |                                            |        |                   |        |        | 60,000   |         
|                                                     | Proceeds from sale of interest in equity investment                         |                                                                                   |                                            | 7,567   |                   |        |        |         |         
|                                                     | Property and equipment, net                                                 |                                                                                   |                                            | (349    | )                 |        |        | 405      |         
|                                                     | Contributions to Acquisition Partnerships and Servicing
Entities            |                                                                                   |                                            | (8,325  | )                 |        |        | (3,136   | )       
|                                                     | Distributions from Acquisition Partnerships and Servicing
Entities          |                                                                                   |                                            | 7,688   |                   |        |        | 7,444    |         
|                                                     |                                                                             |                                                                                   |                                            |         |                   |       
|                                                     |                                                                             |                                                                                   | Net cash provided by investing activities  |         |                   | 6,581  |        |          |          | 79,713  |  
|                                                     |                                                                             |                                                                                   |                                            |         |                   |       
|Cash flows from financing activities:                |                                                                             |                                                                                   |                                            |         |                   |        |        |         
|                                                     | Borrowings under notes payable                                              |                                                                                   |                                            | 26,917  |                   |        |        | 132,627  |         
|                                                     | Payments of notes payable                                                   |                                                                                   |                                            | (28,971 | )                 |        |        | (136,357 | )       
|                                                     | Proceeds from issuance of common stock                                      |                                                                                   |                                            | 11      |                   |        |        | 68       |         
|                                                     |                                                                             |                                                                                   |                                            |         |                   |       
|                                                     |                                                                             |                                                                                   | Net cash used in financing activities      |         |                   | (2,043 | )      |          |          | (3,662  | )
|                                                     |                                                                             |                                                                                   |                                            |         |                   |       
|                                                     |                                                                             |                                                                                   | Net cash provided by continuing operations |         |                   | 1,736  |        |          |          | 3,116   |  
|                                                     |                                                                             |                                                                                   | Net cash used in discontinued operations   |         |                   | (1,014 | )      |          |          | (4,792  | )
|                                                     |                                                                             |                                                                                   |                                            |         |                   |       
|Net increase (decrease) in cash and cash equivalents |                                                                             | $                                                                                 | 722                                        |         |                   | $      | (1,676 | )       
|Cash and cash equivalents, beginning of period       |                                                                             |                                                                                   | 8,043                                      |         |                   |        | 11,263 |         
|                                                     |                                                                             |                                                                                   |                                            |         |                   |       
|Cash and cash equivalents, end of period             |                                                                             | $                                                                                 | 8,765                                      |         |                   | $      | 9,587  |         
|                                                     |                                                                             |                                                                                   |                                            |         |                   |       
|Supplemental disclosure of cash flow information:    |                                                                             |                                                                                   |                                            |         |                   |        |        |         
|                                                     | Cash paid during the period for:                                            |                                                                                   |                                            |         |                   |        |        |          |         
|                                                     |                                                                             | Interest                                                                          |                                            | $       | 6,214             |        |        | $        | 13,671   |        
|                                                     |                                                                             | Income taxes                                                                      |                                            |         | 1                 |        |        |          | 638      |        
|                                                     | Non-cash investing activities:                                              |                                                                                   |                                            |         |                   |        |        |          |         
|                                                     |                                                                             | Residual interests received as a result of sales of
loans through securitizations |                                            |         |                  |        |        |          | 5,713    |        
|                                                     | Non-cash financing activities:                                              |                                                                                   |                                            |         |                   |        |        |          |         
|                                                     |                                                                             | Dividends accumulated and not paid on preferred stock                             |                                            |         | 1,926             |        |        |          | 1,926    |        

See accompanying notes to consolidated financial statements.

5



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSSeptember 30, 2001(Dollars in thousands,
except per share data)

(1) Basis of Presentation and Earnings (Loss) per Common Share

The unaudited consolidated financial statements of FirstCity Financial
Corporation (FirstCity or the Company) reflect, in the opinion of
management, all adjustments, consisting only of normal and recurring
adjustments, except for the cumulative effect of a change in accounting
principle as discussed in Note 3, necessary to present fairly FirstCitys
financial position at September 30, 2001, the results of operations for the
three-month and nine-month periods ended September 30, 2001 and 2000, the
shareholders equity and accumulated other comprehensive income for the
nine-month period ended September 30, 2001, and the cash flows for the
nine-month periods ended September 30, 2001 and 2000.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Significant estimates include the
estimation of future collections on purchased portfolio assets used in the
calculation of net gain on resolution of portfolio assets, interest rate
environments, valuation of the deferred tax asset, and prepayment speeds and
collectibility of loans held in inventory, in securitization trusts and held
for investment. Actual results could differ materially from those estimates.

In the third quarter of 2000, FirstCity Consumer Lending Corporation
(Consumer Corp.), a wholly-owned subsidiary of FirstCity, completed a sale of
a 49% equity interest in its automobile finance operation to IFA Drive GP
Holdings LLC (IFA-GP) and IFA Drive LP Holdings LLC (IFA-LP), wholly-owned
subsidiaries of BOS (USA), Inc., formerly IFA Incorporated, for a purchase
price of $15 million cash pursuant to the terms of a Securities Purchase
Agreement (the Securities Purchase Agreement), by and among the Company,
Consumer Corp., FirstCity Funding LP (Funding LP), and FirstCity Funding GP
Corp. (Funding GP), IFA-GP and IFA-LP. The new entity formed to facilitate
the transaction is Drive Financial Services LP (Drive). As a result of this
sale, the Company no longer consolidates the financial statements of its
automobile finance operation since August 1, 2000, but instead records its
investment under the equity method of accounting.

The effects of any common stock equivalents are antidilutive for the three
months and nine months ended September 30, 2001 and 2000; therefore, diluted
earnings (loss) per common share is reported the same as basic earnings (loss)
per common share.

(2) Liquidity and Capital Resources

Generally, the Company requires liquidity to fund its operations, working
capital, payment of debt, equity for the acquisition of pools of assets or
single assets (collectively referred to as Portfolio Assets or Portfolios),
investments in and advances to the investment entities formed to hold Portfolio
Assets (each such entity, an Acquisition Partnership), retirement of and
dividends on preferred stock, and other investments by the Company. The
potential sources of liquidity are funds generated from operations, equity
distributions from the Acquisition Partnerships, interest and principal
payments on subordinated intercompany debt, dividends from the Companys
subsidiaries, short-term borrowings from revolving lines of credit, proceeds
from equity market transactions, securitization and other structured finance
transactions and other special purpose short-term borrowings.

BOS (USA), Inc. has an option to acquire a warrant for 1,975,000 shares of
the Companys non-voting Common Stock; the option can be exercised after
December 31, 2001 if the Companys $12 million Term Loan B owed to BOS (USA),
Inc. and Bank of Scotland remains outstanding, but not prior to that date. The
strike price is $2.3125 per share. In the event that prior to December 31, 2001
the Company either (a) refinances the $12 million Term Loan B with subordinated
debt, or (b) pays off the balance of Term Loan B from proceeds of an equity
offering, then the option to acquire a warrant for 1,975,000 shares of
non-voting Common Stock will terminate. BOS (USA), Inc. and the Company
extended the initial exercise date for this option to acquire a warrant for
1,975,000 shares from August 31, 2001 to December 31, 2001. BOS (USA), Inc.
and the Company extended the exercise date to allow the Company additional time
to pursue possible restructure alternatives which would otherwise be limited
due to change of control issues related to its substantial net operating loss
carry forwards (NOLs).

6



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

BOS (USA), Inc. also has a warrant to purchase 425,000 shares of the
Companys voting Common Stock at $2.3125 per share. In the event that Term Loan
B is terminated prior to December 31, 2001 through a transaction involving the
issuance of warrants, BOS (USA), Inc. is entitled to additional warrants in
connection with this existing warrant for 425,000 shares to retain its ability
to acquire approximately 4.86% of the Companys voting Common Stock. BOS
(USA), Inc. and the Company amended the warrant to extend the date from August
31, 2001 to December 31, 2001 to correspond to the extension of the initial
exercise date of the option described in the preceding paragraph.

In the third quarter of 1999, dividends on the Companys adjusting rate
preferred stock were suspended. At September 30, 2001, accumulated dividends in
arrears on such preferred stock totaled $5.8 million, or $4.725 per share.
Since the Company failed to pay quarterly dividends for six consecutive
quarters, the holders of adjusting rate preferred stock are entitled to elect
two directors to the Companys Board until cumulative dividends have been paid
in full. Dividends on outstanding preferred stock of FirstCity will be
restricted until Term Loan B is paid in full. Given the continued high debt
levels of the Company, and managements priority of assuring adequate levels of
liquidity, the Company does not anticipate that preferred dividends will be
paid in the foreseeable future. Management continues to evaluate various
alternatives to maximize long term stockholder value, including an overall
corporate restructure.

During the second quarter of 2000, the Portfolio Asset acquisition and
resolution group of the Company entered into a $17 million loan facility with
Cargill Financial Services Corporation (Cargill). In January 2001, the
maximum principal balance under this revolving facility was increased to $30
million. This facility is being used exclusively to provide equity in new
portfolio acquisitions in partnerships with Cargill.

On July 3, 2001, BOS (USA), Inc. provided a $3.7 million Term Loan C to
the Company to allow an affiliate of Commercial Corp. to invest in an investor
in an Acquisition Partnership, which was acquiring Portfolio Assets in Mexico.
Term Loan C, secured by the ownership interests in a lender to and an investor
in the Acquisition Partnership, provides for an interest rate of prime plus 7%
and matures on December 31, 2001. Term Loan C also provides for a $.2 million
fee to be paid to BOS (USA), Inc. At September 30, 2001, the outstanding
balance on this loan was $.9 million.

Management believes that the BOS (USA), Inc. loan facilities along with
the liquidity from the Cargill line, the related fees generated from the
servicing of assets and equity distributions from existing Acquisition
Partnerships and wholly owned portfolios will allow the Company to meet its
obligations as they come due during the next twelve months.

(3) New Accounting Pronouncements

Statements of Financial Accounting Standards (SFAS) 133 and 138,
Accounting for Derivative Instruments and Hedging Activities,requires
companies to recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. SFAS 133 and 138
require that changes in fair value of a derivative be recognized currently in
operations unless specific hedge accounting criteria are met. The Company
adopted SFAS 133 and 138 on January 1, 2001, and there was no direct impact on
the consolidated financial statements, as the Company had no derivatives.
However, the Company has equity investments in two Acquisition Partnerships,
which have recorded liabilities associated with investments in interest rate
swap contracts, which are not accounted for as hedges of other assets
and liabilities. Through September 30, 2001, these Acquisition Partnerships
have recorded $2.3 million of expenses to adjust these liabilities to fair
value, of which the Company has reflected $.5 million as a reduction in equity
in earnings of investments in the consolidated financial statements.

In September 2000, the Financial Accounting Standards Board (FASB)
issued SFAS 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities  a Replacement of FASB
Statement No. 125. This Statement revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS 125s provisions without
reconsideration. SFAS 140 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001. SFAS
140 is effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. In connection with discontinued
operations, the Company has investment securities resulting from the retention
of residual interests in securitization transactions. The Company also has an
equity interest in one Acquisition Partnership, which has investment securities
resulting from the retention of residual interests in securitization
transactions. Management believes that the adoption of this statement will not
have a material impact on the consolidated financial statements.

In April 2001, the Company adopted the Financial Accounting Standards
Boards Emerging Issues Task Force Abstract 99-20,

7



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets(EITF 99-20), which
requires that other-than-temporary impairments in beneficial interests be
written down to fair value with the resulting change being included in income.
The implementation of EITF 99-20 required Drive to record a charge to earnings
for other-than-temporary impairments on retained beneficial interests in
certain securitized assets, which had previously been recorded as unrealized
losses. As a result, in the second quarter of 2001, the Company recognized a
charge for the cumulative effect of a change in accounting principle of $.3
million relating to the Companys equity investment in Drive.

In July 2001, the FASB issued SFAS 141, Business Combinations, and SFAS
142, Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized but instead be tested for
impairment at least annually. The Company is required to adopt the provisions
of SFAS 141 immediately and SFAS 142 effective January 1, 2002. Management
believes that the impact of adopting SFAS 141 and 142 will not have a material
impact on the consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses the
accounting model for long-lived assets to be disposed of by sale and resulting
implementation issues. This statement requires that those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. It
also broadens the reporting of discontinued operations to include all
components of an entity with operations that can be distinguished from the rest
of the entity and that will be eliminated from the ongoing operations of the
entity in a disposal transaction. This statement is effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
Company will adopt SFAS No. 144 in the fiscal year beginning January 1, 2002
and is currently evaluating the effect on the Companys consolidated financial
position.

(4) Discontinued Operations

A provision of $3.0 million was recorded in the first nine months of 2001
resulting from increases in the loss assumptions for the estimated future gross
cash receipts on residual interests in securitizations ($5.0 million was
recorded in the first nine months of 2000). The net assets from discontinued
operations consist of the following:

|                                                                              |                                       |   |               |        |  |              |        |        | 
|----------------------------------------------------------------------------- | ------------------------------------- | - | ------------- | ------ |  | ------------ | ------ | ------ | 
|                                                                              |                                       |   | September 30, |        |  | December 31, |       
|                                                                              |                                       |   | 2001          |        |  | 2000         |       
|                                                                              |                                       |   |               |        |  |              |       
|Estimated future gross cash receipts on
residual interests in securitizations |                                       | $ | 20,513        |        |  | $            | 24,652 |       
|Accrual for loss on operations and disposal
of discontinued operations, net   |                                       |   | (2,055        | )      |  |              | (4,208 | )     
|                                                                              |                                       |   |               |        |  |             
|                                                                              | Net assets of discontinued operations |   | $             | 18,458 |  |              | $      | 20,444 | 
|                                                                              |                                       |   |               |        |  |             

The only assets remaining from discontinued operations are the investment
securities resulting from the retention of residual interests in securitization
transactions. The Company has considered the estimated future gross cash
receipts for such investment securities in the computation of the loss from
discontinued operations. The cash flows are collected over a period of time
and are valued using prepayment assumptions of 25% for fixed rate loans and 35%
to 50% for variable rate loans. Overall loss rates are estimated from 3.7% to
4.6% of collateral.

(5) Portfolio Assets

Portfolio Assets are summarized as follows:

|                                                                                  |                        |   |               |        |  |              |         |        | 
|--------------------------------------------------------------------------------- | ---------------------- | - | ------------- | ------ |  | ------------ | ------- | ------ | 
|                                                                                  |                        |   | September 30, |        |  | December 31, |        
|                                                                                  |                        |   | 2001          |        |  | 2000         |        
|                                                                                  |                        |   |               |        |  |              |        
|Non-performing Portfolio Assets                                                   |                        | $ | 47,504        |        |  | $            | 55,807  |       
|Performing Portfolio Assets                                                       |                        |   | 12,582        |        |  |              | 15,162  |       
|Real estate Portfolios                                                            |                        |   | 1,779         |        |  |              | 3,075   |       
|                                                                                  |                        |   |               |        |  |             
|                                                                                  | Total Portfolio Assets |   |               | 61,865 |  |              |         | 74,044 | 
|Adjusted purchase discount required to reflect Portfolio
Assets at carrying value |                        |   | (44,313       | )      |  |              | (44,026 | )     
|                                                                                  |                        |   |               |        |  |             
|                                                                                  | Portfolio Assets, net  |   | $             | 17,552 |  |              | $       | 30,018 | 
|                                                                                  |                        |   |               |        |  |             

Portfolio Assets are pledged to secure non-recourse notes payable.

