##### 









SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


Form 10-Q

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the Quarterly Period Ended
    September 30, 2002 or                                    
|          
|o          |  | 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                                                                      |  | 76-0243729                              
|(State or Other Jurisdiction of
    Incorporation or Organization)            |  | (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 þ          No o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     Yes o          No þ

The number of shares of common stock, par value
$.01 per share, outstanding at November 14, 2002 was
8,376,500.



---






---



##### 

TABLE OF CONTENTS



|                                                    |  |  |  |  |  |  |  | 
|--------------------------------------------------- |  |  |  |  |  |  |  | 
|COMBINED STATEMENTS OF OPERATIONS                  
|COMBINED STATEMENTS OF CHANGES IN PARTNERS CAPITAL
|COMBINED STATEMENTS OF CASH FLOWS                  
|SIGNATURES                                         
|CERTIFICATIONS                                     

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,
|                                                                               |                                                                                                                                                                                                                                                         | 2002                                                                                 |        | 2001        
|                                                                               |                                                                                                                                                                                                                                                         |                                                                                      |        |             
|ASSETS                                                                        
|Cash and cash equivalents                                                      |                                                                                                                                                                                                                                                         | $                                                                                    | 8,260  |              |         | $ | 5,583  |        
|Portfolio Assets, net                                                          |                                                                                                                                                                                                                                                         |                                                                                      | 10,492 |              |         |   | 14,218 |        
|Loans receivable from Acquisition Partnerships
    held for investment         |                                                                                                                                                                                                                                                         |                                                                                      | 21,080 |              |         |   | 19,765 |        
|Equity investments                                                             |                                                                                                                                                                                                                                                         |                                                                                      | 52,543 |              |         |   | 54,655 |        
|Deferred tax benefit, net                                                      |                                                                                                                                                                                                                                                         |                                                                                      | 20,101 |              |         |   | 20,101 |        
|Service fees receivable from affiliates                                        |                                                                                                                                                                                                                                                         |                                                                                      | 2,341  |              |         |   | 1,546  |        
|Other assets, net                                                              |                                                                                                                                                                                                                                                         |                                                                                      | 8,026  |              |         |   | 6,368  |        
|Net assets of discontinued operations                                          |                                                                                                                                                                                                                                                         |                                                                                      | 9,793  |              |         |   | 16,657 |        
|                                                                               |                                                                                                                                                                                                                                                         |                                                                                      |        |              |         |   |        |        
|                                                                               |                                                                                                                                                                                                                                                         | Total Assets                                                                         |        | $            | 132,636 |   |        | $       | 138,893 | 
|                                                                               |                                                                                                                                                                                                                                                         |                                                                                      |        |              |         |   |        |        
|LIABILITIES, REDEEMABLE PREFERRED STOCK AND
    SHAREHOLDERS EQUITY (DEFICIT)
|                                                                              
|Liabilities:                                                                   |                                                                                                                                                                                                                                                         |                                                                                      |        |              |         |   |        |        
|                                                                               | Notes payable to affiliates                                                                                                                                                                                                                             |                                                                                      | $      | 84,190       |         |   | $      | 83,957  |        
|                                                                               | Notes payable  other                                                                                                                                                                                                                                   |                                                                                      |        | 2,280        |         |   |        | 7,252   |        
|                                                                               | Deferred gain from sale of interest in subsidiary                                                                                                                                                                                                       |                                                                                      |        | 4,000        |         |   |        | 4,000   |        
|                                                                               | Minority interest                                                                                                                                                                                                                                       |                                                                                      |        | 6,333        |         |   |        | 5,158   |        
|                                                                               | Other liabilities                                                                                                                                                                                                                                       |                                                                                      |        | 3,545        |         |   |        | 2,548   |        
|                                                                               |                                                                                                                                                                                                                                                         |                                                                                      |        |              |         |   |        |        
|                                                                               |                                                                                                                                                                                                                                                         | Total Liabilities                                                                    |        |              | 100,348 |   |        |         | 102,915 | 
|Commitments and contingencies                                                  |                                                                                                                                                                                                                                                         |                                                                                      |       |              |         |   |       |        
|                                                                              
|Redeemable preferred stock:                                                    |                                                                                                                                                                                                                                                         |                                                                                      |        |              |         |   |        |        
|                                                                               | Adjusting rate preferred stock, including
    accumulated dividends in arrears of $8,346 and $6,420,
    respectively (par value $.01; redemption value of $21 per
    share; 2,000,000 shares authorized; 1,222,901 shares
    issued and outstanding) |                                                                                      |        | 34,027       |         |   |        | 32,101  |        
|                                                                              
|Shareholders equity (deficit):                                                |                                                                                                                                                                                                                                                         |                                                                                      |        |              |         |   |        |        
|                                                                               | 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 shares                                                                                                                                 |                                                                                      |        | 84           |         |   |        | 84      |        
|                                                                               | Paid in capital                                                                                                                                                                                                                                         |                                                                                      |        | 79,645       |         |   |        | 79,645  |        
|                                                                               | Accumulated deficit                                                                                                                                                                                                                                     |                                                                                      |        | (84,123      | )       |   |        | (76,728 | )      
|                                                                               | Accumulated other comprehensive income                                                                                                                                                                                                                  |                                                                                      |        | 2,655        |         |   |        | 876     |        
|                                                                               |                                                                                                                                                                                                                                                         |                                                                                      |        |              |         |   |        |        
|                                                                               |                                                                                                                                                                                                                                                         | Total Shareholders Equity (Deficit)                                                 |        |              | (1,739  | ) |        |         | 3,877   | 
|                                                                               |                                                                                                                                                                                                                                                         |                                                                                      |        |              |         |   |        |        
|                                                                               |                                                                                                                                                                                                                                                         | Total Liabilities, Redeemable Preferred Stock and
    Shareholders Equity (Deficit) |        | $            | 132,636 |   |        | $       | 138,893 | 
|                                                                               |                                                                                                                                                                                                                                                         |                                                                                      |        |              |         |   |        |        

See accompanying notes to consolidated financial
statements.