8



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

(6) Loans Receivable

Other loans held for investment are primarily loans to certain Acquisition
Partnerships. Loans receivable are summarized as follows:

|                                |                       |   |               |        |  |              |        |        | 
|------------------------------- | --------------------- | - | ------------- | ------ |  | ------------ | ------ | ------ | 
|                                |                       |   | September 30, |        |  | December 31, |       
|                                |                       |   | 2001          |        |  | 2000         |       
|                                |                       |   |               |        |  |              |       
|Consumer finance receivables    |                       | $ | 162           |        |  | $            | 332    |       
|Other loans held for investment |                       |   | 20,097        |        |  |              | 14,207 |       
|                                |                       |   |               |        |  |             
|                                | Loans receivable, net |   | $             | 20,259 |  |              | $      | 14,539 | 
|                                |                       |   |               |        |  |             

(7) Equity Investments

The Company has investments in Acquisition Partnerships and their general
partners and investments in servicing entities that are accounted for under the
equity method. The condensed combined financial position and results of
operations of the Acquisition Partnerships, which include the domestic and
foreign Acquisition Partnerships and their general partners, are summarized
below:

CONDENSED COMBINED BALANCE SHEETS

|                                              |  |               |         |  |              |   |         | 
|--------------------------------------------- |  | ------------- | ------- |  | ------------ | - | ------- | 
|                                              |  | September 30, |         |  | December 31, |  
|                                              |  | 2001          |         |  | 2000         |  
|                                              |  |               |         |  |              |  
|Assets                                        |  | $             | 664,287 |  |              | $ | 603,353 | 
|                                              |  |               |         |  |              |  
|Liabilities                                   |  | $             | 526,729 |  |              | $ | 471,336 | 
|Net equity                                    |  |               | 137,558 |  |              |   | 132,017 | 
|                                              |  |               |         |  |              |  
|                                              |  | $             | 664,287 |  |              | $ | 603,353 | 
|                                              |  |               |         |  |              |  
|Equity investment in Acquisition Partnerships |  | $             | 37,906  |  |              | $ | 33,862  | 
|Equity investment in servicing entities       |  |               | 2,142   |  |              |   | 1,422   | 
|                                              |  |               |         |  |              |  
|                                              |  | $             | 40,048  |  |              | $ | 35,284  | 
|                                              |  |               |         |  |              |  

CONDENSED COMBINED SUMMARY OF OPERATIONS

|                                               |  |                    |        |  |                   |   |        |      |  |   |         |  |  |   |        | 
|---------------------------------------------- |  | ------------------ | ------ |  | ----------------- | - | ------ | ---- |  | - | ------- |  |  | - | ------ | 
|                                               |  | Three Months Ended |        |  | Nine Months Ended |  
|                                               |  | September 30,      |        |  | September 30,     |  
|                                               |  |                    |        |  |                   |  
|                                               |  | 2001               |        |  | 2000              |   |        | 2001 |  |   | 2000    | 
|                                               |  |                    |        |  |                   |   |        |      |  |   |         | 
|Proceeds from resolution of Portfolio Assets   |  | $                  | 59,265 |  |                   | $ | 30,872 |      |  | $ | 178,912 |  |  | $ | 99,173 | 
|Gain on resolution of Portfolio Assets         |  |                    | 24,082 |  |                   |   | 16,928 |      |  |   | 79,369  |  |  |   | 53,740 | 
|Interest income on performing Portfolio Assets |  |                    | 6,054  |  |                   |   | 4,576  |      |  |   | 18,746  |  |  |   | 13,781 | 
|Net earnings                                   |  |                    | 220    |  |                   |   | 9,754  |      |  |   | 11,730  |  |  |   | 32,585 | 
|                                               |  |                    |        |  |                   |   |        |      |  |   |         | 
|Equity in earnings of Acquisition Partnerships |  | $                  | 1,173  |  |                   | $ | 1,540  |      |  | $ | 7,839   |  |  | $ | 5,360  | 
|Equity in earnings of servicing entities       |  |                    | 10     |  |                   |   | 118    |      |  |   | 997     |  |  |   | 168    | 
|                                               |  |                    |        |  |                   |   |        |      |  |   |         | 
|                                               |  | $                  | 1,183  |  |                   | $ | 1,658  |      |  | $ | 8,836   |  |  | $ | 5,528  | 
|                                               |  |                    |        |  |                   |   |        |      |  |   |         | 

Since August 1, 2000, the Companys investment in Drive has been accounted
for under the equity method. The condensed consolidated financial position and
results of operations of Drive are summarized below:

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                      |                   |                         |         |               |       |   |              |         |       | 
|------------------------------------- | ----------------- | ----------------------- | ------- | ------------- | ----- | - | ------------ | ------- | ----- | 
|                                      |                   |                         |         | September 30, |       |   | December 31, |        
|                                      |                   |                         |         | 2001          |       |   | 2000         |        
|                                      |                   |                         |         |               |       |   |              |        
|Cash                                  |                   | $                       | 7,297   |               |       | $ | 10,567       |        
|Loans held for sale                   |                   |                         | 105,058 |               |       |   | 90,652       |        
|Residual interests in securitizations |                   |                         | 75,059  |               |       |   | 56,190       |        
|Other assets                          |                   |                         | 10,591  |               |       |   | 6,799        |        
|                                      |                   |                         |         |               |       |  
|                                      | Total assets      |                         | $       | 198,005       |       |   | $            | 164,208 |      
|                                      |                   |                         |         |               |       |  
|Notes payable                         |                   | $                       | 156,382 |               |       | $ | 143,923      |        
|Other liabilities                     |                   |                         | 16,045  |               |       |   | 10,638       |        
|                                      |                   |                         |         |               |       |  
|                                      | Total liabilities |                         |         | 172,427       |       |   |              | 154,561 |      
|Net equity                            |                   |                         | 25,578  |               |       |   | 9,647        |        
|                                      |                   |                         |         |               |       |  
|                                      |                   | $                       | 198,005 |               |       | $ | 164,208      |        
|                                      |                   |                         |         |               |       |  
|Equity investment in Drive            |                   | $                       | 9,909   |               |       | $ | 3,738        |        
|                                      | Minority interest |                         |         | (1,980        | )     |   |              | (748    | )    
|                                      |                   |                         |         |               |       |  
|                                      |                   | Net investment in Drive |         | $             | 7,929 |   |              | $       | 2,990 | 
|                                      |                   |                         |         |               |       |  

9



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS

|                                         |                                        |                                        |        |                    |        |   |                        |       |     |                    |        |        |       | 
|---------------------------------------- | -------------------------------------- | -------------------------------------- | ------ | ------------------ | ------ | - | ---------------------- | ----- | --- | ------------------ | ------ | ------ | ----- | 
|                                         |                                        |                                        |        | Three Months Ended |        |   | August 1, 2000 Through |       |     | Nine Months Ended  |       
|                                         |                                        |                                        |        | September 30, 2001 |        |   | September 30, 2000     |       |     | September 30, 2001 |       
|                                         |                                        |                                        |        |                    |        |   |                        |       |     |                    |       
|Interest income                          |                                        | $                                      | 9,431  |                    |        | $ | 5,412                  |       |     | $                  | 27,628 |       
|Gain on sale of loans                    |                                        |                                        | 3,042  |                    |        |   |                       |       |     |                    | 28,524 |       
|Service fees and other                   |                                        |                                        | 3,718  |                    |        |   | 1,017                  |       |     |                    | 6,157  |       
|                                         |                                        |                                        |        |                    |        |   |                        |       |    
|                                         | Revenues                               |                                        |        | 16,191             |        |   |                        | 6,429 |     |                    |        | 62,309 |      
|                                         |                                        |                                        |        |                    |        |   |                        |       |    
|Interest expense                         |                                        |                                        | 1,890  |                    |        |   | 2,113                  |       |     |                    | 9,097  |       
|Salaries and benefits                    |                                        |                                        | 8,351  |                    |        |   | 2,936                  |       |     |                    | 23,203 |       
|Provision for loan and
impairment losses |                                        |                                        | 2,224  |                    |        |   | 237                    |       |     |                    | 8,799  |       
|Other expenses                           |                                        |                                        | 8,117  |                    |        |   | 1,332                  |       |     |                    | 13,912 |       
|                                         |                                        |                                        |        |                    |        |   |                        |       |    
|                                         | Expenses                               |                                        |        | 20,582             |        |   |                        | 6,618 |     |                    |        | 55,011 |      
|                                         |                                        |                                        |        |                    |        |   |                        |       |    
|Net earnings (loss)                      |                                        | $                                      | (4,391 | )                  |        | $ | (189                   | )     |     | $                  | 7,298  |       
|                                         |                                        |                                        |        |                    |        |   |                        |       |    
|Equity in earnings (loss) of Drive       |                                        | $                                      | (1,702 | )                  |        | $ | (88                    | )     |     | $                  | 3,131  |       
|                                         | Cumulative effect of
accounting change |                                        |        |                   |        |   |                        |      |     |                    |        | (304   | )    
|                                         | Minority interest                      |                                        |        | 340                |        |   |                        | 29    |     |                    |        | (565   | )    
|                                         |                                        |                                        |        |                    |        |   |                        |       |    
|                                         |                                        | Net equity in earnings (loss)
of Drive |        | $                  | (1,362 | ) |                        | $     | (59 | )                  |        | $      | 2,262 | 
|                                         |                                        |                                        |        |                    |        |   |                        |       |    

In the nine months ended September 30, 2001, the Company recorded a $2.7
million addition to equity as a result of unrealized gains on residual
interests in securitization transactions held by Drive.

(8) Segment Reporting

The Company is engaged in two reportable segments (i) portfolio asset
acquisition and resolution; and (ii) consumer lending. These segments have been
segregated based on products and services offered by each. As a result of the
sale of a 49% equity interest in the Companys automobile finance operation,
the net operations of Drive have been recorded (since August 1, 2000) as equity
in earnings of investments. The following is a summary of results of operations
for each of the segments and a reconciliation to earnings (loss) from
continuing operations for the three months and nine months ended September 30,
2001 and 2000.

|                                            |                                                    |                                               |       |     |                    |        |   |                   |       |        |      |       |       |        |   |       |        |        | 
|------------------------------------------- | -------------------------------------------------- | --------------------------------------------- | ----- | --- | ------------------ | ------ | - | ----------------- | ----- | ------ | ---- | ----- | ----- | ------ | - | ----- | ------ | ------ | 
|                                            |                                                    |                                               |       |     | Three Months Ended |        |   | Nine Months Ended |      
|                                            |                                                    |                                               |       |     | September 30,      |        |   | September 30,     |      
|                                            |                                                    |                                               |       |     |                    |        |   |                   |      
|                                            |                                                    |                                               |       |     | 2001               |        |   | 2000              |       |        | 2001 |       |       | 2000   |  
|                                            |                                                    |                                               |       |     |                    |        |   |                   |       |        |      |       |       |        |  
|Portfolio Asset Acquisition and Resolution: |                                                    |                                               |       |     |                    |        |   |                   |       |        |      |       |       |        |   |      
|                                            | Revenues:                                          |                                               |       |     |                    |        |   |                   |       |        |      |       |       |        |   |       |       
|                                            |                                                    | Servicing fees                                |       | $   | 2,177              |        |   | $                 | 1,975 |        |      | $     | 7,846 |        |   | $     | 5,902  |       
|                                            |                                                    | Gain on resolution of Portfolio Assets        |       |     | 443                |        |   |                   | 993   |        |      |       | 875   |        |   |       | 2,763  |       
|                                            |                                                    | Equity in earnings of investments             |       |     | 1,183              |        |   |                   | 1,658 |        |      |       | 8,836 |        |   |       | 5,528  |       
|                                            |                                                    | Interest income                               |       |     | 1,733              |        |   |                   | 205   |        |      |       | 4,357 |        |   |       | 957    |       
|                                            |                                                    | Gain on sale of interest in equity investment |       |     | 182                |        |   |                   |      |        |      |       | 3,316 |        |   |       |       |       
|                                            |                                                    | Other                                         |       |     | 157                |        |   |                   | 107   |        |      |       | 703   |        |   |       | 993    |       
|                                            |                                                    |                                               |       |     |                    |        |   |                   |       |        |      |      
|                                            |                                                    |                                               | Total |     |                    | 5,875  |   |                   |       | 4,938  |      |       |       | 25,933 |   |       |        | 16,143 | 
|                                            | Expenses:                                          |                                               |       |     |                    |        |   |                   |       |        |      |       |       |        |   |       |       
|                                            |                                                    | Interest and fees on notes payable            |       |     | 1,178              |        |   |                   | 796   |        |      |       | 3,289 |        |   |       | 2,187  |       
|                                            |                                                    | Salaries and benefits                         |       |     | 1,775              |        |   |                   | 1,365 |        |      |       | 5,309 |        |   |       | 4,088  |       
|                                            |                                                    | Provision for loan and impairment losses      |       |     | 1,000              |        |   |                   |      |        |      |       | 3,128 |        |   |       | 1,604  |       
|                                            |                                                    | Occupancy, data processing, and other         |       |     | 1,742              |        |   |                   | 1,597 |        |      |       | 6,959 |        |   |       | 5,053  |       
|                                            |                                                    |                                               |       |     |                    |        |   |                   |       |        |      |      
|                                            |                                                    |                                               | Total |     |                    | 5,695  |   |                   |       | 3,758  |      |       |       | 18,685 |   |       |        | 12,932 | 
|                                            |                                                    |                                               |       |     |                    |        |   |                   |       |        |      |      
|                                            | Operating contribution (loss) before direct taxes  |                                               | $     | 180 |                    |        | $ | 1,180             |       |        | $    | 7,248 |       |        | $ | 3,211 |       
|                                            |                                                    |                                               |       |     |                    |        |   |                   |       |        |      |       |       |       
|                                            | Operating contribution (loss), net of direct taxes |                                               | $     | 153 |                    |        | $ | 1,086             |       |        | $    | 7,230 |       |        | $ | 3,099 |       
|                                            |                                                    |                                               |       |     |                    |        |   |                   |       |        |      |       |       |       
|Consumer Lending:                           |                                                    |                                               |       |     |                    |        |   |                   |       |        |      |       |       |        |   |      
|                                            | Revenues:                                          |                                               |       |     |                    |        |   |                   |       |        |      |       |       |        |   |       |       
|                                            |                                                    | Servicing fees                                |       | $   |                   |        |   | $                 | 578   |        |      | $     |      |        |   | $     | 3,887  |       
|                                            |                                                    | Equity in earnings (loss) of investment       |       |     | (1,702             | )      |   |                   | (88   | )      |      |       | 3,131 |        |   |       | (88    | )     
|                                            |                                                    | Interest income                               |       |     | 1                  |        |   |                   | 2,604 |        |      |       | 5     |        |   |       | 12,880 |       
|                                            |                                                    | Gain on sale of interest in subsidiary        |       |     |                   |        |   |                   | 8,091 |        |      |       |      |        |   |       | 8,091  |       
|                                            |                                                    | Gain on sale of automobile loans              |       |     |                   |        |   |                   |      |        |      |       |      |        |   |       | 2,836  |       
|                                            |                                                    | Other                                         |       |     |                   |        |   |                   | 15    |        |      |       | 2     |        |   |       | 92     |       
|                                            |                                                    |                                               |       |     |                    |        |   |                   |       |        |      |      
|                                            |                                                    |                                               | Total |     |                    | (1,701 | ) |                   |       | 11,200 |      |       |       | 3,138  |   |       |        | 27,698 | 
|                                            | Expenses:                                          |                                               |       |     |                    |        |   |                   |       |        |      |       |       |        |   |       |       
|                                            |                                                    | Interest and fees on notes payable            |       |     |                   |        |   |                   | 649   |        |      |       |      |        |   |       | 3,217  |       
|                                            |                                                    | Salaries and benefits                         |       |     |                   |        |   |                   | 2,122 |        |      |       |      |        |   |       | 7,316  |       

10



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                    |                                                                                   |                                          |                                                          |        |                    |        |   |                   |       |       |      |       |     |       |   |         |       |        | 
|------------------- | --------------------------------------------------------------------------------- | ---------------------------------------- | -------------------------------------------------------- | ------ | ------------------ | ------ | - | ----------------- | ----- | ----- | ---- | ----- | --- | ----- | - | ------- | ----- | ------ | 
|                    |                                                                                   |                                          |                                                          |        | Three Months Ended |        |   | Nine Months Ended |      
|                    |                                                                                   |                                          |                                                          |        | September 30,      |        |   | September 30,     |      
|                    |                                                                                   |                                          |                                                          |        |                    |        |   |                   |      
|                    |                                                                                   |                                          |                                                          |        | 2001               |        |   | 2000              |       |       | 2001 |       |     | 2000  |  
|                    |                                                                                   |                                          |                                                          |        |                    |        |   |                   |       |       |      |       |     |       |  
|                    |                                                                                   | Provision for loan and impairment losses |                                                          |        |                   |        |   |                   | 89    |       |      |       |    |       |   |         | 2,320 |       
|                    |                                                                                   | Occupancy, data processing and other     |                                                          |        | (334               | )      |   |                   | 1,577 |       |      |       | 910 |       |   |         | 6,138 |       
|                    |                                                                                   |                                          |                                                          |        |                    |        |   |                   |       |       |      |      
|                    |                                                                                   |                                          | Total                                                    |        |                    | (334   | ) |                   |       | 4,437 |      |       |     | 910   |   |         |       | 18,991 | 
|                    |                                                                                   |                                          |                                                          |        |                    |        |   |                   |       |       |      |      
|                    | Operating contribution (loss) before direct taxes                                 |                                          | $                                                        | (1,367 | )                  |        | $ | 6,763             |       |       | $    | 2,228 |     |       | $ | 8,707   |      
|                    |                                                                                   |                                          |                                                          |        |                    |        |   |                   |       |       |      |       |     |      
|                    | Operating contribution (loss), net of direct taxes                                |                                          | $                                                        | (1,367 | )                  |        | $ | 6,763             |       |       | $    | 2,228 |     |       | $ | 8,699   |      
|                    |                                                                                   |                                          |                                                          |        |                    |        |   |                   |       |       |      |       |     |      
|                    |                                                                                   |                                          | Total operating contribution (loss), net of direct
taxes |        | $                  | (1,214 | ) |                   | $     | 7,849 |      |       | $   | 9,458 |   |         | $     | 11,798 | 
|Corporate Overhead: |                                                                                   |                                          |                                                          |        |                    |        |   |                   |       |       |      |       |     |       |   |        
|                    | Corporate interest expense                                                        |                                          |                                                          | 1,102  |                    |        |   | 2,905             |       |       |      | 3,745 |     |       |   | 10,649  |      
|                    | Salaries and benefits, occupancy, professional and
other income and expenses, net |                                          |                                                          | 1,289  |                    |        |   | 2,059             |       |       |      | 3,829 |     |       |   | 5,371   |      
|                    | Deferred tax provision from NOLs                                                  |                                          |                                                          |       |                    |        |   |                  |       |       |      |      |     |       |   | 7,000   |      
|                    |                                                                                   |                                          |                                                          |        |                    |        |   |                   |       |       |      |       |     |      
|                    | Earnings (loss) from continuing operations                                        |                                          | $                                                        | (3,605 | )                  |        | $ | 2,885             |       |       | $    | 1,884 |     |       | $ | (11,222 | )    
|                    |                                                                                   |                                          |                                                          |        |                    |        |   |                   |       |       |      |       |     |      

Revenues from the Portfolio Asset acquisition and resolution business by
geographic region for the periods indicated are summarized as follows:

|         |       |   |                    |       |  |                   |       |       |      |   |        |        |  |   |        |        | 
|-------- | ----- | - | ------------------ | ----- |  | ----------------- | ----- | ----- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|         |       |   | Three Months Ended |       |  | Nine Months Ended |      
|         |       |   | September 30,      |       |  | September 30,     |      
|         |       |   |                    |       |  |                   |      
|         |       |   | 2001               |       |  | 2000              |       |       | 2001 |   |        | 2000   | 
|         |       |   |                    |       |  |                   |       |       |      |   |        |        | 
|Domestic |       | $ | 3,122              |       |  | $                 | 2,703 |       |      | $ | 15,577 |        |  | $ | 10,116 |       
|Mexico   |       |   | 2,047              |       |  |                   | 1,539 |       |      |   | 7,040  |        |  |   | 4,088  |       
|France   |       |   | 706                |       |  |                   | 696   |       |      |   | 3,296  |        |  |   | 1,939  |       
|Other    |       |   |                   |       |  |                   |      |       |      |   | 20     |        |  |   |       |       
|         |       |   |                    |       |  |                   |       |       |      |   |        |       
|         | Total |   | $                  | 5,875 |  |                   | $     | 4,938 |      |   | $      | 25,933 |  |   | $      | 16,143 | 
|         |       |   |                    |       |  |                   |       |       |      |   |        |       

Total assets for each of the segments and a reconciliation to total assets
is as follows:

|                                                     |        |              |        |               |         |   |              |        |         | 
|---------------------------------------------------- | ------ | ------------ | ------ | ------------- | ------- | - | ------------ | ------ | ------- | 
|                                                     |        |              |        | September 30, |         |   | December 31, |       
|                                                     |        |              |        | 2001          |         |   | 2000         |       
|                                                     |        |              |        |               |         |   |              |       
|Portfolio acquisition and resolution assets
Domestic |        | $            | 48,976 |               |         | $ | 55,218       |       
|                                                     | Mexico |              |        | 19,984        |         |   |              | 15,521 |        
|                                                     | France |              |        | 9,150         |         |   |              | 8,828  |        
|Consumer assets                                      |        |              | 10,071 |               |         |   | 4,069        |       
|Deferred tax benefit, net                            |        |              | 20,101 |               |         |   | 20,101       |       
|Other assets, net                                    |        |              | 16,156 |               |         |   | 16,810       |       
|Net assets of discontinued operations                |        |              | 18,458 |               |         |   | 20,444       |       
|                                                     |        |              |        |               |         |  
|                                                     |        | Total assets |        | $             | 142,896 |   |              | $      | 140,991 | 
|                                                     |        |              |        |               |         |  

(9) Income Taxes

Federal income taxes are provided at a 35% rate. The Company has
substantial NOLs, which can be used to offset the tax liability associated with
the Companys pre-tax earnings until the earlier of the expiration or
utilization of such NOLs. The Company accounts for the benefit of the NOLs by
recording the benefit as an asset and then establishing an allowance to value
the net deferred tax asset at a value commensurate with the Companys
expectation of being able to utilize the recognized benefit in the foreseeable
future. Such estimates are reevaluated on a quarterly basis with the adjustment
to the allowance recorded as an adjustment to the income tax expense generated
by the quarterly operating results. Significant events that change the
Companys view of its currently estimated ability to utilize the tax benefits
result in changes to the estimated allowance required to value the deferred tax
benefits recognized in the Companys periodic financial statements. During the
nine months ended September 30, 2001, management deemed that an adjustment to
the valuation allowance was not necessary. In 2000, the Companys analysis
resulted in an increase to the valuation allowance of $7.0 million. Additional
events could occur in the future that may impact the quarterly recognition of
the Companys estimate of the required valuation allowance associated with its
NOLs. Although realization is not assured, management believes it is more
likely than not that all of the recorded deferred tax asset will be realized.

(10) Commitments and Contingencies

The Company and Harbor Financial Group, Inc. (formerly known as FirstCity
Financial Mortgage Corporation) filed suit in the Federal District Court for
the Western District of Texas, Waco Division, against Chase Bank of Texas, N.A.
and Chase Securities, Inc. in September 1999 seeking injunctive relief and
damages resulting from alleged violations by the defendants of the Bank Holding

11



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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Company Act and from civil conspiracy engaged in by the defendants, arising
from an engagement letter entered into between the Company and Chase
Securities, Inc. relating to the sale of assets or securities of Harbor
Financial Group, Inc., Harbor Financial Mortgage Corporation and their
subsidiaries (collectively Harbor). The Company alleged that the conditioning
of Chase Bank of Texas, N.A.s extension of credit to Harbor on the retention
of Chase Securities, Inc. by the Company and Harbor violated the Bank Holding
Company Act. The Company additionally sought a judicial declaration that the
plaintiffs were not obligated to pay any commission to Chase Securities, Inc.
under the engagement letter. The actual damages sought by the Company were in
excess of $200 million. The Company also sought recovery of three times its
damages pursuant to the Bank Holding Company Act and recovery of its costs of
court, including reasonable attorneys fees. A motion to dismiss the Texas suit
was granted based upon a provision in the engagement letter that provided that
any suit arising from the engagement letter would be pursued in the State of
New York. The Company has requested leave of the Supreme Court for the State of
New York to amend its answer in that proceeding to include these claims as a
counterclaim to the suit brought by Chase Securities, Inc. and an action
against Chase Bank of Texas, N.A.

On October 4, 1999, Chase Securities, Inc. filed suit against the Company
before the Supreme Court for the State of New York, County of New York:
Commercial Part seeking recovery of $2.4 million as the balance of a
transaction fee allegedly due it under the terms of the engagement letter and
other just and proper relief. The Company denies that it has any liability to
Chase Securities, Inc. and intends to vigorously defend the suit. The Company
has asserted as a defense to this action the violations of the Bank Holding
Company Act asserted in the litigation filed in the Federal District Court for
the Western District of Texas. The Company has sought leave to amend its answer
in the suit to include a counterclaim against Chase Securities, Inc. and an
action against Chase Bank of Texas, N.A. under the Bank Holding Company Act as
was asserted in the Texas suit.

On October 14, 1999, Harbor Financial Group, Inc. (Harbor Parent),
Harbor Financial Mortgage Corporation (Harbor) and four subsidiaries of
Harbor filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code before the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division. On December 14, 1999, the bankruptcy
proceedings were converted to liquidations under Chapter 7 of the United States
Bankruptcy Code. John H. Litzler, the Chapter 7 Trustee in the bankruptcy
proceedings (the Trustee), initiated adversary proceedings on May 25, 2001
against FirstCity and various current and former directors and officers of
FirstCity and Harbor alleging breach of fiduciary duties, mismanagement, and
self-dealing by FirstCity and Harbor directors and officers, and improper
transfer of funds from the Harbor related entities to FirstCity. The claims
also include fraudulent and preferential transfer of assets of the Harbor
entities, fraud and conspiracy. The Trustee, FirstCity and the other
defendants have reached terms of an agreement to compromise the claims brought
in the adversary proceedings, subject to the approval of the Bankruptcy Court
and the consent of all necessary insurers of FirstCity and its subsidiaries and
affiliates. Under the proposed settlement, if approved, the Trustee will
release the defendants, their affiliates and subsidiaries from any and all
claims which were brought or could have been brought by the Trustee against any
of the defendants, any past and present officers and directors of FirstCity or
any affiliates or subsidiaries of FirstCity in consideration of the payment of
$3.8 million cash and the release of any and all claims of FirstCity and its
affiliates and subsidiaries and of the individual defendants in the bankruptcy
proceedings against the Trustee, including administrative and expense claims.
Neither the consent of the necessary insurers nor the approval of the
Bankruptcy Court of the proposed terms of settlement has been obtained, and
there can be no assurance that such consent and approval will be secured. In
the event that carrier consent or bankruptcy court approval is not obtained,
FirstCity intends to vigorously contest the claims of the Trustee, as it
believes that the claims are without merit and that it has valid defenses to
these claims.

Periodically, the Company, its subsidiaries, its affiliates and the
Acquisition Partnerships are parties to or otherwise involved in legal
proceedings arising in the normal course of business. The Company does not
believe that there is any proceeding threatened or pending against it, its
subsidiaries, its affiliates or the Acquisition Partnerships which, if
determined adversely, would have a material adverse effect on the consolidated
financial position, results of operations or liquidity of the Company, its
subsidiaries, its affiliates or the Acquisition Partnerships.

The Company is a 50% owner in an entity that is obligated to advance up to
$2.5 million toward the acquisition of Portfolio Assets from financial
institutions in California. At September 30, 2001, advances of $2.4 million had
been made under the obligation.

In connection with the transactions contemplated by the Securities
Purchase Agreement, effective August 1, 2000, Consumer Corp. and Funding LP
contributed all of the assets utilized in the operations of the automobile
finance operation to Drive pursuant to the terms of a Contribution and
Assumption Agreement by and between Consumer Corp. and Drive, and a
Contribution and Assumption Agreement by and between Funding LP and Drive
(collectively, the Contribution Agreements). Drive assumed substantially all
of the liabilities of the automobile finance operation as set forth in the
Contribution Agreements.

In addition, in the Securities Purchase Agreement, the Company, Consumer
Corp., Funding LP and Funding GP made various

12



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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

representations and warranties concerning (i) their respective
organizations, (ii) the automobile finance operation conducted by Consumer
Corp. and Funding LP, and (iii) the assets transferred by Consumer Corp. and
Funding LP to Drive. The Company, Consumer Corp., Funding LP and Funding GP
also agreed to indemnify IFA, IFA-GP and IFA-LP from damages resulting from a
breach of any representation or warranty contained in the Securities Purchase
Agreement or otherwise made by the Company, Consumer Corp. or Funding LP in
connection with the transaction. The indemnity obligation under the Securities
Purchase Agreement survives for a period of seven (7) years from August 25,
2000 (the Closing Date) with respect to tax-related representations and
warranties and for thirty months from the Closing Date with respect to all
other representations and warranties. Neither the Company, Consumer Corp.,
Funding LP, or Funding GP is required to make any payments as a result of the
indemnity provided under the Securities Purchase Agreement until the aggregate
amount payable exceeds $.25 million, and then only for the amount in excess of
$.25 million in the aggregate; however certain representations and warranties
are not subject to this $.25 million threshold. Pursuant to the terms of the
Contribution Agreements, Consumer Corp. and Funding LP have agreed to indemnify
Drive from any damages resulting in a material adverse effect on Drive
resulting from breaches of representations or warranties, failure to perform,
pay or discharge liabilities other than the assumed liabilities, or claims,
lawsuits or proceedings resulting from the transactions contemplated by the
Contribution Agreements. Pursuant to the terms of the Contribution Agreements,
Drive has agreed to indemnify Consumer Corp. and Funding LP for any breach of
any representation or warranty by Drive, the failure of Drive to discharge any
assumed liability, or any claims arising out of any failure by Drive to
properly service receivables after August 1, 2000. Liability for
indemnification pursuant to the terms of the Contribution Agreements will not
arise until the total of all losses with respect to such matters exceeds $.25
million and then only for the amount by which such losses exceed $.25 million;
however this limitation will not apply to any breach of which the party had
knowledge at the time of the Closing Date or any intentional breach by a party
of any covenant or obligation under the Contribution Agreements.

The Company also provided a guaranty limited to a maximum of up to $4
million of a $60 million loan to Drive by BOS (USA), Inc. The Company,
Consumer Corp. and Funding L.P. secured the guaranty with security interests in
their respective ownership interest in Consumer Corp., Funding L.P. and Drive.

13



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##### 



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The Company is a financial services company engaged in Portfolio Asset
acquisition and resolution through its subsidiary, FirstCity Commercial
Corporation, and other subsidiaries and affiliates of FirstCity Commercial
Corporation (collectively Commercial Corp.), and consumer lending through its
investment in Drive. The Portfolio Asset acquisition and resolution business
involves acquiring Portfolio Assets at a discount to face value and servicing
and resolving such portfolios in an effort to maximize the present value of the
ultimate cash recoveries. The consumer lending business involves the
acquisition, origination, warehousing, securitization and servicing of consumer
receivables by Drive. Drives current consumer lending operations are focused
on the acquisition of sub-prime automobile receivables.

The Company reported a loss from continuing operations for the quarter
ended September 30, 2001 of $3.6 million. After a provision of $2.0 million
for discontinued operations and accrued and unpaid dividends of $.6 million on
the Companys preferred stock, net loss to common stockholders was $6.2 million
or $0.75 per share on a diluted basis. Components of quarterly earnings for
the third quarter 2001, compared to the third quarter 2000 were as follows:

|                                                  |                                            |   |                    |        |   |      |        |       | 
|------------------------------------------------- | ------------------------------------------ | - | ------------------ | ------ | - | ---- | ------ | ----- | 
|                                                  |                                            |   | Three Months Ended |       
|                                                  |                                            |   | September 30,      |       
|                                                  |                                            |   |                    |       
|                                                  |                                            |   | 2001               |        |   | 2000 |       
|                                                  |                                            |   |                    |        |   |      |       
|Portfolio Asset Acquisition and Resolution        |                                            | $ | 153                |        |   | $    | 1,086  |      
|Consumer                                          |                                            |   | (1,367             | )      |   |      | 6,763  |      
|Corporate interest                                |                                            |   | (1,102             | )      |   |      | (2,905 | )    
|Corporate overhead                                |                                            |   | (1,289             | )      |   |      | (2,059 | )    
|Discontinued operations                           |                                            |   | (2,000             | )      |   |      |       |      
|Extraordinary gain (early extinguishment of debt) |                                            |   |                   |        |   |      | 833    |      
|Accrued preferred dividends                       |                                            |   | (642               | )      |   |      | (642   | )    
|                                                  |                                            |   |                    |        |   |     
|                                                  | Net earnings (loss) to common shareholders |   | $                  | (6,247 | ) |      | $      | 3,076 | 
|                                                  |                                            |   |                    |        |   |     

The Companys financial results are affected by many factors including
levels of and fluctuations in interest rates, fluctuations in the underlying
values of real estate and other assets, the timing of and ability to liquidate
assets, and the availability and prices for loans and assets acquired in all of
the Companys businesses. The Companys business and results of operations are
also affected by the availability of financing with terms acceptable to the
Company and the Companys access to capital markets, including the
securitization markets.