1



---



##### 



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,    
|                                                                                                            |                                                         |                    |        |                  
|                                                                                                            |                                                         | 2002               |        | 2001              |       | 2002 |        | 2001 
|                                                                                                            |                                                         |                    |        |                   |       |      |        |      
|Revenues:                                                                                                   |                                                         |                    |        |                   |       |      |        |       |       |   |        |       |        |   |        |       
|                                                                                                            | Servicing fees from affiliates                          |                    | $      | 3,263             |       |      | $      | 2,177 |       |   | $      | 9,655 |        |   | $      | 7,846  |       
|                                                                                                            | Gain on resolution of Portfolio Assets                  |                    |        | 225               |       |      |        | 443   |       |   |        | 925   |        |   |        | 875    |       
|                                                                                                            | Equity in earnings (loss) of investments                |                    |        | 1,277             |       |      |        | (519  | )     |   |        | 6,691 |        |   |        | 11,967 |       
|                                                                                                            | Interest income from affiliates                         |                    |        | 962               |       |      |        | 1,258 |       |   |        | 3,063 |        |   |        | 2,838  |       
|                                                                                                            | Interest income  other                                 |                    |        | 280               |       |      |        | 481   |       |   |        | 841   |        |   |        | 1,554  |       
|                                                                                                            | Gain on sale of interest in equity investment           |                    |        |                  |       |      |        | 182   |       |   |        | 1,779 |        |   |        | 3,316  |       
|                                                                                                            | Other income                                            |                    |        | 534               |       |      |        | 267   |       |   |        | 1,710 |        |   |        | 1,097  |       
|                                                                                                            |                                                         |                    |        |                   |       |      |        |       |       |   |        |       |        |   |        |       
|                                                                                                            |                                                         | Total revenues     |        |                   | 6,541 |      |        |       | 4,289 |   |        |       | 24,664 |   |        |        | 29,493 | 
|Expenses:                                                                                                   |                                                         |                    |        |                   |       |      |        |       |       |   |        |       |        |   |        |       
|                                                                                                            | Interest and fees on notes payable to affiliates        |                    |        | 1,503             |       |      |        | 2,028 |       |   |        | 4,439 |        |   |        | 6,243  |       
|                                                                                                            | Interest and fees on notes payable 
    other          |                    |        | 64                |       |      |        | 252   |       |   |        | 301   |        |   |        | 791    |       
|                                                                                                            | Salaries and benefits                                   |                    |        | 3,545             |       |      |        | 2,464 |       |   |        | 9,705 |        |   |        | 7,456  |       
|                                                                                                            | Provision for loan and impairment losses                |                    |        | 157               |       |      |        | 1,000 |       |   |        | 278   |        |   |        | 3,128  |       
|                                                                                                            | Occupancy, data processing, communication and
    other |                    |        | 2,219             |       |      |        | 2,500 |       |   |        | 6,589 |        |   |        | 8,249  |       
|                                                                                                            |                                                         |                    |        |                   |       |      |        |       |       |   |        |       |        |   |        |       
|                                                                                                            |                                                         | Total expenses     |        |                   | 7,488 |      |        |       | 8,244 |   |        |       | 21,312 |   |        |        | 25,867 | 
|Earnings (loss) from continuing operations before
    income taxes, minority interest and accounting change |                                                         |                    | (947   | )                 |       |      | (3,955 | )     |       |   | 3,352  |       |        |   | 3,626  |       
|Provision for income taxes                                                                                  |                                                         |                    | (28    | )                 |       |      | (27    | )     |       |   | (35    | )     |        |   | (19    | )     
|                                                                                                            |                                                         |                    |        |                   |       |      |        |       |       |   |        |       |        |   |        |       
|Earnings (loss) from continuing operations before
    minority interest and accounting change               |                                                         |                    | (975   | )                 |       |      | (3,982 | )     |       |   | 3,317  |       |        |   | 3,607  |       
|Minority interest                                                                                           |                                                         |                    | (162   | )                 |       |      | 377    |       |       |   | (1,086 | )     |        |   | (1,419 | )     
|Cumulative effect of accounting change                                                                      |                                                         |                    |       |                   |       |      |       |       |       |   |       |       |        |   | (304   | )     
|                                                                                                            |                                                         |                    |        |                   |       |      |        |       |       |   |        |       |        |   |        |       
|Earnings (loss) from continuing operations                                                                  |                                                         |                    | (1,137 | )                 |       |      | (3,605 | )     |       |   | 2,231  |       |        |   | 1,884  |       
|Loss from discontinued operations                                                                           |                                                         |                    | (5,700 | )                 |       |      | (2,000 | )     |       |   | (7,700 | )     |        |   | (3,000 | )     
|                                                                                                            |                                                         |                    |        |                   |       |      |        |       |       |   |        |       |        |   |        |       
|Net loss                                                                                                    |                                                         |                    | (6,837 | )                 |       |      | (5,605 | )     |       |   | (5,469 | )     |        |   | (1,116 | )     
|Accumulated preferred dividends in arrears                                                                  |                                                         |                    | (642   | )                 |       |      | (642   | )     |       |   | (1,926 | )     |        |   | (1,926 | )     
|                                                                                                            |                                                         |                    |        |                   |       |      |        |       |       |   |        |       |        |   |        |       
|Net loss to common shareholders                                                                             |                                                         | $                  | (7,479 | )                 |       | $    | (6,247 | )     |       | $ | (7,395 | )     |        | $ | (3,042 | )     
|                                                                                                            |                                                         |                    |        |                   |       |      |        |       |       |   |        |       |        |   |        |       
|Basic and diluted loss per common share are as
    follows:                                                 |                                                         |                    |        |                   |       |      |        |       |       |   |        |       |        |   |        |       
|                                                                                                            | Earnings (loss) from continuing operations              |                    | $      | (0.21             | )     |      | $      | (0.51 | )     |   | $      | 0.04  |        |   | $      | 0.03   |       
|                                                                                                            | Cumulative effect of accounting change                  |                    |        |                  |       |      |        |      |       |   |        |      |        |   |        | (0.03  | )     
|                                                                                                            | Discontinued operations                                 |                    |        | (0.68             | )     |      |        | (0.24 | )     |   |        | (0.92 | )      |   |        | (0.36  | )     
|                                                                                                            | Net loss                                                |                    | $      | (0.89             | )     |      | $      | (0.75 | )     |   | $      | (0.88 | )      |   | $      | (0.36  | )     
|                                                                                                            | Weighted average common shares outstanding              |                    |        | 8,376             |       |      |        | 8,376 |       |   |        | 8,376 |        |   |        | 8,374  |       

See accompanying notes to consolidated financial
statements.

2



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY (DEFICIT)

AND COMPREHENSIVE LOSS


(Dollars in thousands)


(Unaudited)


|                                                            |                                            |           |           |        |  |         |    |             |  |               |        |               |  |   |         |        |   |   |       |       |   |   |        |        |  
|----------------------------------------------------------- | ------------------------------------------ | --------- | --------- | ------ |  | ------- | -- | ----------- |  | ------------- | ------ | ------------- |  | - | ------- | ------ | - | - | ----- | ----- | - | - | ------ | ------ | -
|                                                            |                                            |           |           |        |  |         |    |             |  | Accumulated   |        |              
|                                                            |                                            |           |           |        |  |         |    |             |  | Other         |        | Total        
|                                                            |                                            | Number of |           |        |  |         |    |             |  | Comprehensive |        | Shareholders
|                                                            |                                            | Common    |           | Common |  | Paid in |    | Accumulated |  | Income        |        | Equity       
|                                                            |                                            | Shares    |           | Stock  |  | Capital |    | Deficit     |  | (Loss)        |        | (Deficit)    
|                                                            |                                            |           |           |        |  |         |    |             |  |               |        |              
|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 loss:                                         |                                            |           |           |        |  |         |    |             |  |               |        |               |  |   |         |        |   |   |       |       |   |   |        |       
|                                                            | Net loss for 2001                          |           |           |       |  |         |    |            |  |               |        |              |  |   |         | (3,029 | ) |   |       |      |   |   |        | (3,029 | )
|                                                            | Foreign currency items                     |           |           |       |  |         |    |            |  |               |        |              |  |   |         |       |   |   |       | (218  | ) |   |        | (218   | )
|                                                            | Unrealized net gain on securitization      |           |           |       |  |         |    |            |  |               |        |              |  |   |         |       |   |   |       | 1,203 |   |   |        | 1,203  |  
|                                                            |                                            |           |           |        |  |         |    |             |  |               |        |               |  |   |         |        |   |   |       |       |   |   |        |       
|Total comprehensive loss                                    |                                            |           |           |        |  |         |    |             |  |               |        |               |  |   |         |        |   |   |       |       |   |   | (2,044 | )     
|                                                            |                                            |           |           |        |  |         |    |             |  |               |        |               |  |   |         |        |   |   |       |       |   |   |        |       
|Preferred dividends                                         |                                            |           |          |        |  |         |   |             |  |               |       |               |  |   | (2,568  | )      |   |   |      |       |   |   | (2,568 | )     
|                                                            |                                            |           |           |        |  |         |    |             |  |               |        |               |  |   |         |        |   |   |       |       |   |   |        |       
|Balances, December 31, 2001.                                |                                            |           | 8,376,500 |        |  |         | 84 |             |  |               | 79,645 |               |  |   | (76,728 | )      |   |   | 876   |       |   |   | 3,877  |       
|Comprehensive loss:                                         |                                            |           |           |        |  |         |    |             |  |               |        |               |  |   |         |        |   |   |       |       |   |   |        |       
|                                                            | Net loss for the first nine months of 2002 |           |           |       |  |         |    |            |  |               |        |              |  |   |         | (5,469 | ) |   |       |      |   |   |        | (5,469 | )
|                                                            | Foreign currency items                     |           |           |       |  |         |    |            |  |               |        |              |  |   |         |       |   |   |       | 897   |   |   |        | 897    |  
|                                                            | Unrealized net gain on securitization      |           |           |       |  |         |    |            |  |               |        |              |  |   |         |       |   |   |       | 882   |   |   |        | 882    |  
|                                                            |                                            |           |           |        |  |         |    |             |  |               |        |               |  |   |         |        |   |   |       |       |   |   |        |       
|Total comprehensive loss                                    |                                            |           |           |        |  |         |    |             |  |               |        |               |  |   |         |        |   |   |       |       |   |   | (3,690 | )     
|                                                            |                                            |           |           |        |  |         |    |             |  |               |        |               |  |   |         |        |   |   |       |       |   |   |        |       
|Preferred dividends                                         |                                            |           |          |        |  |         |   |             |  |               |       |               |  |   | (1,926  | )      |   |   |      |       |   |   | (1,926 | )     
|                                                            |                                            |           |           |        |  |         |    |             |  |               |        |               |  |   |         |        |   |   |       |       |   |   |        |       
|Balances, September 30, 2002                                |                                            |           | 8,376,500 |        |  | $       | 84 |             |  | $             | 79,645 |               |  | $ | (84,123 | )      |   | $ | 2,655 |       |   | $ | (1,739 | )     
|                                                            |                                            |           |           |        |  |         |    |             |  |               |        |               |  |   |         |        |   |   |       |       |   |   |        |       

See accompanying notes to consolidated financial
statements.

3



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(Dollars in thousands)


(Unaudited)