As a result of the significant period to period fluctuations in the
revenues and earnings or losses of the Companys Portfolio Asset acquisition
and resolution business, the sale of the Companys interest in its automobile
finance operation, and the timing of securitization transactions of Drive
(previously performed by Consumer Corp.), period to period comparisons of the
Companys results of continuing operations may not be meaningful.

Analysis of Revenues and Expenses

The Company reported net loss to common stockholders for the quarter ended
September 30, 2001 of $6.2 million. As a result of the sale of interest in the
automobile finance operation, the net operations of Drive have been recorded
(since August 1, 2000) as equity in earnings of investments.

Portfolio Asset Acquisition and Resolution

Aggregate acquisitions by the Company are as follows (dollars in
thousands):

|                       |  |          |         |  |             |   |        | 
|---------------------- |  | -------- | ------- |  | ----------- | - | ------ | 
|                       |  | Purchase |         |  | FirstCity's |  
|                       |  | Price    |         |  | Investment  |  
|                       |  |          |         |  |             |  
|First Nine Months 2001 |  | $        | 172,898 |  |             | $ | 18,552 | 
|Total 2000             |  |          | 394,927 |  |             |   | 22,140 | 
|Total 1999             |  |          | 210,799 |  |             |   | 11,203 | 
|Total 1998             |  |          | 139,691 |  |             |   | 28,478 | 
|Total 1997             |  |          | 183,229 |  |             |   | 37,109 | 

14



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##### 



The Company believes that the prospects for investment in distressed
assets in 2001 continue to be favorable. The Company is pleased with the level
and execution of acquisitions to date.

The following table presents selected information regarding the revenues
and expenses of the Companys Portfolio Asset acquisition and resolution
business.

Analysis of Selected Revenues and Expenses
Portfolio Asset Acquisition and Resolution

|                                                                          |                                          |       |        |                    |     |   |                   |        |     |      |        |        |      |   |        |        |       | 
|------------------------------------------------------------------------- | ---------------------------------------- | ----- | ------ | ------------------ | --- | - | ----------------- | ------ | --- | ---- | ------ | ------ | ---- | - | ------ | ------ | ----- | 
|                                                                          |                                          |       |        | Three Months Ended |     |   | Nine Months Ended |       
|                                                                          |                                          |       |        | September 30,      |     |   | September 30,     |       
|                                                                          |                                          |       |        |                    |     |   |                   |       
|                                                                          |                                          |       |        | 2001               |     |   | 2000              |        |     | 2001 |        |        | 2000 |  
|                                                                          |                                          |       |        |                    |     |   |                   |        |     |      |        |        |      |  
|Gain on resolution of Portfolio Assets:                                   |                                          |       |        |                    |     |   |                   |        |     |      |        |        |      |   |        |       
|Average investment:                                                       |                                          |       |        |                    |     |   |                   |        |     |      |        |        |      |   |        |       
|                                                                          | Nonperforming Portfolios                 |       | $      | 8,004              |     |   | $                 | 19,179 |     |      | $      | 11,637 |      |   | $      | 23,034 |      
|                                                                          | Performing Portfolios                    |       |        | 9,235              |     |   |                   | 2,571  |     |      |        | 10,058 |      |   |        | 3,290  |      
|                                                                          | Real estate Portfolios                   |       |        | 2,310              |     |   |                   | 4,607  |     |      |        | 2,727  |      |   |        | 6,017  |      
|                                                                          | Loans receivable                         |       |        | 21,373             |     |   |                   | 7,281  |     |      |        | 18,144 |      |   |        | 4,492  |      
|Gain on resolution of Portfolio Assets:                                   |                                          |       |        |                    |     |   |                   |        |     |      |        |        |      |   |        |       
|                                                                          | Nonperforming Portfolios                 |       |        | 425                |     |   |                   | 746    |     |      |        | 838    |      |   |        | 2,086  |      
|                                                                          | Performing Portfolios                    |       |        |                   |     |   |                   | 185    |     |      |        |       |      |   |        | 185    |      
|                                                                          | Real estate Portfolios                   |       |        | 18                 |     |   |                   | 62     |     |      |        | 37     |      |   |        | 492    |      
|                                                                          |                                          |       |        |                    |     |   |                   |        |     |      |        |        |     
|                                                                          |                                          | Total |        | $                  | 443 |   |                   | $      | 993 |      |        | $      | 875  |   |        | $      | 2,763 | 
|Interest income on performing Portfolios
and loans receivable             |                                          | $     | 1,656  |                    |     | $ | 205               |        |     | $    | 4,174  |        |      | $ | 842    |       
|Gross profit percentage on resolution of
Portfolio Assets:                |                                          |       |        |                    |     |   |                   |        |     |      |        |        |      |   |        |       
|                                                                          | Nonperforming Portfolios                 |       |        | 10.69              | %   |   |                   | 19.35  | %   |      |        | 11.90  | %    |   |        | 23.30  | %    
|                                                                          | Performing Portfolios                    |       |        |                   |     |   |                   | 24.58  | %   |      |        |       |      |   |        | 24.58  | %    
|                                                                          | Real estate Portfolios                   |       |        | 16.83              | %   |   |                   | 17.89  | %   |      |        | 14.79  | %    |   |        | 23.72  | %    
|                                                                          | Weighted average gross profit percentage |       |        | 10.84              | %   |   |                   | 20.04  | %   |      |        | 12.00  | %    |   |        | 23.45  | %    
|Interest yield on performing Portfolios
and loans receivable (annualized) |                                          |       | 21.64  | %                  |     |   | 8.32              | %      |     |      | 19.73  | %      |      |   | 14.43  | %     
|Gain on sale of equity investment                                         |                                          | $     | 182    |                    |     | $ |                  |        |     | $    | 3,316  |        |      | $ |       |       
|Servicing fee revenues                                                    |                                          | $     | 2,177  |                    |     | $ | 1,975             |        |     | $    | 7,846  |        |      | $ | 5,902  |       
|Personnel:                                                                |                                          |       |        |                    |     |   |                   |        |     |      |        |        |      |   |        |       
|Personnel expenses                                                        |                                          | $     | 1,775  |                    |     | $ | 1,365             |        |     | $    | 5,309  |        |      | $ | 4,088  |       
|Number of personnel (at period end):                                      |                                          |       |        |                    |     |   |                   |        |     |      |        |        |      |   |        |       
|                                                                          | Production                               |       |        | 25                 |     |   |                   | 21     |     |      |        |        |      |   |        |        |      
|                                                                          | Servicing                                |       |        | 99                 |     |   |                   | 75     |     |      |        |        |      |   |        |        |      
|Interest expense:                                                         |                                          |       |        |                    |     |   |                   |        |     |      |        |        |      |   |        |       
|Average debt                                                              |                                          | $     | 43,704 |                    |     | $ | 29,260            |        |     | $    | 43,186 |        |      | $ | 30,388 |       
|Interest expense                                                          |                                          |       | 1,178  |                    |     |   | 796               |        |     |      | 3,289  |        |      |   | 2,187  |       
|Average cost (annualized)                                                 |                                          |       | 10.78  | %                  |     |   | 10.88             | %      |     |      | 10.15  | %      |      |   | 9.60   | %     

15



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##### 



The following table presents selected information regarding the revenues
and expenses of the Acquisition Partnerships.

Analysis of Selected Revenues and Expenses
Acquisition Partnerships

|                                               |                                                           |                      |       |                    |        |   |                   |        |       |      |       |        |        |   |       |        |        | 
|---------------------------------------------- | --------------------------------------------------------- | -------------------- | ----- | ------------------ | ------ | - | ----------------- | ------ | ----- | ---- | ----- | ------ | ------ | - | ----- | ------ | ------ | 
|                                               |                                                           |                      |       | Three Months Ended |        |   | Nine Months Ended |       
|                                               |                                                           |                      |       | September 30,      |        |   | September 30,     |       
|                                               |                                                           |                      |       |                    |        |   |                   |       
|                                               |                                                           |                      |       | 2001               |        |   | 2000              |        |       | 2001 |       |        | 2000   |  
|                                               |                                                           |                      |       |                    |        |   |                   |        |       |      |       |        |        |  
|Revenues:                                      |                                                           |                      |       |                    |        |   |                   |        |       |      |       |        |        |   |       |       
|                                               | Gain on resolution of Portfolio Assets                    |                      | $     | 24,082             |        |   | $                 | 16,928 |       |      | $     | 79,369 |        |   | $     | 53,740 |       
|                                               | Gross profit percentage on resolution of Portfolio
Assets |                      |       | 40.63              | %      |   |                   | 54.83  | %     |      |       | 44.36  | %      |   |       | 54.19  | %     
|                                               | Interest income                                           |                      | $     | 6,054              |        |   | $                 | 4,576  |       |      | $     | 18,746 |        |   | $     | 13,781 |       
|                                               | Other income                                              |                      |       | 609                |        |   |                   | 381    |       |      |       | 2,327  |        |   |       | 1,520  |       
|Interest expense(1):                           |                                                           |                      |       |                    |        |   |                   |        |       |      |       |        |        |   |       |       
|                                               | Interest expense                                          |                      | $     | 18,844             |        |   | $                 | 8,763  |       |      | $     | 54,068 |        |   | $     | 24,175 |       
|                                               | Average cost (annualized)                                 |                      |       | 15.79              | %      |   |                   | 10.99  | %     |      |       | 15.21  | %      |   |       | 12.26  | %     
|Other expenses:                                |                                                           |                      |       |                    |        |   |                   |        |       |      |       |        |        |   |       |       
|                                               | Service fees                                              |                      |       | 3,417              |        |   |                   | 2,462  |       |      |       | 9,736  |        |   |       | 5,908  |       
|                                               | Other operating costs                                     |                      |       | 4,992              |        |   |                   | 1,365  |       |      |       | 14,542 |        |   |       | 7,051  |       
|                                               | Income taxes                                              |                      |       | 2,743              |        |   |                   | 931    |       |      |       | 17,235 |        |   |       | 916    |       
|                                               | Foreign currency transaction (gain) loss                  |                      |       | 529                |        |   |                   | (1,390 | )     |      |       | (6,869 | )      |   |       | (1,594 | )     
|                                               |                                                           |                      |       |                    |        |   |                   |        |       |      |       |       
|                                               |                                                           | Total other expenses |       |                    | 11,681 |   |                   |        | 3,368 |      |       |        | 34,644 |   |       |        | 12,281 | 
|                                               |                                                           |                      |       |                    |        |   |                   |        |       |      |       |       
|                                               |                                                           | Net earnings         |       | $                  | 220    |   |                   | $      | 9,754 |      |       | $      | 11,730 |   |       | $      | 32,585 | 
|                                               |                                                           |                      |       |                    |        |   |                   |        |       |      |       |        |       
|Equity in earnings of Acquisition Partnerships |                                                           | $                    | 1,173 |                    |        | $ | 1,540             |        |       | $    | 7,839 |        |        | $ | 5,360 |       
|Equity in earnings of Servicing Entities       |                                                           |                      | 10    |                    |        |   | 118               |        |       |      | 997   |        |        |   | 168   |       
|                                               |                                                           |                      |       |                    |        |   |                   |        |       |      |       |       
|                                               |                                                           | $                    | 1,183 |                    |        | $ | 1,658             |        |       | $    | 8,836 |        |        | $ | 5,528 |       
|                                               |                                                           |                      |       |                    |        |   |                   |        |       |      |       |        |       



---

|(1) |  | Interest expense includes interest on loans to the Acquisition
Partnerships located in Mexico from affiliates of the investor groups. The
rates on these loans range between 19% and 20%. The average cost on debt
excluding the Mexican Acquisition Partnerships was 7.14% and 10.55% for
the three months ended September 30, 2001 and 2000, respectively, and
8.01% and 9.82% for the nine months ended September 30, 2001 and 2000,
respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Consumer Lending

During the quarter ended September 30, 2001, Consumer Corp. recorded a
loss of $1.4 million. Earnings from Consumer Corp. originate
primarily from Consumer Corp.'s 31%
interest in Drive, whose earnings correlate closely with the timing, size and
execution of securitizations of originated automobile receivables at Drive.
The loss of Drive resulted from the lack of a securitization during the
quarter. Drive originated $100 million of automobile receivables during the
quarter ended September 30, 2001, and the Company currently expects that a
securitization of approximately $125 million of automobile receivables may
close before year-end.

Provision for Income Taxes

The Company has substantial NOLs, which can be used to offset the tax
liability associated with the Companys pre-tax earnings until the earlier of
the expiration or utilization of such NOLs. The Company accounts for the
benefit of the NOLs by recording the benefit as an asset and then establishing
an allowance to value the net deferred tax asset at a value commensurate with
the Companys expectation of being able to utilize the recognized benefit in
the foreseeable future. Such estimates are reevaluated on a quarterly basis
with the adjustment to the allowance recorded as an adjustment to the income
tax expense generated by the quarterly operating results. Significant events
that change the Companys view of its currently estimated ability to utilize
the tax benefits result in substantial changes to the estimated allowance
required to value the deferred tax benefits recognized in the Companys
periodic financial statements. During the nine months ended September 30, 2001,
management deemed that an adjustment to the valuation allowance was not
necessary. In 2000, the Companys analysis resulted in an increase to the
valuation allowance of $7.0 million. Additional events could occur in the
future, that may impact the quarterly recognition of the Companys estimate of
the required valuation allowance associated with its NOLs. Although realization
is not assured, management believes it is more likely than not that all of the
recorded deferred tax asset will be realized.

Results of Operations

The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements of the Company (including the Notes
thereto) included elsewhere in this Quarterly Report on Form 10-Q.

16



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##### 



Third Quarter 2001 Compared to Third Quarter 2000

The Company reported a loss from continuing operations of $3.6 million in
the third quarter of 2001. Net loss to common stockholders was $6.2 million in
the third quarter of 2001 compared to earnings of $3.1 million in 2000. On a
per share basis, basic and diluted net loss attributable to common stockholders
was $.75 in the third quarter of 2001 compared to earnings of $.37 in 2000.

Portfolio Asset Acquisition and Resolution

The operating contribution of $.2 million in the third quarter of 2001
decreased by $.9 million compared with the third quarter of 2000. Commercial
Corp. purchased $52.5 million of Portfolio Assets during the third quarter of
2001 through the Acquisition Partnerships compared to $127 million in
acquisitions in the third quarter of 2000. Commercial Corp. invested $5.2
million in equity in Acquisition Partnerships in 2001 compared to $6.0 million
in 2000. There were no purchases of Portfolio Assets by wholly owned
subsidiaries during the third quarters of 2001 and 2000. Commercial Corp.s
quarter end investment in Portfolio Assets decreased to $17.6 million at
September 30, 2001 from $24.1 million at September 30, 2000 as a result of
regular pay-downs on the assets and provisions for loan losses of certain
assets.

Servicing fee revenues.Servicing fees increased by 10% to $2.2 million
in the third quarter of 2001 from $2.0 million in the third quarter of 2000
primarily as a result of increased operations from Acquisition Partnerships in
Mexico formed during 2000 and 1999. The service fees for the Mexico Acquisition
Partnerships are based on operating expenses, unlike the Acquisition
Partnerships in the United States and France, which are primarily based on
collections.

Gain on resolution of Portfolio Assets.The net gain on resolution of
Portfolio Assets decreased 55% or $.6 million, primarily as a result of the
decreased proceeds and lower gross profit. Proceeds from the resolution of
Portfolio Assets decreased by 18% to $4.1 million in the third quarter of 2001
from $5.0 million in 2000. The weighted average gross profit percentage on the
resolution of Portfolio Assets in 2001 was 10.8% as compared to 20.0% in 2000.
Wholly owned investments of $1.7 million are on cost recovery basis. Thus, any
future profits will be deferred until all of the remaining book value has been
recovered.

Equity in earnings of investments.Commercial Corp.s equity in earnings
of Acquisition Partnerships decreased 24% to $1.2 million in 2001 compared to
$1.5 million in 2000. The Acquisition Partnerships reflected net earnings of
$.2 million in 2001 compared to $9.8 million in 2000. Equity in earnings of
Servicing Entities was not significant.

Interest income.Interest income increased $1.5 million as a result of
increased balances of investment loans receivable from the Mexico Acquisition
Partnerships.