|                                                  |                                                                                 |                                                                         |                                            |         |        |        |       |         |         |        |  
|------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------ | ------- | ------ | ------ | ----- | ------- | ------- | ------ | -
|                                                  |                                                                                 |                                                                        
|                                                  |                                                                                 | Nine Months Ended                                                      
|                                                  |                                                                                 | September 30,                                                          
|                                                  |                                                                                 |                                                                        
|                                                  |                                                                                 | 2002                                                                    |                                            | 2001   
|                                                  |                                                                                 |                                                                         |                                            |        
|Cash flows from operating activities:             |                                                                                 |                                                                         |                                            |         |        |        |       |        
|                                                  | Net loss                                                                        |                                                                         | $                                          | (5,469  | )      |        | $     | (1,116  | )      
|                                                  | Adjustments to reconcile net loss to net cash
    used in operating activities: |                                                                         |                                            |         |        |        |       |         |        
|                                                  |                                                                                 | Loss from discontinued operations                                       |                                            |         | 7,700  |        |       |         | 3,000   |       
|                                                  |                                                                                 | Proceeds from resolution of Portfolio Assets                            |                                            |         | 2,998  |        |       |         | 7,289   |       
|                                                  |                                                                                 | Gain on resolution of Portfolio Assets                                  |                                            |         | (925   | )      |       |         | (875    | )     
|                                                  |                                                                                 | Purchase of Portfolio Assets and advances on
    loans receivable, net  |                                            |         | (4,019 | )      |       |         | (10,624 | )     
|                                                  |                                                                                 | Provision for loan and impairment losses                                |                                            |         | 278    |        |       |         | 3,128   |       
|                                                  |                                                                                 | Equity in earnings of investments                                       |                                            |         | (6,691 | )      |       |         | (11,967 | )     
|                                                  |                                                                                 | Proceeds from performing Portfolio Assets and
    loans receivable, net |                                            |         | 4,036  |        |       |         | 8,326   |       
|                                                  |                                                                                 | Depreciation and amortization                                           |                                            |         | 528    |        |       |         | 660     |       
|                                                  |                                                                                 | (Increase) decrease in other assets                                     |                                            |         | (2,909 | )      |       |         | 252     |       
|                                                  |                                                                                 | Gain on sale of interest in equity investment                           |                                            |         | (1,779 | )      |       |         | (3,316  | )     
|                                                  |                                                                                 | Gain on early extinguishment of debt                                    |                                            |         | (691   | )      |       |         |        |       
|                                                  |                                                                                 | Increase in other liabilities                                           |                                            |         | 2,348  |        |       |         | 2,441   |       
|                                                  |                                                                                 |                                                                         |                                            |         |        |        |       |        
|                                                  |                                                                                 |                                                                         | Net cash used in operating activities      |         |        | (4,595 | )     |         |         | (2,802 | )
|                                                  |                                                                                 |                                                                         |                                            |         |        |        |       |        
|Cash flows from investing activities:             |                                                                                 |                                                                         |                                            |         |        |        |       |        
|                                                  | Proceeds from sale of interest in equity
    investment                         |                                                                         |                                            | 3,373   |        |        |       | 7,567   |        
|                                                  | Property and equipment, net                                                     |                                                                         |                                            | (346    | )      |        |       | (349    | )      
|                                                  | Contributions to Acquisition Partnerships and
    Servicing                     |                                                                         |                                            |         |        |        |       |         |        
|                                                  | Entities                                                                        |                                                                         |                                            | (10,216 | )      |        |       | (8,325  | )      
|                                                  | Distributions from Acquisition Partnerships and
    Servicing                   |                                                                         |                                            |         |        |        |       |         |        
|                                                  | Entities                                                                        |                                                                         |                                            | 19,510  |        |        |       | 7,688   |        
|                                                  |                                                                                 |                                                                         |                                            |         |        |        |       |        
|                                                  |                                                                                 |                                                                         | Net cash provided by investing activities  |         |        | 12,321 |       |         |         | 6,581  |  
|                                                  |                                                                                 |                                                                         |                                            |         |        |        |       |        
|Cash flows from financing activities:             |                                                                                 |                                                                         |                                            |         |        |        |       |        
|                                                  | Borrowings under notes payable to affiliates                                    |                                                                         |                                            | 18,355  |        |        |       | 170     |        
|                                                  | Borrowings under notes payable  other                                          |                                                                         |                                            | 438     |        |        |       | 26,747  |        
|                                                  | Payments of notes payable to affiliates                                         |                                                                         |                                            | (18,287 | )      |        |       | (5,917  | )      
|                                                  | Payments of notes payable  other                                               |                                                                         |                                            | (1,957  | )      |        |       | (23,054 | )      
|                                                  | Payment to repurchase debt at discount                                          |                                                                         |                                            | (2,762  | )      |        |       |        |        
|                                                  | Proceeds from issuance of common stock                                          |                                                                         |                                            |        |        |        |       | 11      |        
|                                                  |                                                                                 |                                                                         |                                            |         |        |        |       |        
|                                                  |                                                                                 |                                                                         | Net cash used in financing activities      |         |        | (4,213 | )     |         |         | (2,043 | )
|                                                  |                                                                                 |                                                                         |                                            |         |        |        |       |        
|                                                  |                                                                                 |                                                                         | Net cash provided by continuing operations |         |        | 3,513  |       |         |         | 1,736  |  
|                                                  |                                                                                 |                                                                         | Net cash used in discontinued operations   |         |        | (836   | )     |         |         | (1,014 | )
|                                                  |                                                                                 |                                                                         |                                            |         |        |        |       |        
|Net increase in cash and cash equivalents         |                                                                                 | $                                                                       | 2,677                                      |         |        | $      | 722   |        
|Cash and cash equivalents, beginning of period    |                                                                                 |                                                                         | 5,583                                      |         |        |        | 8,043 |        
|                                                  |                                                                                 |                                                                         |                                            |         |        |        |       |        
|Cash and cash equivalents, end of period          |                                                                                 | $                                                                       | 8,260                                      |         |        | $      | 8,765 |        
|                                                  |                                                                                 |                                                                         |                                            |         |        |        |       |        
|Supplemental disclosure of cash flow information: |                                                                                 |                                                                         |                                            |         |        |        |       |        
|                                                  | Cash paid during the period for:                                                |                                                                         |                                            |         |        |        |       |         |        
|                                                  |                                                                                 | Interest                                                                |                                            | $       | 4,160  |        |       | $       | 6,214   |       
|                                                  |                                                                                 | Income taxes                                                            |                                            |         | 56     |        |       |         | 1       |       
|                                                  | Non-cash financing activities:                                                  |                                                                         |                                            |         |        |        |       |         |        
|                                                  |                                                                                 | Dividends accumulated and not paid on preferred
    stock               |                                            |         | 1,926  |        |       |         | 1,926   |       

See accompanying notes to consolidated financial
statements.

4



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

September 30, 2002


(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, necessary to present fairly FirstCitys
consolidated financial position at September 30, 2002, the
results of operations for the three-month and nine-month periods
ended September 30, 2002 and 2001, and the cash flows for
the nine-month periods ended September 30, 2002 and 2001.

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.

The effects of any common stock equivalents are
antidilutive for the three months and nine months ended
September 30, 2002 and 2001; therefore, diluted earnings
(loss) per common share is reported the same as basic earnings
(loss) per common share.

(2)     Liquidity and
Capital Resources



| |                          
| | -------------------------
| | Proposed Recapitalization

On October 28, 2002 FirstCity commenced an
exchange offer of its outstanding shares of New Preferred Stock,
par value $0.01 per share (New Preferred
Stock). The exchange offer will expire November 25,
2002, unless the offer is extended.

FirstCity is offering to exchange each share of
its New Preferred Stock for, at the holders election,
either:



| |                                                                 
| | ----------------------------------------------------------------
| | (1) $10.00 cash and 2 shares of
    FirstCitys common stock, or
|
| | (2) $8.00 cash and 3 shares of
    FirstCitys common stock.    

The exchange offer is conditioned on, among other
things, the tender of at least 80% of the outstanding shares of
New Preferred Stock. There are currently 1,222,901 shares
of New Preferred Stock outstanding.

The exchange offer is a part of a
recapitalization of FirstCity, which includes:



| |   |                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the exchange offer,                                                                                                                                                                                                                                                         
|
| |  | a non-recourse loan in the amount of
    $16 million by BoS(USA), Inc. (BoS(USA)) to
    FirstCity, secured by (among other things) a 20% interest in
    Drive Financial Services LP which will provide the cash portion
    of the consideration for the exchange offer,
|
| |  | the use of the remainder of the cash proceeds
    from the $16 million loan by BoS(USA) to reduce
    FirstCitys debt owed to Bank of Scotland and BoS(USA)
    (the Senior Lenders),                                                                                    

5



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | FirstCitys payment of an arrangement fee to
    BoS(USA). The arrangement fee will be equal to 20% of all
    amounts more than $16 million that are paid to FirstCity
    from:



| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | any sale or other disposition of FirstCitys
    interest in Drive Financial Services LP
    (Drive), and         
|
| |  | all dividends and other distributions paid by
    Drive or its general partner on FirstCitys interest in
    Drive,



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | FirstCitys purchase of the 20% interest in
    FirstCitys indirect subsidiary, FirstCity Holdings
    Corporation, held by Terry R. DeWitt, G. Stephen Fillip and
    James C. Holmes, each of whom are Senior Vice Presidents of
    FirstCity (the FCHC Group),                                                                                                                                                                                                                       
|
| |  | the refinancing of the remainder of
    FirstCitys debt facilities with Bank of Scotland and
    BoS(USA), with a total commitment by Bank of Scotland and
    BoS(USA) of up to a maximum of $47 million to
    $49 million, consisting of (a) a cash flow note of up
    to a maximum of $35 million to $37 million and
    (b) a $12 million term note,                                                                                                                                 
|
| |  | Bank of Scotlands providing new financing
    to FirstCity, with a total commitment by Bank of Scotland of up
    to a maximum of $58 million to $60 million. The new
    financing will consist of (a) a $5 million revolving
    credit loan and (b) an acquisition term loan in a maximum
    amount of up to $53 million to $55 million. The total
    commitment by Bank of Scotland and BoS(USA) for the refinancing
    combined with the new financing will not exceed $77 million,
|
| |  | the release of FirstCity from its guaranty of
    $4 million of Drives indebtedness to
    BoS(USA), and                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | the cancellation of BoS(USA)s existing
    option to acquire a warrant to
    purchase 1,975,000 shares of FirstCitys
    non-voting common stock.                                                                                                                                                                                                                                                                                                                                        

The successful completion of the exchange offer
is, or FirstCity believes will be, a condition to all of the
items listed above.

In addition to the 80% condition described above,
the exchange offer is also subject to other conditions,
including:



| |                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) the closing of the $16 million loan
    from BoS(USA) described above,                                                                                                                                                                                                                                                                                                                     
|
| | (2) the lack of any change or development
    involving a prospective change in or affecting FirstCitys
    business or financial affairs that, in the reasonable judgment
    of FirstCitys board of directors, would or might prohibit,
    restrict or delay consummation of the exchange offer or
    materially impair the contemplated benefits to FirstCity of the
    exchange offer.

Because there are multiple conditions to the
closing of the transactions contemplated by the recapitalization
that are beyond the control of FirstCity, FirstCity cannot
provide any assurances that these conditions will be satisfied
and that the exchange offer and the recapitalization will close.



| |             
| | ------------
| | Other Issues

Generally, the Company requires liquidity to fund
its operations, working capital, payment of debt, equity for
acquisition of pools of assets or single assets (collectively
referred to as Portfolio Assets or
Portfolios), investments in and advances to entities
formed with Cargill Financial Services Corporation
(Cargill) or one or more other co-investors to
acquire Portfolios (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 and
dividends from the Companys subsidiaries, short-term
borrowings from revolving lines of credit, proceeds from equity
market transactions, securitizations and other structured
finance transactions and other special purpose short-term
borrowings.

6



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

On November 4, 2002, The Nasdaq Stock
Market, Inc. (Nasdaq) notified the Company that its
common stock had failed to meet the listing requirements for the
Nasdaq National Market because the common stock had closed below
the minimum bid price of $1.00 per share for thirty
(30) consecutive trading days. Accordingly, Nasdaq provided
the Company ninety (90) calendar days, or until
February 2, 2003, to regain compliance. To regain
compliance, the bid price of the Companys common stock
must close at $1.00 per share or more for a minimum of 10
consecutive trading days.

In addition, the Company does not currently meet
Nasdaqs $10 million stockholders equity
requirement that took effect on November 1, 2002. Nasdaq
has stated, in connection with the Companys failure to
meet the listing requirements in a prior quarter, that it
believes that the recapitalization described above provides a
definitive plan evidencing the Companys ability to achieve
and sustain compliance with the listing requirements. Nasdaq has
not provided written notification that the Companys
securities will be delisted as of the date of this filing. Upon
receipt of such a notification, the Company intends to appeal
Nasdaqs determination to Nasdaqs Listing
Qualifications Panel. A hearing on any appeal would be
scheduled, to the extent practicable, within forty-five days of
the date of the request for appeal, during which time the
Companys common stock will remain listed on the Nasdaq
National Market. The Company currently expects that all
recapitalization transactions will close before the expiration
of any such appeal process, and the Company believes that, upon
the consummation of the recapitalization, it will be in
compliance with $10 million stockholders equity
listing requirement.