Operating expenses.Operating expenses increased $1.9 million or 52%
primarily as a result of increased payroll and other operating costs in Mexico
and a provision for loan and impairment losses of $1.0 million.

Interest and fees on notes payable increased $.4 million or 48% due to
average debt for the quarter increasing to $43.7 million in the third quarter
of 2001 from $29.3 million in the third quarter of 2000.

Salaries and benefits rose $.4 million or 30% primarily due to increased
servicing personnel in Mexico. Total personnel of the Company increased from
96 at September 30, 2000 to 124 at September 30, 2001, with 93% of this
increase from Mexico.

The provision for loan and impairment losses was $1.0 million in 2001,
which was primarily related to declines in the value of certain real estate
assets held in a wholly owned portfolio.

Occupancy, data processing and other expenses increased 9% due to
increased servicing operations in Mexico.

Consumer Lending

The operating loss for the third quarter of 2001 was $1.4 million compared
to a contribution of $6.8 million in 2000. In the third quarter of 2001, the
loss resulted primarily from an equity loss of $1.7 million in Drive, which did
not complete a securitization during the third quarter. In the third quarter
of 2000, the automobile finance operations were consolidated with the Company
until August 1, there was no securitization and a gain of $8.1 million was
recorded as a result of the sale of 49% of the automobile finance operation.

17



---



##### 



Excluding equity in loss of investment, revenues decreased due to the sale
of 49% of the Companys equity interest in the automobile finance operation.

Equity in loss of investment.As a result of the sale of 49% of the
equity interest in the Companys automobile finance operation, the Companys
interest in the net operations of Drive has been recorded (since August 1,
2000) as equity in earnings (loss) of investments.

Operating expenses.Total operating expenses declined primarily as a
result of the sale of 49% of the Companys equity interest in its automobile
finance operation.

Other Items Affecting Operations

The following items affect the Companys overall results of operations and
are not directly related to any one of the Companys businesses discussed
above.

Corporate overhead.Company level interest expense decreased by 62% to
$1.1 million in the third quarter of 2001 from $2.9 million in the third
quarter of 2000 as a result of lower levels of debt. Other corporate overhead
expenses declined $.8 million.

Income taxes.Federal income taxes are provided at a 35% rate applied to
taxable income or loss and are offset by NOLs that the Company believes are
available. The tax benefit of the NOLs is recorded in the period during which
the benefit is realized. The Company recorded no deferred tax provision in 2001
and 2000.

First Nine Months of 2001 Compared to First Nine Months of 2000

The Company reported earnings from continuing operations of $1.9 million
in the first nine months of 2001. Net loss to common stockholders was $3.0
million in the first nine months of 2001 compared to a loss of $17.3 million in
the first nine months of 2000. On a per share basis, basic and diluted net loss
attributable to common stockholders was $0.36 in 2001 compared to a loss of
$2.07 in 2000. Components of earnings for the nine months ended September 30,
2001 and 2000, respectively, were as follows:

|                                                               |                                 |   |                   |        |   |      |         |         |  
|-------------------------------------------------------------- | ------------------------------- | - | ----------------- | ------ | - | ---- | ------- | ------- | -
|                                                               |                                 |   | Nine Months Ended |       
|                                                               |                                 |   | September 30,     |       
|                                                               |                                 |   |                   |       
|                                                               |                                 |   | 2001              |        |   | 2000 |        
|                                                               |                                 |   |                   |        |   |      |        
|Portfolio Asset Acquisition and Resolution                     |                                 | $ | 7,230             |        |   | $    | 3,099   |        
|Consumer                                                       |                                 |   | 2,532             |        |   |      | 8,699   |        
|Corporate interest                                             |                                 |   | (3,745            | )      |   |      | (10,649 | )      
|Corporate overhead                                             |                                 |   | (3,829            | )      |   |      | (5,371  | )      
|Extraordinary gain                                             |                                 |   |                  |        |   |      | 833     |        
|Accrued preferred dividends                                    |                                 |   | (1,926            | )      |   |      | (1,926  | )      
|Cumulative effect of accounting change                         |                                 |   | (304              | )      |   |      |        |        
|Discontinued operations                                        |                                 |   | (3,000            | )      |   |      | (5,000  | )      
|Increase in the valuation allowance for the deferred tax asset |                                 |   |                  |        |   |      | (7,000  | )      
|                                                               |                                 |   |                   |        |   |     
|                                                               | Net loss to common shareholders |   | $                 | (3,042 | ) |      | $       | (17,315 | )
|                                                               |                                 |   |                   |        |   |     

Portfolio Asset Acquisition and Resolution

The operating contribution of $7.2 million in 2001 increased by $4.1
million, or 133%, compared with 2000. Commercial Corp. purchased $173 million
of Portfolio Assets during 2001 through the Acquisition Partnerships compared
to $295 million in acquisitions in 2000. Commercial Corp.s investment in
Portfolio Assets decreased to $17.6 million in 2001 from $24.1 million in 2000.
Commercial Corp. invested $18.6 million in equity in Portfolio Assets in 2001
compared to $12.8 million in 2000.

Servicing fee revenues.Servicing fees increased by 33% to $7.8 million
in 2001 from $5.9 million in 2000 primarily as a result of increased operations
from Acquisition Partnerships in Mexico formed during 2000 and 1999. The
servicing fees for the Mexico Acquisition Partnerships are based on operating
expenses, unlike the Acquisition Partnerships in the United States and France,
which are primarily based on collections.

Gain on resolution of Portfolio Assets.Proceeds from the resolution of
Portfolio Assets decreased by 38% to $7.3 million in 2001 from $11.8 million in
2000. The net gain on resolution of Portfolio Assets decreased 68% or $1.9
million, primarily as a result of the decreased proceeds and lower gross
profit. The weighted average gross profit percentage on the resolution of
Portfolio Assets in 2001 was 12.0% as compared to 23.5% in 2000.

18



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##### 



Equity in earnings of investments.Commercial Corp.s equity in earnings
of Acquisition Partnerships increased 46% to $7.8 million in 2001 compared to
$5.4 million in 2000. The Acquisition Partnerships reflected net earnings of
$11.7 million in 2001 compared to $32.6 million in 2000. Equity in earnings of
Servicing Entities were $1.0 million in 2001 due to significant earnings
recorded by one French entity in which the Company has a 33% ownership.

Interest income.Interest income increased $3.4 million as a result of
increased balances of investment loans receivable from the Mexico Acquisition
Partnerships.

Gain on sale of interest in equity investment.During the period, the
Company sold a portion of its equity investment in a domestic Acquisition
Partnership for $7.0 million resulting in a gain of $3.1 million. The Company
also sold all of its equity investment in another domestic Acquisition
Partnership for $.6 million resulting in a gain of $.2 million.

Operating expenses.Operating expenses increased $5.8 million or 44%
primarily as a result of increased debt costs, the write-down of a Portfolio
Asset, and increased operating costs in Mexico.

Interest and fees on notes payable increased $1.1 million or 50% due to
average debt for 2001 increasing to $43.2 million from $30.4 million in 2000.
Also, the average cost of borrowing increased from 9.60% in 2000 to 10.15% in
2001.

Salaries and benefits increased $1.2 million or 30% primarily due to
increased servicing personnel in Mexico. Total personnel of the Company
increased from 96 at September 30, 2000 to 124 at September 30, 2001, with 93%
of this increase from Mexico.

The provision for loan and impairment losses totaled $3.1 million during
the period and can be attributed to the write-down in estimated future
collections of certain Portfolio Asset pools.

Occupancy, data processing and other expenses increased $1.9 million or
38% during the period due to increased operations in Mexico.

Consumer Lending

The operating contribution for 2001 was $2.2 million (including a $.3
million cumulative effect of accounting change) compared to $8.7 million during
2000. In 2001, the contribution resulted primarily from equity in earnings of
$3.1 million from Drive. In 2000, the automobile finance operations were
consolidated with the Company until the sale of a 49% interest in Drive on
August 1, which resulted in the recognition of a securitization gain of $2.8
million and a gain on sale of interest in subsidiary of $8.1 million.

Excluding equity in earnings of investment, revenues decreased due to the
sale of 49% of the Companys equity interest in the automobile finance
operation.

Equity in earnings of investment.As a result of the sale of 49% of the
equity interest in the Companys automobile finance operation, the Companys
interest in the net operations of Drive has been recorded (since August 1,
2000) as equity in earnings (loss) of investments.

Operating expenses.Total operating expenses declined primarily as a
result of the sale of 49% of the Companys equity interest in its automobile
finance operation.

Other Items Affecting Operations

The following items affect the Companys overall results of operations and
are not directly related to any one of the Companys businesses discussed
above.

Corporate overhead.Company level interest expense decreased by 65% to
$3.7 million in 2001 from $10.6 million in 2000 as a result of lower levels of
debt. Other corporate overhead expenses declined $1.5 million.

Income taxes.Federal income taxes are provided at a 35% rate applied to
taxable income or loss and are offset by NOLs that the Company believes are
available. The tax benefit of the NOLs is recorded in the period during which
the benefit is realized. The

19



---



##### 



Company recorded no deferred tax provision in 2001 and a $7.0 million
deferred tax provision in 2000.

Liquidity and Capital Resources

Generally, the Company requires liquidity to fund its operations, working
capital, payment of debt, equity for acquisition of Portfolio Assets,
investments in and advances to the Acquisition Partnerships, retirement of and
dividends on preferred stock, and other investments by the Company. The
potential sources of liquidity are funds generated from operations, equity
distributions from the Acquisition Partnerships, interest and principal
payments on subordinated intercompany debt, dividends from the Companys
subsidiaries, short-term borrowings from revolving lines of credit, proceeds
from equity market transactions and securitizations and other structured
finance transactions and other special purpose short-term borrowings.

BOS (USA), Inc. has an option to acquire a warrant for 1,975,000 shares of
the Companys non-voting Common Stock; the option can be exercised after
December 31, 2001 if the Companys $12 million Term Loan B owed to BOS (USA),
Inc. and The Bank of Scotland remains outstanding, but not prior to that date.
The strike price is $2.3125 per share. In the event that prior to December 31,
2001 the Company either (a) refinances the $12 million Term Loan B with
subordinated debt, or (b) pays off the balance of Term Loan B from proceeds of
an equity offering, then the option to acquire a warrant for 1,975,000 shares
of non-voting Common Stock will terminate. BOS (USA), Inc. and the Company
extended the initial exercise date for this option to acquire a warrant for
1,975,000 shares from August 31, 2001 to December 31, 2001. BOS (USA), Inc.
and the Company extended the exercise date to allow the Company additional time
to pursue possible restructure alternatives which would otherwise be limited
due to change of control issues related to its substantial NOLs.

BOS (USA), Inc. also has a warrant to purchase 425,000 shares of the
Companys voting Common Stock at $2.3125 per share. In the event that Term Loan
B is terminated prior to December 31, 2001 through a transaction involving the
issuance of warrants, BOS (USA), Inc. is entitled to additional warrants in
connection with this existing warrant for 425,000 shares to retain its ability
to acquire approximately 4.86% of the Companys voting Common Stock. BOS
(USA), Inc. and the Company amended the warrant to extend the date from August
31, 2001 to December 31, 2001 to correspond to the extension of the initial
exercise date of the option described in the preceding paragraph.

Currently, the Company has approximately 1.2 million preferred shares
outstanding with accrued and unpaid dividends of approximately $5.8 million.
Term Loan B, which resulted from the corporate debt restructure completed in
August 2000, restricts the payment of dividends on these shares until it is
repaid in full. Given the continued high debt levels of the Company, and
managements priority of assuring adequate levels of liquidity, the Company
does not anticipate that preferred dividends will be paid in 2001. Management
continues to evaluate various alternatives to maximize long term stockholder
value, including an overall corporate restructure.

During the second quarter of 2000, the Portfolio Asset acquisition and
resolution group of the Company entered into a $17 million loan facility with
Cargill. In January 2001, the maximum principal balance under the revolving
facility was increased to $30 million. This facility is being used exclusively
to provide equity in new portfolio acquisitions in partnerships with Cargill.

On July 3, 2001, BOS (USA), Inc. provided a $3.7 million Term Loan C to
the Company to allow an affiliate of Commercial Corp. to invest in an investor
in an Acquisition Partnership, which was acquiring Portfolio Assets in Mexico.
Term Loan C, secured by the ownership interests in a lender to and an investor
in the Acquisition Partnership, provides for an interest rate of prime plus 7%
and matures on December 31, 2001. Term Loan C also provides for a $.2 million
fee to be paid to BOS (USA), Inc. At September 30, 2001, the outstanding
balance on this loan was $.9 million.

The Company and each of its major operating subsidiaries have entered into
one or more credit facilities to finance their respective operations. Each of
the operating subsidiary credit facilities is nonrecourse to the Company,
except as described below. The Company and Funding LP are parties to an
Insurance Agreement and Letter Agreement related to the FCAR LLC Retail
Automobile Installment Loan Agreement Financing Facility provided by Enterprise
Funding Corporation (the Enterprise Facility). These agreements require the
Company and Funding LP, as servicer and seller, to (i) purchase nonconforming
contracts in the event that the seller, the servicer, or the related originator
fails to repurchase any contract which is required to be repurchased, (ii) pay
certain premiums and other expenses, and (iii) indemnify Enterprise Funding
Corporation, the collateral agent, and the insurance provider. Additionally,
the Company, pursuant to the terms of the Letter Agreement, has agreed to make
certain secondary servicer advances. The Enterprise Facility was terminated on
April 6, 2001 in connection with a $100 million warehouse facility provided by
Enterprise Funding Corporation. The Company has agreed to indemnify BOS (USA),
Inc. for 31% of losses which might arise as a result of agreements BOS (USA),
Inc. executed as a sponsor in connection with the $100 million warehouse
facility and the securitizations completed by

20



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Drive. The Company also agreed to provide support in connection with
securitizations by Consumer Corp. and Drive prior to the acquisition by BOS
(USA), Inc. of the interest in Drive in August 2000. The Company has also
provided a guaranty limited to a maximum amount of up to $4 million of a $60
million term loan from BOS (USA), Inc. to Drive.

Excluding the term acquisition facilities of the unconsolidated
Acquisition Partnerships and the term and warehouse facilities of Drive, as of
September 30, 2001, the Company and its subsidiaries had credit facilities
providing for borrowings in an aggregate principal amount of $100 million and
outstanding borrowings of $92 million.

Management believes that the BOS (USA), Inc. loan facilities, along with
the liquidity from the Cargill line, the related fees generated from the
servicing of assets and equity distributions from existing Acquisition
Partnerships and wholly-owned portfolios will allow the Company to meet its
obligations as they come due during the next twelve months.

The following table summarizes the material terms of the credit facilities
to which the Company, its major operating subsidiaries and the Acquisition
Partnerships were parties to as of November 14, 2001 and the outstanding
borrowings under such facilities as of September 30, 2001.