BoS(USA) 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, 2002
if the Companys $12 million Term Loan B owed to
BoS(USA) 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, 2002 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 Company
Stock will terminate. BoS(USA) and the Company have entered into
several amendments to this option to acquire a warrant for
1,975,000 shares extending the exercise date from its initial
exercise date of August 31, 2001. The most recent amendment
extended the date from October 31, 2002 to
December 31, 2002 to allow the Company additional time to
pursue the proposed recapitalization described above. Under the
terms of the proposed recapitalization, the option would be
cancelled.

BoS(USA) 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, 2002
through a transaction involving the issuance of warrants,
BoS(USA) 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) and the Company have also amended
the warrant to extend the exercise date from its initial
exercise date of August 31, 2001 to correspond to the
extension of the initial exercise date of the option described
in the preceding paragraph. The most recent amendment extended
the date from October 31, 2002 to December 31, 2002,
consistent with the amended exercise date of the option as
discussed above.

In the third quarter of 1999, dividends on the
Companys redeemable preferred stock (New Preferred
Stock) were suspended. At September 30, 2002,
accumulated dividends in arrears on New Preferred Stock totaled
$8.3 million, or $6.825 per share. Since the Company
failed to pay quarterly dividends for six consecutive quarters,
the holders of New Preferred Stock are entitled to elect two
directors to the Companys Board until cumulative dividends
have been paid in full. Dividends on outstanding shares of New
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 dividends on New Preferred Stock will be paid in
the foreseeable future. The Company believes that the proposed
recapitalization plan described above will, if completed,
substantially reduce the number of

7



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

outstanding shares of New Preferred Stock and the
corresponding accrued dividends on the New Preferred Stock,
along with eliminating the option of BoS(USA) to acquire a
warrant to purchase 1,975,000 shares.

The Portfolio Asset acquisition and resolution
group of FirstCity has a $35 million loan facility
(increased from $30 million in August 2002) with CFSC
Capital Corp. XXX, a subsidiary of Cargill. This facility is
being used exclusively to provide equity in new Portfolio
acquisitions in partnerships with Cargill and its affiliates. At
September 30, 2002, approximately $21 million was
outstanding under this facility.

On April 29, 2002, BoS(USA) provided a
commitment to fund up to $5 million on a Term Loan E
to the Company to allow the Company to purchase existing debt
under a term credit facility at a purchase price not to exceed
85% of the unpaid principal balance. Term Loan E, secured
by assets of the Company, provides for an interest rate of LIBOR
plus 6% and matures on March 31, 2004. Through
September 30, 2002, advances of $2.8 million have been
made on this loan and used to purchase notes with aggregate
balances of $3.5 million, resulting in a gain of
$.7 million on early extinguishment of debt included in
other income in the consolidated statements of operations.
Bosque Asset Corp. (Bosque), a wholly owned
subsidiary of FirstCity, issued the original notes pursuant to a
Note Agreement dated June 6, 1997 in connection with its
acquisition of approximately 1,500 loans. Bosque granted a
security interest in the acquired loans to Bankers Trust
Company of California, N.A., as trustee for the noteholders. The
notes issued by Bosque matured according to the original terms
on June 5, 2002. FirstCity has not guaranteed payment or
performance of Bosque under the notes or the Note Agreement. As
of September 30, 2002, the aggregate principal balances of
the notes held by FirstCity was $2.7 million. The notes
acquired by FirstCity were purchased at eighty percent (80%) of
the outstanding principal balance of the notes. As of
September 30, 2002, the aggregate balance of the
outstanding notes held by persons unrelated to FirstCity was
$2.0 million. The current trustee under the Note Agreement
has not taken any action related to the maturity of the notes.
The remaining unfunded commitment provided by BoS(USA) was
$1.7 million at September 30, 2002.

The Company has a revolving line of credit
facility with BoS(USA) used to fund corporate overhead expenses.
On May 1, 2002, the maximum principal balance under this
facility was increased from $10 million to
$14 million. This facility, secured by assets of the
Company, provides for an interest rate of LIBOR plus 2.50% and
matures on December 31, 2003. At September 30, 2002,
the outstanding balance on this facility was $13 million.

Management believes that the BoS(USA) 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

On January 1, 2002, the Company adopted
Statement of Financial Accounting Standards (SFAS)
142, Goodwill and Other Intangible Assets
(SFAS 142) and SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(SFAS 144).

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
in accordance with the provisions of SFAS 142.
SFAS 142 requires that intangible assets with definite
useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for
impairment in accordance with the SFAS 121, Accounting
for the Impairment of Long-Lived Assets to Be Disposed Of
(SFAS 121). SFAS 144 supersedes
SFAS 121. The adoption of SFAS 142 did not have a
material impact on the Companys consolidated financial
statements, as unamortized goodwill at December 31, 2001
was $.1 million.

SFAS 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

8



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

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. Additionally, discontinued
operations that are not disposed of within one year must be
reclassified as assets held and used unless the discontinued
segment will be (1) abandoned through the liquidation or
run-off of operations because the entity is obligated by
regulation or contract to provide services after it ceases
accepting all new business and (2) is being reported as a
discontinued operation when SFAS 144 is initially applied.
The only assets remaining from discontinued operations are the
investment securities resulting from the retention of residual
interests in securitization transactions. Since the Company is
contractually obligated to service the securitized assets, the
adoption of SFAS 144 had no impact on the Companys
consolidated financial statements.

On April 1, 2002, the Company elected early
adoption of SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13,
and Technical Corrections (SFAS 145).
SFAS 145 updates, clarifies and simplifies existing
accounting pronouncements. As it relates to FirstCity, the
statement eliminates the extraordinary gain classification on
early debt extinguishments. Instead, the gains associated with
the early extinguishment of debt have been recorded in other
income in the consolidated statements of operations. The result
of this adoption did not modify or adjust net earnings (loss)
for any period and does not impact the Companys compliance
with various debt covenants.

On July 30, 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities (SFAS 146). The
provisions of SFAS 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The
Company does not expect the adoption of SFAS 146 to have a
material effect on its consolidated financial position or
results of operations.