Credit Facilities

|                                |  |                       |     |               |   |                                          |  |                                              |  |                                                                                                           
|------------------------------- |  | --------------------- | --- | ------------- | - | ---------------------------------------- |  | -------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------
|                                |  | Funded and            |     |               |   |                                          |  |                                             
|                                |  | Unfunded              |     | Outstanding   |   |                                          |  |                                             
|                                |  | Commitment            |     | Borrowings    |   |                                          |  |                                             
|                                |  | Amount as of          |     | as of         |   |                                          |  |                                             
|                                |  | November 14,          |     | September 30, |   |                                          |  |                                             
|                                |  | 2001                  |     | 2001          |   | Interest Rate                            |  | Other Terms and Conditions                  
|                                |  |                       |     |               |   |                                          |  |                                             
|                                |  | (Dollars in millions) |     |               |   |                                         
|FirstCity                       |  |                       |     |               |   |                                          |  |                                              |  |                                                                                                           
|Company Senior Facility:        |  |                       |     |               |   |                                          |  |                                              |  |                                                                                                           
|Revolving Line of Credit        |  | $                     | 10  |               | $ | 5                                        |  | LIBOR + 2.5%                                 |  | Secured by the assets of the Company, matures                                                             
|Term Loan A                     |  |                       | 31  |               |   | 31                                       |  | LIBOR + 2.5%                                 |  | December 2003                                                                                             
|Term Loan B                     |  |                       | 12  |               |   | 12                                       |  | Prime                                        |  |                                                                                                           
|Term Loan C                     |  |                       | 1   |               |   | 1                                        |  | Prime + 7%                                   |  | Secured by ownership interest
in lender to and investor in
Acquisition Partnerships,
matures December 2001
|Term credit facility            |  |                       | 3   |               |   | 3                                        |  | LIBOR + 5.0%                                 |  | Secured by ownership
interests in certain
Acquisition partnerships
matures February 2002                  
|Commercial Corp.                |  |                       |     |               |   |                                          |  |                                              |  |                                                                                                           
|Acquisition facility            |  |                       | 5   |               |   | 5                                        |  | LIBOR + 4.0%                                 |  | Secured by existing
Portfolio Assets, matures
September 2002                                              
|Term facilities                 |  |                       | 8   |               |   | 8                                        |  | Fixed at
7.00% to
7.66%                      |  | Secured by Portfolio
Assets, matures June,
2002 and November 2002                                         
|Equity investment facility      |  |                       | 30  |               |   | 27                                       |  | LIBOR + 4.5%                                 |  | Acquisition facility for
the investment in future                                                         
|                                |  |                       |     |               |   |                                          |  | Acquisition partnerships,
matures March 2002
|Total                           |  | $                     | 100 |               | $ | 92                                       |  |                                              |  |                                                                                                           
|                                |  |                       |     |               |   |                                          |  |                                             
|Unconsolidated Acquisition      |  | $                     | 174 |               | $ | 174                                      |  | Fixed at 10%,                                |  | Secured by Portfolio Assets, various Maturities                                                           
|Partnerships term Facilities(1) |  |                       |     |               |   | LIBOR + 2.25%
to 5% and
Prime + 1% to
7% |  |                                             

21



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|                             |  |                       |     |               |   |               |  |                                                                          |  |                                                                                                                                                               
|---------------------------- |  | --------------------- | --- | ------------- | - | ------------- |  | ------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|                             |  | Funded and            |     |               |   |               |  |                                                                          | 
|                             |  | Unfunded              |     | Outstanding   |   |               |  |                                                                         
|                             |  | Commitment            |     | Borrowings    |   |               |  |                                                                         
|                             |  | Amount as of          |     | as of         |   |               |  |                                                                         
|                             |  | November 14,          |     | September 30, |   |               |  |                                                                         
|                             |  | 2001                  |     | 2001          |   | Interest Rate |  | Other Terms and Conditions                                              
|                             |  |                       |     |               |   |               |  |                                                                         
|                             |  | (Dollars in millions) |     |               |   |              
|Unconsolidated Drive         |  |                       |     |               |   |               |  |                                                                          |  |                                                                                                                                                               
|Warehouse Facility           |  | $                     | 150 |               | $ | 106           |  | LIBOR + 1%;
Prime  1.5%                                                 |  | Secured by warehouse
inventory, Commitment
Termination Date is
February 2002; Final
Scheduled Payment Date
matures 72 months after
Commitment Termination
Date
|Warehouse Facility           |  |                       | 100 |               |   |              |  | Rate based on Commercial paper rates combined with Certain facility fees |  | Secured by warehouse inventory, matures April 2002                                                                                                            
|Subordinate capital Facility |  |                       | 40  |               |   | 20            |  | Fixed at 14%                                                             |  | Secured by all assets of Drive, matures February 2006                                                                                                         
|Term Facility                |  |                       | 31  |               |   | 31            |  | LIBOR + 1%;Prime  1.5%                                                  |  | Secured by residual interests, matures August 2003                                                                                                            
|                             |  |                       |     |               |   |               |  |                                                                         
|                             |  | $                     | 321 |               | $ | 157           |  |                                                                          |  |                                                                                                                                                               
|                             |  |                       |     |               |   |               |  |                                                                         



---

|(1) |  | In addition to the term acquisition facilities of the unconsolidated
Acquisition Partnerships, the Mexican Acquisition Partnerships also have
term debt of approximately $303 million outstanding as of September 30,
2001 owed to affiliates of the investor groups. Of this amount, the
Company has recorded approximately $19 million as Loans Receivable on the
Consolidated Balance Sheets.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q or
incorporated by reference from time to time, including, but not limited to,
statements relating to the Companys strategic objectives and future
performance, which are not historical facts, may be deemed to be
forward-looking statements under the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include, without limitation, any
statement that may project, indicate or imply future results, performance or
achievements, and may contain the words expect, intend, plan,
estimate, believe, will be, will continue, will likely result, and
similar expressions. Such statements inherently are subject to a variety of
risks and uncertainties that could cause actual results to differ materially
from those projected. There are many important factors that could cause the
Companys actual results to differ materially from those indicated in the
forward-looking statements. Such factors include, but are not limited to, the
performance of the Companys subsidiaries and affiliates; the availability of
Portfolio Assets; assumptions underlying asset performance; the impact of
certain covenants in loan agreements of the Company and its subsidiaries;
continued availability of the Companys credit facilities; the degree to
which the Company is leveraged; the ability of the Company to utilize NOLs;
interest rate risk; prepayment speeds; delinquency and default rates; credit
loss rates; changes (legislative and otherwise) in the asset securitization
industry; demand for the Companys services; fluctuations in residential and
commercial real estate values; risk of declining value of collateral; capital
market conditions, including the markets for asset-backed securities; risks
associated with foreign operations; currency exchange rate fluctuations;
general economic conditions; changes in foreign political, social and
economic conditions; regulatory initiatives and compliance with governmental
regulations; the ability to attract and retain qualified personnel;
uncertainties of any litigation filed in the Harbor bankruptcy proceedings;
factors more fully discussed and identified in the Companys Annual Report on
Form 10-K, filed April 13, 2001 (including those discussed under Item 7 -
Managements Discussion and Analysis of Financial Condition and Results of
Operations), as well as in the Companys other filings with the Securities
and Exchange Commission. Many of these factors are beyond the Companys
control. In addition, it should be noted that past financial and operational
performance of the Company is not necessarily indicative of future financial
and operational performance. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements. The
forward-looking statements in this Form 10-Q speak only as of the date of
this Form 10-Q. The Company expressly disclaims any obligation or undertaking
to release publicly any updates or revisions to any forward-looking statement
to reflect any change in the

22



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Companys expectations with regard thereto or any change in events,
conditions or circumstances on which any forward-looking statement is based.

ITEM 3. Quantitative and
Qualitative Disclosures About Market Risk.

Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Companys operations are materially impacted by net gains
on sales of loans and net interest margins. The level of gains from loan sales
the Company achieves is dependent on demand for the products originated. Net
interest margins are dependent on the Company to maintain the spread or
interest differential between the interest it charges the customer for loans
and the interest the Company is charged for the financing of those loans. The
following describes each component of interest bearing assets held by the
Company and how each could be affected by changes in interest rates.

The Company invests in Portfolio Assets both directly through consolidated
subsidiaries and indirectly through equity investments in Acquisition
Partnerships. Portfolio Assets consist of investments in pools of
non-homogenous assets that predominantly consist of loan and real estate
assets. Earnings from these assets are based on the estimated future cash flows
from such assets and recorded when those cash flows occur. The underlying loans
within these pools bear both fixed and variable rates. Due to the
non-performing nature and history of these loans, changes in prevailing
benchmark rates (such as the prime rate or LIBOR) generally have a nominal
effect on the ultimate future cash flow to be realized from the loan assets.
Furthermore, these pools of assets are held for sale, not for investment;
therefore, the disposition strategy is to liquidate these assets as quickly as
possible.

Loans receivable consists of investment loans made to Acquisition
Partnerships and bear interest based on both fixed and variable rates. Rising
interest rates would negatively affect the ability and speed of payment on
these loans.

The Companys equity investment in Drive is materially impacted by net
gains realized on securitization transactions and net interest margins. The
sub-prime loans that Drive sells are included in asset-backed securities the
investor or purchaser issues. These securities are priced at spreads over the
LIBOR or an equivalent term treasury security. These spreads are determined by
demand for the security. Demand is affected by the perception of credit quality
and prepayment risk associated with the loans Drive originates and sells. The
timing and size of the securitizations could also have a material effect on the
net income of Drive. Interest rates offered to customers also affect prices
paid for loans. These rates are determined by review of competitors rate
offerings to the public and current prices being paid to Drive for the
products. Drive does not hedge these price risks.

Drives residual interests in securitizations represent the present value
of the excess cash flows Drive expects to receive over the life of the
underlying sub-prime automobile loans. The sub-prime automobile residual
interests are affected less by prepayment speeds due to the shorter term of the
underlying assets and the fact that the loans are fixed rate, generally at the
highest rate allowable by law.

Additionally the Company has various sources of financing which have been
previously described in the Liquidity and Capital Resources section of Item 2.

In summary, the Company would be negatively impacted by rising interest
rates and declining prices for its sub-prime loans. Rising interest rates would
negatively impact the value of residual interests in securitizations and costs
of borrowings. Declining prices for the Companys sub-prime loans would
adversely affect the levels of gains achieved upon the sale of those loans.
There have been no material changes in the quantitative and qualitative risks
of the Company since December 31, 2000.

23



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PART II

OTHER INFORMATION

ITEM 1.Legal Proceedings

The Company and Harbor Financial Group, Inc. (formerly known as FirstCity
Financial Mortgage Corporation) filed suit in the Federal District Court for
the Western District of Texas, Waco Division, against Chase Bank of Texas, N.A.
and Chase Securities, Inc. in September 1999 seeking injunctive relief and
damages resulting from alleged violations by the defendants of the Bank Holding
Company Act and from civil conspiracy engaged in by the defendants, arising
from an engagement letter entered into between the Company and Chase
Securities, Inc. relating to the sale of assets or securities of Harbor
Financial Group, Inc., Harbor Financial Mortgage Corporation and their
subsidiaries (collectively Harbor). The Company alleged that the conditioning
of Chase Bank of Texas, N.A.s extension of credit to Harbor on the retention
of Chase Securities, Inc. by the Company and Harbor violated the Bank Holding
Company Act. The Company additionally sought a judicial declaration that the
plaintiffs were not obligated to pay any commission to Chase Securities, Inc.
under the engagement letter. The actual damages sought by the Company were in
excess of $200 million. The Company also sought recovery of three times its
damages pursuant to the Bank Holding Company Act and recovery of its costs of
court, including reasonable attorneys fees. A motion to dismiss the Texas suit
was granted based upon a provision in the engagement letter that provided that
any suit arising from the engagement letter would be pursued in the State of
New York. The Company has requested leave of the Supreme Court for the State of
New York to amend its answer in that proceeding to include these claims as a
counterclaim to the suit brought by Chase Securities, Inc. and an action
against Chase Bank of Texas, N.A.

On October 4, 1999, Chase Securities, Inc. filed suit against the Company
before the Supreme Court for the State of New York, County of New York:
Commercial Part seeking recovery of $2.4 million as the balance of a
transaction fee allegedly due it under the terms of the engagement letter and
other just and proper relief. The Company denies that it has any liability to
Chase Securities, Inc. and intends to vigorously defend the suit. The Company
has asserted as a defense to this action the violations of the Bank Holding
Company Act asserted in the litigation filed in the Federal District Court for
the Western District of Texas. The Company has sought leave to amend its answer
in the suit to include a counterclaim against Chase Securities, Inc. and an
action against Chase Bank of Texas, N.A. under the Bank Holding Company Act as
was asserted in the Texas suit.

On October 14, 1999, Harbor Financial Group, Inc. (Harbor Parent),
Harbor Financial Mortgage Corporation (Harbor) and four subsidiaries of
Harbor filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code before the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division. On December 14, 1999, the bankruptcy
proceedings were converted to liquidations under Chapter 7 of the United States
Bankruptcy Code. John H. Litzler, the Chapter 7 Trustee in the bankruptcy
proceedings (the Trustee), initiated adversary proceedings on May 25, 2001
against FirstCity and various current and former directors and officers of
FirstCity and Harbor alleging breach of fiduciary duties, mismanagement, and
self-dealing by FirstCity and Harbor directors and officers, and improper
transfer of funds from the Harbor related entities to FirstCity. The claims
also include fraudulent and preferential transfer of assets of the Harbor
entities, fraud and conspiracy. The Trustee, FirstCity and the other
defendants have reached terms of an agreement to compromise the claims brought
in the adversary proceedings, subject to the approval of the Bankruptcy Court
and the consent of all necessary insurers of FirstCity and its subsidiaries and
affiliates. Under the proposed settlement, if approved, the Trustee will
release the defendants, their affiliates and subsidiaries from any and all
claims which were brought or could have been brought by the Trustee against any
of the defendants, any past and present officers and directors of FirstCity or
any affiliates or subsidiaries of FirstCity in consideration of the payment of
$3.8 million cash and the release of any and all claims of FirstCity and its
affiliates and subsidiaries and of the individual defendants in the bankruptcy
proceedings against the Trustee, including administrative and expense claims.
Neither the consent of the necessary insurers nor the approval of the
Bankruptcy Court of the proposed terms of settlement has been obtained, and
there can be no assurance that such consent and approval will be secured. In
the event that carrier consent or bankruptcy court approval is not obtained,
FirstCity intends to vigorously contest the claims of the Trustee, as it
believes that the claims are without merit and that it has valid defenses to
these claims.

Periodically, the Company, its subsidiaries, its affiliates and the
Acquisition Partnerships are parties to or otherwise involved in legal
proceedings arising in the normal course of business. The Company does not
believe that there is any proceeding threatened or pending against it, its
subsidiaries, its affiliates or the Acquisition Partnerships which, if
determined adversely, would have a material adverse effect on the consolidated
financial position, results of operations or liquidity of the Company, its
subsidiaries, its affiliates or the Acquisition Partnerships.

24



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##### 



ITEM 3.Defaults Upon Senior Securities

In the third quarter of 1999, dividends on the Companys adjusting rate
preferred stock were suspended. At September 30, 2001, accumulated dividends in
arrears on such preferred stock totaled $5.8 million, or $4.725 per share.

ITEM 6.Exhibits and Reports on Form 8-K

(a)  Exhibits

|        |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Number  |  | Description
|        |  |            
|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).                                                                                                                                                                                                                                                                             
|4.1     |  |            |  | Certificate of Designations of the New Preferred Stock ($0.01
par value) of the Company. (incorporated herein by reference
to Exhibit 4.1 to the Companys Current Report on Form 10-K
dated March 24, 1998 filed with the Commission on March 26,
1998).                                                                                                                                                                                                      
|4.2     |  |            |  | Warrant Agreement, dated July 3, 1995, by and between the
Company and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to Exhibit 4.2
of the Companys Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995).                                                                                                                                                                   
|4.3     |  |            |  | Registration Rights Agreement, dated July 1, 1997, among the
Company, Richard J. Gillen, Bernice J. Gillen, Harbor
Financial Mortgage Company Employees Pension Plan, Lindsey
Capital Corporation, Ed Smith and Thomas E. Smith.
(incorporated herein by reference to Exhibit 4.3 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).                                                                                
|4.4     |  |            |  | Stock Purchase Agreement, dated March 24, 1998, between the
Company and Texas Commerce Shareholders Company. (incorporated
herein by reference to Exhibit 4.4 of the Companys Form 10-K
dated March 24, 1998 filed with the Commission on March 26,
1998).                                                                                                                                                                                                    
|4.5     |  |            |  | Registration Rights Agreement, dated March 24, 1998, between
the Company and Texas Commerce Shareholders Company.
(incorporated herein by reference to Exhibit 4.5 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission on March 24, 1998).                                                                                                                                                                                               
|10.1    |  |            |  | Trust Agreement of FirstCity Liquidating Trust, dated July 3,
1995 (incorporated herein by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K dated July 3, 1995 filed
with the Commission on July 18, 1995).                                                                                                                                                                                                                               
|10.2    |  |            |  | Investment Management Agreement, dated July 3, 1995, between
the Company and FirstCity Liquidating Trust (incorporated
herein by reference to Exhibit 10.2 of the Companys Current
Report on Form 8-K dated July 3, 1995 filed with the
Commission on July 18, 1995).                                                                                                                                                                                         