(4)     Discontinued
Operations

The Company recorded provision totaling
$7.7 million in the first nine months of 2002 and
$3.0 million in 2001 for additional losses from
discontinued operations. The additional provisions in 2002
primarily relate to a reduction in the anticipated future cash
flows from securitization trusts due to increased expected
prepayments and losses. The net assets from discontinued
operations consist of the following:

|                                                                                  |                                       |               |        |              |  |   |        |        | 
|--------------------------------------------------------------------------------- | ------------------------------------- | ------------- | ------ | ------------ |  | - | ------ | ------ | 
|                                                                                  |                                       | September 30, |        | December 31,
|                                                                                  |                                       | 2002          |        | 2001        
|                                                                                  |                                       |               |        |             
|Estimated future gross cash receipts on residual
    interests in securitizations |                                       | $             | 10,386 |              |  | $ | 18,775 |       
|Accrual for loss on operations and disposal of
    discontinued operations, net   |                                       |               | (593   | )            |  |   | (2,118 | )     
|                                                                                  |                                       |               |        |              |  |   |        |       
|                                                                                  | Net assets of discontinued operations |               | $      | 9,793        |  |   | $      | 16,657 | 
|                                                                                  |                                       |               |        |              |  |   |        |       

The only assets remaining from discontinued
operations are the investment securities resulting from the
retention of residual interests in securitization transactions.
Although the liquidation or run-off of these investment
securities will last longer than one year, the Company is
contractually obligated to service the securitized assets. 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
31% to 32% for fixed rate loans and 25% to 32% for variable rate
loans. Overall loss rates are estimated from 4.1% to 7.3% of
collateral.

9



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(5)     Portfolio
Assets

Portfolio Assets are summarized as follows:

|                                                                                      |                        |               |         |              |  |   |         |        | 
|------------------------------------------------------------------------------------- | ---------------------- | ------------- | ------- | ------------ |  | - | ------- | ------ | 
|                                                                                      |                        | September 30, |         | December 31,
|                                                                                      |                        | 2002          |         | 2001        
|                                                                                      |                        |               |         |             
|Non-performing Portfolio Assets                                                       |                        | $             | 39,024  |              |  | $ | 45,123  |       
|Performing Portfolio Assets                                                           |                        |               | 8,056   |              |  |   | 10,227  |       
|Real estate Portfolios                                                                |                        |               | 1,511   |              |  |   | 1,766   |       
|                                                                                      |                        |               |         |              |  |   |         |       
|                                                                                      | Total Portfolio Assets |               |         | 48,591       |  |   |         | 57,116 | 
|Adjusted purchase discount required to reflect
    Portfolio Assets at carrying value |                        |               | (38,099 | )            |  |   | (42,898 | )     
|                                                                                      |                        |               |         |              |  |   |         |       
|                                                                                      | Portfolio Assets, net  |               | $       | 10,492       |  |   | $       | 14,218 | 
|                                                                                      |                        |               |         |              |  |   |         |       

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

(6)     Loans
Receivable from Acquisition Partnerships Held for
Investment

Loans receivable from Acquisition Partnerships
held for investment consist primarily of loans from certain
partnerships located in Mexico and are summarized as follows:

|         |  |               |        |              |  |   |        | 
|-------- |  | ------------- | ------ | ------------ |  | - | ------ | 
|         |  | September 30, |        | December 31,
|         |  | 2002          |        | 2001        
|         |  |               |        |             
|Mexico   |  | $             | 19,717 |              |  | $ | 18,609 | 
|Domestic |  |               | 1,363  |              |  |   | 1,156  | 
|         |  |               |        |              |  |   |        | 
|         |  | $             | 21,080 |              |  | $ | 19,765 | 
|         |  |               |        |              |  |   |        | 

There were no provisions recorded on these loans
during the first nine months of 2002 and 2001. The loans
receivable from the Mexican partnerships are secured by the
assets/loans acquired by the Mexican partnerships with purchase
money loans provided by the investors to the Mexican
partnerships to purchase the asset pools held in those entities.
These loans are evaluated for impairment by analyzing the
expected future cash flows from the underlying assets within
each pool to determine that the cash flows were sufficient to
repay these notes. The Company applies the asset valuation
methodology consistently in all venues and uses the same
proprietary asset management system to evaluate impairment on
all asset pools. The results of this evaluation indicated that
cash flows from the pools will be sufficient to repay the loans
and no allowances for impairment were necessary.

10



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(7)     Equity
Investments

The Company has investments in entities formed to
acquire Portfolios (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 (excluding servicing entities), which
include the domestic and foreign Acquisition Partnerships and
their general partners, are summarized below:

Condensed Combined Balance Sheets

|                                              |  |               |         |              |  |   |         | 
|--------------------------------------------- |  | ------------- | ------- | ------------ |  | - | ------- | 
|                                              |  | September 30, |         | December 31,
|                                              |  | 2002          |         | 2001        
|                                              |  |               |         |             
|Assets                                        |  | $             | 573,106 |              |  | $ | 654,883 | 
|                                              |  |               |         |              |  |   |         | 
|Liabilities                                   |  | $             | 444,215 |              |  | $ | 498,361 | 
|Net equity                                    |  |               | 128,891 |              |  |   | 156,522 | 
|                                              |  |               |         |              |  |   |         | 
|                                              |  | $             | 573,106 |              |  | $ | 654,883 | 
|                                              |  |               |         |              |  |   |         | 
|Equity investment in Acquisition Partnerships |  | $             | 39,514  |              |  | $ | 42,660  | 
|Equity investment in servicing entities       |  |               | 2,937   |              |  |   | 2,118   | 
|                                              |  |               |         |              |  |   |         | 
|                                              |  | $             | 42,451  |              |  | $ | 44,778  | 
|                                              |  |               |         |              |  |   |         | 