25



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|        |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Number  |  | Description
|        |  |            
|10.3    |  |            |  | Lock-Box Agreement, dated July 11, 1995, among the Company,
NationsBank of Texas, N.A., as lock-box agent, FirstCity
Liquidating Trust, FCLT Loans, L.P., and the other Trust-Owned
Affiliates signatory thereto, and each of NationsBank of
Texas, N.A. and Fleet National Bank, as co-lenders
(incorporated herein by reference to Exhibit 10.3 of the
Companys Form 8-A/A dated August 25, 1995 filed with the
Commission on August 25, 1995).               
|10.4    |  |            |  | Custodial Agreement, dated July 11, 1995, among Fleet National
Bank, as custodian, Fleet National Bank, as agent, FCLT Loans,
L.P., FirstCity Liquidating Trust, and the Company
(incorporated herein by reference to Exhibit 10.4 of the
Companys Form 8-A/A dated August 25, 1995 filed with the
Commission on August 25, 1995).                                                                                                                              
|10.5    |  |            |  | Tier 3 Custodial Agreement, dated July 11, 1995, among the
Company, as custodian, Fleet National Bank, as agent, FCLT
Loans, L.P., FirstCity Liquidating Trust, and the Company, as
servicer (incorporated herein by reference to Exhibit 10.5 of
the Companys Form 8-A/A dated August 25, 1995 filed with the
Commission on August 25, 1995).                                                                                                                  
|10.6    |  |            |  | 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other warehouse
lenders party thereto. (incorporated herein by reference to
Exhibit 10.6 of the Companys Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).                                                          
|10.7    |  |            |  | Modification Agreement, dated January 26, 1998, to the Amended
and Restated Facilities Agreement, dated as of December 3,
1997, among Harbor Financial Mortgage Corporation, New America
Financial, Inc. and Chase Bank of Texas, National Association
(formerly known as Texas Commerce Bank National Association).
(incorporated herein by reference to Exhibit 10.7 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
|10.8    |  |            |  | $50,000,000 3/98 Chase Texas Temporary Additional Warehouse
Note, dated March 17, 1998, by Harbor Financial Mortgage
Corporation and New America Financial, Inc., in favor of Chase
Bank of Texas, National Association. (incorporated herein by
reference to Exhibit 10.8 of the Companys Form 10-K dated
March 24, 1998 filed with the Commission March 26, 1998).                                                                                            
|10.9    |  |            |  | Employment Agreement, dated as of July 1, 1997, by and between
Harbor Financial Mortgage Corporation and Richard J. Gillen.
(incorporated herein by reference to Exhibit 10.9 of the
Companys 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).                                                                                                                                                                                              
|10.10   |  |            |  | Employment Agreement, dated as of September 8, 1997, by and
between FirstCity Funding Corporation and Thomas R. Brower,
with similar agreements between FC Capital Corp. and each of
James H. Aronoff and Christopher J. Morrissey. (incorporated
herein by reference to Exhibit 10.10 of the Companys Form
10-K dated March 24, 1998 filed with the Commission March 26,
1998).                                                                                
|10.11   |  |            |  | Shareholder Agreement, dated as of September 8, 1997, among
FirstCity Funding Corporation, FirstCity Consumer Lending
Corporation, Thomas R. Brower, Scot A. Foith, Thomas G.
Dundon, R. Tyler Whann, Bradley C. Reeves, Stephen H. Trent
and Blake P. Bozman. (incorporated herein by reference to
Exhibit 10.11 of the Companys Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).                                                     
|10.12   |  |            |  | Revolving Credit Loan Agreement, dated as of March 20, 1998,
by and between FC Properties, Ltd. and Nomura Asset Capital
Corporation. (incorporated herein by reference to Exhibit
10.12 of the Companys Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).                                                                                                                                                                              
|10.13   |  |            |  | Revolving Credit Loan Agreement, dated as of February 27,
1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.13 of the Companys Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).                                                                                                                                                                             

26



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##### 



|        |  |             |  |                                                                                                                                                                                                                                                                                                                                                                      
|------- |  | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |             |  |                                                                                                                                                                                                                                                                                                                                                                      
|Number  |  | Description
|        |  |            
|10.14   |  |            |  | Note Agreement, dated as of June 6, 1997, among Bosque Asset
Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque Investment
Realty Partners, L.P. and Bankers Trust Company of California,
N.A. (incorporated herein by reference to Exhibit 10.14 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                        
|10.15   |  |            |  | 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation in
favor of the Bank of Scotland. (incorporated herein by
reference to Exhibit 10.15 of the Companys Form 10-K dated
March 24, 1998 filed with the Commission March 26, 1998).                                                                     
|10.16   |  |            |  | Loan Agreement, dated as of September 25, 1997, by and between
Bank of Scotland and J-Hawk International Corporation.
(incorporated herein reference to Exhibit 10.16 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                                     
|10.17   |  |            |  | Guaranty Agreement, dated as of September 25, 1997, by J-Hawk
(incorporated herein by reference to Exhibit 10.17 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                                                                                          
|10.18   |  |            |  | Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of Scotland.
(incorporated herein by reference to Exhibit 10.18 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                                   
|10.19   |  |            |  | Warehouse Credit Agreement, dated as of May 17, 1996, among
ContiTrade Services L.L.C., N.A.F. Auto Loan Trust and
National Auto Funding Corporation. (incorporated herein by
reference to Exhibit 10.19 of the Companys Form 10-K dated
March 24, 1998 filed with the Commission March 26, 1998).                                                                  
|10.20   |  |            |  | Funding Commitment, dated as of May 17, 1996 by and between
ContiTrade Services L.L.C. and The Company. (incorporated
herein by reference to Exhibit 10.20 of the Companys Form
10-K dated March 24, 1998 filed with the Commission March 26,
1998).                                                                                                                
|10.21   |  |            |  | Revolving Credit Agreement, dated as of December 29, 1995, by
and between the Company and Cargill Financial Services
Corporation, as amended by the Eighth Amendment to Revolving
Credit Agreement dated February 1998. (incorporated herein by
reference to Exhibit 10.21 of the Companys Form 10-K dated
March 24, 1998 filed with the Commission March 26, 1998).
|10.22   |  |            |  | Master Repurchase Agreement Governing Purchased and Sales of
Mortgage Loans, dated as of July 1998, between Lehman
Commercial Paper Inc. and FHB Funding Corp. (incorporated
herein by reference to Exhibit 10.1 of the Companys Form 10-Q
dated August 14, 1998, filed with the Commission August 18,
1998).                                                       
|10.23   |  |            |  | Warehouse Credit Agreement, dated as of April 30, 1998 among
ContiTrade Services, L.L.C., FirstCity Consumer Lending
Corporation, FirstCity Auto Receivables L.L.C. and FirstCity
Financial Corporation. (incorporated herein by reference to
Exhibit 10.2 of the Companys Form 10-Q dated August 14, 1998,
filed with the Commission August 16, 1998).             
|10.24   |  |            |  | Servicing Agreement, dated as of April 30, 1998 among
FirstCity Auto Receivables L.L.C. , FirstCity Servicing
Corporation of California, FirstCity Consumer Lending
Corporation and ContiTrade Services L.L.C. (incorporated
herein by reference to Exhibit 10.3 of the Companys Form 10-Q
dated August 14, 1998, filed with the Commission August 16,
1998).       
|10.25   |  |            |  | Security and Collateral Agreement, dated as of April 30, 1998
among FirstCity Auto Receivables L.L.C., ContiTrade Services
L.L.C. and Chase Bank of Texas, National Association.
(incorporated herein by reference to Exhibit 10.4 of the
Companys Form 10-Q dated August 14, 1998, filed with the
Commission August 16, 1998).                                     
|10.26   |  |            |  | Loan Agreement, dated as of July 24, 1998, between FirstCity
Commercial Corporation and CFSC Capital Corp. XXX
(incorporated herein by reference Exhibit 10.5 of the
Companys Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).                                                                                                       

27



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##### 



|        |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- |  | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Number  |  | Description
|        |  |            
|10.27   |  |            |  | Loan Agreement, dated April 8, 1998 between Bank of Scotland
and the Company (incorporated herein by reference to Exhibit
10.6 of the Companys Form 10-Q dated August 14, 1998, filed
with the Commission on August 18, 1998).                                                                                                                                                                                                   
|10.28   |  |            |  | First Amendment to Loan Agreement, dated July 20, 1998,
between Bank of Scotland and the Company (incorporated herein
by reference to Exhibit 10.7 of the Companys Form 10-Q dated
August 14, 1998, filed with the Commission on August 18,
1998).                                                                                                                                                                               
|10.29   |  |            |  | Employment Agreement, dated October 1, 1998, by and between
FirstCity. Financial Mortgage Corporation, and Buddy L.
Terrell (incorporated herein by reference to Exhibit 10.29 of
the Companys Form 10-Q dated May 17, 1999, filed with the
commission on May 17, 1999).                                                                                                                                                         
|10.30   |  |            |  | Security Agreement, dated as of April 30, 1998 among
Enterprise Funding Corporation, FCAR Receivables L.L.C., MBIA
Insurance Corporation, FirstCity Funding Corporation,
NationsBank N.A. and CSC Logic/MSA LLP d/b/a Loan Servicing
enterprise (incorporated herein by reference to Exhibit 10.30
of the Companys Form 10-Q dated May 17, 1999, filed with the
commission on May 17, 1999).                                     
|10.31   |  |            |  | Note purchase agreement, dated March 30, 1999 among Enterprise
Funding Corporation, FCAR Receivables, L.L.C. and NationsBank,
N.A. (incorporated herein by reference to Exhibit 10.31 of the
Companys Form 10-Q dated May 17, 1999, filed with the
commission on May 17, 1999).                                                                                                                                                  
|10.32   |  |            |  | Custodian Agreement, dated March 30, 1999, among FCAR
Receivables L.L.C., FirstCity Funding Corporation,
NationsBank, N.A., Enterprise Funding Corporation and Chase
Bank of Texas, N.A. (incorporated herein by reference to
Exhibit 10.32 of the Companys Form 10-Q dated May 17, 1999,
filed with the commission on May 17, 1999).                                                                                            
|10.33   |  |            |  | 100,000,000 dollar form of note, dated March 30, 1999 among
FCAR Receivables LLC, Enterprise Funding Corporation and
NationsBank, N.A. (incorporated herein by reference to Exhibit
10.33 of the Companys Form 10-Q dated May 17, 1999, filed
with the commission on May 17, 1999).                                                                                                                                              
|10.33   |  |            |  | Credit agreement dated effective as of May 28, 1999 made by
and among Harbor Financial Mortgage, New America Financial,
Inc., FirstCity Financial Mortgage Corporation, and Guaranty
Federal Bank F.S.B. as Administrative Agent and Bank One,
Texas, N.A. as Collateral Agent (incorporated herein by
reference to Exhibit 10.33 of the Companys Form 10-Q dated
August 16, 1999, filed with the commission on August 16,
1999).
|10.34   |  |            |  | Tenth Amendment to Loan Agreement, dated August 11, 1999
between Bank of Scotland and the Company (incorporated herein
by reference to Exhibit 10.34 of the Companys Form 10-Q dated
August 16, 1999, filed with the Commission on August 16,
1999).                                                                                                                                                                             
|10.35   |  |            |  | Amended and Restated Loan Agreement, dated December 20, 1999,
by and among FirstCity Financial Corporation as Borrower and
The Lenders Named Herein, as Lenders and Bank of Scotland as
Agent (incorporated herein by reference to Exhibit 10.1 of the
Companys Form 8-K dated December 22, 1999, filed with the
commission on December 28, 1999).                                                                               
|10.36   |  |            |  | Subordinated Secured Senior Note Purchase Agreement, dated
December 20, 1999, between FirstCity Financial Corporation, as
Issuer and IFA Corporation, as Purchaser (incorporated herein
by reference to Exhibit 10.2 of the Companys Form 8-K dated
December 22, 1999, filed with the commission on December 28,
1999).                                                                                                          
|10.37   |  |            |  | Employment Agreement, dated October 1, 1999, by and between
FirstCity Commercial Corporation and Terry R. DeWitt.
(incorporated herein by reference to Exhibit 10.37 of the
Companys Form 10-K dated April 6, 2000, filed with the
commission on April 6, 2000).                                                                                                                                                                 
|10.38   |  |            |  | Employment Agreement, dated October 1, 1999, by and between
FirstCity Commercial Corporation and G. Stephen Fillip.
(incorporated herein by reference to Exhibit 10.38 of the
Companys Form 10-K dated April 6, 2000, filed with the
commission on April 6, 2000).                                                                                                                                                               

28



---



##### 



|        |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|------- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|Number  |  | Description
|        |  |            
|10.39   |  |            |  | Shareholder Agreement, dated October 1, 1999, by and among
FirstCity Holdings Corporation, FirstCity Commercial
Corporation, Terry R. DeWitt, G. Stephen Fillip and James C.
Holmes. (incorporated herein by reference to Exhibit 10.39 of
the Companys Form 10-K dated April 6, 2000, filed with the
commission on April 6, 2000).                                                                 
|10.40   |  |            |  | Securities Purchase Agreement, dated as of August 18, 2000, by
and among the Company, Consumer Corp., Funding LP, Funding GP,
IFA-GP and IFA-LP. (incorporated herein by reference to
Exhibit 10.40 of the Companys Form 8-K dated August 25, 2000,
filed with the commission on September 11, 2000).                                                                                               
|10.41   |  |            |  | Contribution and Assumption Agreement by and between Consumer
Corp. and Drive dated as of August 18, 2000. (incorporated
herein by reference to Exhibit 10.41 of the Companys Form 8-K
dated August 25, 2000, filed with the commission on September
11, 2000).                                                                                                                                     
|10.42   |  |            |  | 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).                                                                                                                                         
|10.43   |  |            |  | Second Amendment to Amended and Restated Loan Agreement, dated
December 20, 1999, by and among the Company, as borrower, and
the Lenders, as lenders, and Bank of Scotland, as Agent.
(incorporated herein by reference to Exhibit 10.43 of the
Companys Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).                                                          
|10.44   |  |            |  | Receivables Financing Agreement, dated August 18, 2000, among
Drive BOS LP, Drive Financial Services LP, each Lender, IPA
Inc. and Wells Fargo Bank Minnesota, N.A (incorporated herein
by reference to Exhibit 10.44 of the Companys Form 10-K dated
April 13, 2001, filed with the Commission of April 13, 2001).                                                                                 
|10.45   |  |            |  | 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 of April 13, 2001).                                                                                     
|10.46   |  |            |  | Second Amendment, dated as of February 16, 2001, to the
Receivables Financing Agreement, dated as of August 18, 2000,
among Drive BOS LP, Drive Financial Services LP the Lenders
party thereto, IPA Incorporated and Wells Fargo Bank
Minnesota, NA(incorporated herein by reference to Exhibit
10.46 of the Companys Form 10-K dated April 13, 2001, filed
with the Commission of April 13, 2001).
|10.47   |  |            |  | Subordinate Capital Loan Agreement, dated as of February 16,
2001, among Drive Financial Services LP, DRIVE BOS LP, the
financial institutions from time to time party hereto and IPA
Incorporated (incorporated herein by reference to Exhibit
10.47 of the Companys Form 10-K dated April 13, 2001, filed
with the Commission of April 13, 2001).                                                 

(b)  Reports on Form 8-K.No report on Form 8-K was filed by the
Registrant with the Securities and Exchange Commission during the quarterly
period ended September 30, 2001.

29



---



##### 



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.

| |                                 |                                                                                                                                                           
| | ------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | FIRSTCITY FINANCIAL CORPORATION
|
| | By:                             | /s/ JAMES T. SARTAIN                                                                                                                                      
| |                                 |                                                                                                                                                           
| |                                 | James T. SartainPresident and Chief Executive
Officer and Director
(Duly authorized officer of the
Registrant)                                            
|
| | By:                             | /s/ J. BRYAN BAKER                                                                                                                                        
| |                                 |                                                                                                                                                           
| |                                 | J. Bryan BakerSenior Vice President and Chief
Financial Officer
(Duly authorized officer and
principal financial and accounting
officer of the Registrant)

Dated: November 14, 2001

30



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##### 



EXHIBIT INDEX

|        |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Number  |  | Description
|        |  |            
|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).                                                                                                                                                                                                                                                                             
|4.1     |  |            |  | Certificate of Designations of the New Preferred Stock ($0.01
par value) of the Company. (incorporated herein by reference
to Exhibit 4.1 to the Companys Current Report on Form 10-K
dated March 24, 1998 filed with the Commission on March 26,
1998).                                                                                                                                                                                                      
|4.2     |  |            |  | Warrant Agreement, dated July 3, 1995, by and between the
Company and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to Exhibit 4.2
of the Companys Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995).                                                                                                                                                                   
|4.3     |  |            |  | Registration Rights Agreement, dated July 1, 1997, among the
Company, Richard J. Gillen, Bernice J. Gillen, Harbor
Financial Mortgage Company Employees Pension Plan, Lindsey
Capital Corporation, Ed Smith and Thomas E. Smith.
(incorporated herein by reference to Exhibit 4.3 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).                                                                                
|4.4     |  |            |  | Stock Purchase Agreement, dated March 24, 1998, between the
Company and Texas Commerce Shareholders Company. (incorporated
herein by reference to Exhibit 4.4 of the Companys Form 10-K
dated March 24, 1998 filed with the Commission on March 26,
1998).                                                                                                                                                                                                    
|4.5     |  |            |  | Registration Rights Agreement, dated March 24, 1998, between
the Company and Texas Commerce Shareholders Company.
(incorporated herein by reference to Exhibit 4.5 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission on March 24, 1998).                                                                                                                                                                                               
|10.1    |  |            |  | Trust Agreement of FirstCity Liquidating Trust, dated July 3,
1995 (incorporated herein by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K dated July 3, 1995 filed
with the Commission on July 18, 1995).                                                                                                                                                                                                                               
|10.2    |  |            |  | Investment Management Agreement, dated July 3, 1995, between
the Company and FirstCity Liquidating Trust (incorporated
herein by reference to Exhibit 10.2 of the Companys Current
Report on Form 8-K dated July 3, 1995 filed with the
Commission on July 18, 1995).                                                                                                                                                                                         
|10.3    |  |            |  | Lock-Box Agreement, dated July 11, 1995, among the Company,
NationsBank of Texas, N.A., as lock-box agent, FirstCity
Liquidating Trust, FCLT Loans, L.P., and the other Trust-Owned
Affiliates signatory thereto, and each of NationsBank of
Texas, N.A. and Fleet National Bank, as co-lenders
(incorporated herein by reference to Exhibit 10.3 of the
Companys Form 8-A/A dated August 25, 1995 filed with the
Commission on August 25, 1995).             
|10.4    |  |            |  | Custodial Agreement, dated July 11, 1995, among Fleet National
Bank, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the Company
(incorporated herein by reference to Exhibit 10.4 of the
Companys Form 8-A/A dated August 25, 1995 filed with the
Commission on August 25, 1995).                                                                                                                            

31



---



##### 



|        |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Number  |  | Description
|        |  |            
|10.5    |  |            |  | Tier 3 Custodial Agreement, dated July 11, 1995, among the
Company, as custodian, Fleet National Bank, as agent, FCLT
Loans, L.P., FirstCity Liquidating Trust, and the Company, as
servicer (incorporated herein by reference to Exhibit 10.5 of
the Companys Form 8-A/A dated August 25, 1995 filed with the
Commission on August 25, 1995).                                                                                                                  
|10.6    |  |            |  | 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other warehouse
lenders party thereto. (incorporated herein by reference to
Exhibit 10.6 of the Companys Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).                                                          
|10.7    |  |            |  | Modification Agreement, dated January 26, 1998, to the Amended
and Restated Facilities Agreement, dated as of December 3,
1997, among Harbor Financial Mortgage Corporation, New America
Financial, Inc. and Chase Bank of Texas, National Association
(formerly known as Texas Commerce Bank National Association).
(incorporated herein by reference to Exhibit 10.7 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
|10.8    |  |            |  | $50,000,000 3/98 Chase Texas Temporary Additional Warehouse
Note, dated March 17, 1998, by Harbor Financial Mortgage
Corporation and New America Financial, Inc., in favor of Chase
Bank of Texas, National Association. (incorporated herein by
reference to Exhibit 10.8 of the Companys Form 10-K dated
March 24, 1998 filed with the Commission March 26, 1998).                                                                                            
|10.9    |  |            |  | Employment Agreement, dated as of July 1, 1997, by and between
Harbor Financial Mortgage Corporation and Richard J. Gillen.
(incorporated herein by reference to Exhibit 10.9 of the
Companys 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).                                                                                                                                                                                              
|10.10   |  |            |  | Employment Agreement, dated as of September 8, 1997, by and
between FirstCity Funding Corporation and Thomas R. Brower,
with similar agreements between FC Capital Corp. and each of
James H. Aronoff and Christopher J. Morrissey. (incorporated
herein by reference to Exhibit 10.10 of the Companys Form
10-K dated March 24, 1998 filed with the Commission March 26,
1998).                                                                                
|10.11   |  |            |  | Shareholder Agreement, dated as of September 8, 1997, among
FirstCity Funding Corporation, FirstCity Consumer Lending
Corporation, Thomas R. Brower, Scot A. Foith, Thomas G.
Dundon, R. Tyler Whann, Bradley C. Reeves, Stephen H. Trent
and Blake P. Bozman. (incorporated herein by reference to
Exhibit 10.11 of the Companys Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).                                                     
|10.12   |  |            |  | Revolving Credit Loan Agreement, dated as of March 20, 1998,
by and between FC Properties, Ltd. and Nomura Asset Capital
Corporation. (incorporated herein by reference to Exhibit
10.12 of the Companys Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).                                                                                                                                                                              
|10.13   |  |            |  | Revolving Credit Loan Agreement, dated as of February 27,
1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.13 of the Companys Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).                                                                                                                                                                             
|10.14   |  |            |  | Note Agreement, dated as of June 6, 1997, among Bosque Asset
Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque Investment
Realty Partners, L.P. and Bankers Trust Company of California,
N.A. (incorporated herein by reference to Exhibit 10.14 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                                                    
|10.15   |  |            |  | 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation in
favor of the Bank of Scotland. (incorporated herein by
reference to Exhibit 10.15 of the Companys Form
10-K dated March 24, 1998 filed with the Commission March 26, 1998).                                                                                                                                                                 

32



---



##### 



|        |  |             |  |                                                                                                                                                                                                                                                                                                                                                                      
|------- |  | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |             |  |                                                                                                                                                                                                                                                                                                                                                                      
|Number  |  | Description
|        |  |            
|10.16   |  |            |  | Loan Agreement, dated as of September 25, 1997, by and between
Bank of Scotland and J-Hawk International Corporation.
(incorporated herein reference to Exhibit 10.16 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                                     
|10.17   |  |            |  | Guaranty Agreement, dated as of September 25, 1997, by J-Hawk
(incorporated herein by reference to Exhibit 10.17 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                                                                                          
|10.18   |  |            |  | Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of Scotland.
(incorporated herein by reference to Exhibit 10.18 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                                   
|10.19   |  |            |  | Warehouse Credit Agreement, dated as of May 17, 1996, among
ContiTrade Services L.L.C., N.A.F. Auto Loan Trust and
National Auto Funding Corporation. (incorporated herein by
reference to Exhibit 10.19 of the Companys Form 10-K dated
March 24, 1998 filed with the Commission March 26, 1998).                                                                  
|10.20   |  |            |  | Funding Commitment, dated as of May 17, 1996 by and between
ContiTrade Services L.L.C. and The Company. (incorporated
herein by reference to Exhibit 10.20 of the Companys Form
10-K dated March 24, 1998 filed with the Commission March 26,
1998).                                                                                                                
|10.21   |  |            |  | Revolving Credit Agreement, dated as of December 29, 1995, by
and between the Company and Cargill Financial Services
Corporation, as amended by the Eighth Amendment to Revolving
Credit Agreement dated February 1998. (incorporated herein by
reference to Exhibit 10.21 of the Companys Form 10-K dated
March 24, 1998 filed with the Commission March 26, 1998).
|10.22   |  |            |  | Master Repurchase Agreement Governing Purchased and Sales of
Mortgage Loans, dated as of July 1998, between Lehman
Commercial Paper Inc. and FHB Funding Corp. (incorporated
herein by reference to Exhibit 10.1 of the Companys Form 10-Q
dated August 14, 1998, filed with the Commission August 18,
1998).                                                       
|10.23   |  |            |  | Warehouse Credit Agreement, dated as of April 30, 1998 among
ContiTrade Services, L.L.C., FirstCity Consumer Lending
Corporation, FirstCity Auto Receivables L.L.C. and FirstCity
Financial Corporation. (incorporated herein by reference to
Exhibit 10.2 of the Companys Form 10-Q dated August 14, 1998,
filed with the Commission August 16, 1998).             
|10.24   |  |            |  | Servicing Agreement, dated as of April 30, 1998 among
FirstCity Auto Receivables L.L.C. , FirstCity Servicing
Corporation of California, FirstCity Consumer Lending
Corporation and ContiTrade Services L.L.C. (incorporated
herein by reference to Exhibit 10.3 of the Companys Form 10-Q
dated August 14, 1998, filed with the Commission August 16,
1998).       
|10.25   |  |            |  | Security and Collateral Agreement, dated as of April 30, 1998
among FirstCity Auto Receivables L.L.C., ContiTrade Services
L.L.C. and Chase Bank of Texas, National Association.
(incorporated herein by reference to Exhibit 10.4 of the
Companys Form 10-Q dated August 14, 1998, filed with the
Commission August 16, 1998).                                     
|10.26   |  |            |  | Loan Agreement, dated as of July 24, 1998, between FirstCity
Commercial Corporation and CFSC Capital Corp. XXX
(incorporated herein by reference Exhibit 10.5 of the
Companys Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).                                                                                                       
|10.27   |  |            |  | Loan Agreement, dated April 8, 1998 between Bank of Scotland
and the Company (incorporated herein by reference to Exhibit
10.6 of the Companys Form 10-Q dated August 14, 1998, filed
with the Commission on August 18, 1998).                                                                                                                                      
|10.28   |  |            |  | First Amendment to Loan Agreement, dated July 20, 1998,
between Bank of Scotland and the Company (incorporated herein
by reference to Exhibit 10.7 of the Companys Form 10-Q dated
August 14, 1998, filed with the Commission on August 18,
1998).                                                                                                                  

33



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##### 



|        |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- |  | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Number  |  | Description
|        |  |            
|10.29   |  |            |  | Employment Agreement, dated October 1, 1998, by and between
FirstCity. Financial Mortgage Corporation, and Buddy L.
Terrell (incorporated herein by reference to Exhibit 10.29 of
the Companys Form 10-Q dated May 17, 1999, filed with the
commission on May 17, 1999).                                                                                                                                                         
|10.30   |  |            |  | Security Agreement, dated as of April 30, 1998 among
Enterprise Funding Corporation, FCAR Receivables L.L.C., MBIA
Insurance Corporation, FirstCity Funding Corporation,
NationsBank N.A. and CSC Logic/MSA LLP d/b/a Loan Servicing
enterprise (incorporated herein by reference to Exhibit 10.30
of the Companys Form 10-Q dated May 17, 1999, filed with the
commission on May 17, 1999).                                     
|10.31   |  |            |  | Note purchase agreement, dated March 30, 1999 among Enterprise
Funding Corporation, FCAR Receivables, L.L.C. and NationsBank,
N.A. (incorporated herein by reference to Exhibit 10.31 of the
Companys Form 10-Q dated May 17, 1999, filed with the
commission on May 17, 1999).                                                                                                                                                  
|10.32   |  |            |  | Custodian Agreement, dated March 30, 1999, among FCAR
Receivables L.L.C., FirstCity Funding Corporation,
NationsBank, N.A., Enterprise Funding Corporation and Chase
Bank of Texas, N.A. (incorporated herein by reference to
Exhibit 10.32 of the Companys Form 10-Q dated May 17, 1999,
filed with the commission on May 17, 1999).                                                                                            
|10.33   |  |            |  | 100,000,000 dollar form of note, dated March 30, 1999 among
FCAR Receivables LLC, Enterprise Funding Corporation and
NationsBank, N.A. (incorporated herein by reference to Exhibit
10.33 of the Companys Form 10-Q dated May 17, 1999, filed
with the commission on May 17, 1999).                                                                                                                                              
|10.33   |  |            |  | Credit agreement dated effective as of May 28, 1999 made by
and among Harbor Financial Mortgage, New America Financial,
Inc., FirstCity Financial Mortgage Corporation, and Guaranty
Federal Bank F.S.B. as Administrative Agent and Bank One,
Texas, N.A. as Collateral Agent (incorporated herein by
reference to Exhibit 10.33 of the Companys Form 10-Q dated
August 16, 1999, filed with the commission on August 16,
1999).
|10.34   |  |            |  | Tenth Amendment to Loan Agreement, dated August 11, 1999
between Bank of Scotland and the Company (incorporated herein
by reference to Exhibit 10.34 of the Companys Form 10-Q dated
August 16, 1999, filed with the Commission on August 16,
1999).                                                                                                                                                                             
|10.35   |  |            |  | Amended and Restated Loan Agreement, dated December 20, 1999,
by and among FirstCity Financial Corporation as Borrower and
The Lenders Named Herein, as Lenders and Bank of Scotland as
Agent (incorporated herein by reference to Exhibit 10.1 of the
Companys Form 8-K dated December 22, 1999, filed with the
commission on December 28, 1999).                                                                               
|10.36   |  |            |  | Subordinated Secured Senior Note Purchase Agreement, dated
December 20, 1999, between FirstCity Financial Corporation, as
Issuer and IFA Corporation, as Purchaser (incorporated herein
by reference to Exhibit 10.2 of the Companys Form 8-K dated
December 22, 1999, filed with the commission on December 28,
1999).                                                                                                          
|10.37   |  |            |  | Employment Agreement, dated October 1, 1999, by and between
FirstCity Commercial Corporation and Terry R. DeWitt.
(incorporated herein by reference to Exhibit 10.37 of the
Companys Form 10-K dated April 6, 2000, filed with the
commission on April 6, 2000).                                                                                                                                                                 
|10.38   |  |            |  | Employment Agreement, dated October 1, 1999, by and between
FirstCity Commercial Corporation and G. Stephen Fillip.
(incorporated herein by reference to Exhibit 10.38 of the
Companys Form 10-K dated April 6, 2000, filed with the
commission on April 6, 2000).                                                                                                                                                               
|10.39   |  |            |  | Shareholder Agreement, dated October 1, 1999, by and among
FirstCity Holdings Corporation, FirstCity Commercial
Corporation, Terry R. DeWitt, G. Stephen Fillip and James C.
Holmes. (incorporated herein by reference to Exhibit 10.39 of
the Companys Form 10-K dated April 6, 2000, filed with the
commission on April 6, 2000).                                                                                              
|10.40   |  |            |  | Securities Purchase Agreement, dated as of August 18, 2000, by
and among the Company, Consumer Corp., Funding LP, Funding GP,
IFA-GP and IFA-LP. (incorporated herein by
reference to Exhibit 10.40 of the Companys Form 8-K dated August 25, 2000,
filed with the commission on September 11, 2000).                                                                                                                            

34



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##### 



|        |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|------- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|Number  |  | Description
|        |  |            
|10.41   |  |            |  | Contribution and Assumption Agreement by and between Consumer
Corp. and Drive dated as of August 18, 2000. (incorporated
herein by reference to Exhibit 10.41 of the Companys Form 8-K
dated August 25, 2000, filed with the commission on September
11, 2000).                                                                                                                                     
|10.42   |  |            |  | 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).                                                                                                                                         
|10.43   |  |            |  | Second Amendment to Amended and Restated Loan Agreement, dated
December 20, 1999, by and among the Company, as borrower, and
the Lenders, as lenders, and Bank of Scotland, as Agent.
(incorporated herein by reference to Exhibit 10.43 of the
Companys Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).                                                          
|10.44   |  |            |  | Receivables Financing Agreement, dated August 18, 2000, among
Drive BOS LP, Drive Financial Services LP, each Lender, IPA
Inc. and Wells Fargo Bank Minnesota, N.A (incorporated herein
by reference to Exhibit 10.44 of the Companys Form 10-K dated
April 13, 2001, filed with the Commission of April 13, 2001).                                                                                 
|10.45   |  |            |  | 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 of April 13, 2001).                                                                                     
|10.46   |  |            |  | Second Amendment, dated as of February 16, 2001, to the
Receivables Financing Agreement, dated as of August 18, 2000,
among Drive BOS LP, Drive Financial Services LP the Lenders
party thereto, IPA Incorporated and Wells Fargo Bank
Minnesota, NA(incorporated herein by reference to Exhibit
10.46 of the Companys Form 10-K dated April 13, 2001, filed
with the Commission of April 13, 2001).
|10.47   |  |            |  | Subordinate Capital Loan Agreement, dated as of February 16,
2001, among Drive Financial Services LP, DRIVE BOS LP, the
financial institutions from time to time party hereto and IPA
Incorporated (incorporated herein by reference to Exhibit
10.47 of the Companys Form 10-K dated April 13, 2001, filed
with the Commission of April 13, 2001).                                                 

35