Condensed Combined Summary of
Operations

|                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         | 
|---------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | 
|                                               |  |                    |        |                  
|                                               |  | Three Months Ended |        | Nine Months Ended
|                                               |  | September 30,      |        | September 30,    
|                                               |  |                    |        |                  
|                                               |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                                               |  |                    |        |                   |  |      |        |     
|Proceeds from resolution of Portfolio Assets   |  | $                  | 46,473 |                   |  | $    | 59,265 |      |  | $ | 221,106 |   |  | $ | 178,912 | 
|Gain on resolution of Portfolio Assets         |  |                    | 16,849 |                   |  |      | 24,082 |      |  |   | 69,532  |   |  |   | 79,369  | 
|Interest income on performing Portfolio Assets |  |                    | 2,699  |                   |  |      | 6,054  |      |  |   | 11,961  |   |  |   | 18,746  | 
|Net earnings (loss)                            |  |                    | (4,826 | )                 |  |      | 220    |      |  |   | (6,711  | ) |  |   | 11,730  | 
|                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         | 
|Equity in earnings of Acquisition Partnerships |  | $                  | 912    |                   |  | $    | 1,173  |      |  | $ | 6,494   |   |  | $ | 7,839   | 
|Equity in earnings of servicing entities       |  |                    | 12     |                   |  |      | 10     |      |  |   | 692     |   |  |   | 997     | 
|                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         | 
|                                               |  | $                  | 924    |                   |  | $    | 1,183  |      |  | $ | 7,186   |   |  | $ | 8,836   | 
|                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         | 

11



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The assets and equity of the Acquisition
Partnerships and equity investments in the Acquisition
Partnerships are summarized by geographic region below. The
WAMCO Partnerships represent limited partnerships and limited
liability companies in which the Company has a common ownership
with Cargill.

|                                               |                  |                    |         |              |         |   |         |         |         | 
|---------------------------------------------- | ---------------- | ------------------ | ------- | ------------ | ------- | - | ------- | ------- | ------- | 
|                                               |                  | September 30,      |         | December 31,
|                                               |                  | 2002               |         | 2001        
|                                               |                  |                    |         |             
|Assets:                                        |                  |                    |         |              |         |   |         |        
|                                               | Domestic:        |                    |         |              |         |   |         |         |        
|                                               |                  | WAMCO Partnerships |         | $            | 159,729 |   |         | $       | 259,617 | 
|                                               |                  | Other              |         |              | 22,256  |   |         |         | 15,607  | 
|                                               | Mexico           |                    |         | 256,330      |         |   |         | 305,324 |        
|                                               | France and Italy |                    |         | 134,791      |         |   |         | 74,335  |        
|                                               |                  |                    |         |              |         |   |         |        
|                                               |                  | $                  | 573,106 |              |         | $ | 654,883 |        
|                                               |                  |                    |         |              |         |   |         |        
|Equity:                                        |                  |                    |         |              |         |   |         |        
|                                               | Domestic:        |                    |         |              |         |   |         |         |        
|                                               |                  | WAMCO Partnerships |         | $            | 72,993  |   |         | $       | 90,249  | 
|                                               |                  | Other              |         |              | 8,834   |   |         |         | 3,207   | 
|                                               | Mexico           |                    |         | (35,883      | )       |   |         | 2,546   |        
|                                               | France and Italy |                    |         | 82,947       |         |   |         | 60,520  |        
|                                               |                  |                    |         |              |         |   |         |        
|                                               |                  | $                  | 128,891 |              |         | $ | 156,522 |        
|                                               |                  |                    |         |              |         |   |         |        
|Equity investment in Acquisition Partnerships: |                  |                    |         |              |         |   |         |        
|                                               | Domestic:        |                    |         |              |         |   |         |         |        
|                                               |                  | WAMCO Partnerships |         | $            | 26,193  |   |         | $       | 30,806  | 
|                                               |                  | Other              |         |              | 4,046   |   |         |         | 2,313   | 
|                                               | Mexico           |                    |         | (2,189       | )       |   |         | 292     |        
|                                               | France and Italy |                    |         | 11,464       |         |   |         | 9,249   |        
|                                               |                  |                    |         |              |         |   |         |        
|                                               |                  | $                  | 39,514  |              |         | $ | 42,660  |        
|                                               |                  |                    |         |              |         |   |         |        

12



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Revenues and earnings (loss) of the Acquisition
Partnerships and equity in earnings of the Acquisition
Partnerships are summarized by geographic region below.

|                                                           |                  |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |         |        | 
|---------------------------------------------------------- | ---------------- | ------------------ | ------ | ----------------- | ----- | ---- | ------ | ------ | ------ | - | ------ | ------- | ------ | - | ------- | ------- | ------ | 
|                                                           |                  |                    |        |                  
|                                                           |                  | Three Months Ended |        | Nine Months Ended
|                                                           |                  | September 30,      |        | September 30,    
|                                                           |                  |                    |        |                  
|                                                           |                  | 2002               |        | 2001              |       | 2002 |        | 2001  
|                                                           |                  |                    |        |                   |       |      |        |       
|Revenues:                                                  |                  |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |        
|                                                           | Domestic:        |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |         |       
|                                                           |                  | WAMCO Partnerships |        | $                 | 5,687 |      |        | $      | 10,427 |   |        | $       | 37,069 |   |         | $       | 36,515 | 
|                                                           |                  | Other              |        |                   | 1,931 |      |        |        | 14     |   |        |         | 4,338  |   |         |         | 1,474  | 
|                                                           | Mexico           |                    |        | 8,807             |       |      |        | 15,278 |        |   |        | 29,554  |        |   |         | 46,522  |       
|                                                           | France and Italy |                    |        | 3,695             |       |      |        | 5,027  |        |   |        | 12,334  |        |   |         | 15,932  |       
|                                                           |                  |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |        
|                                                           |                  | $                  | 20,120 |                   |       | $    | 30,746 |        |        | $ | 83,295 |         |        | $ | 100,443 |        
|                                                           |                  |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |        
|Net earnings (loss):                                       |                  |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |        
|                                                           | Domestic:        |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |         |       
|                                                           |                  | WAMCO Partnerships |        | $                 | 2,210 |      |        | $      | 4,165  |   |        | $       | 23,936 |   |         | $       | 16,905 | 
|                                                           |                  | Other              |        |                   | 1,149 |      |        |        | (120   | ) |        |         | 2,527  |   |         |         | 906    | 
|                                                           | Mexico           |                    |        | (10,464           | )     |      |        | (7,247 | )      |   |        | (40,875 | )      |   |         | (16,775 | )     
|                                                           | France and Italy |                    |        | 2,279             |       |      |        | 3,422  |        |   |        | 7,701   |        |   |         | 10,694  |       
|                                                           |                  |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |        
|                                                           |                  | $                  | (4,826 | )                 |       | $    | 220    |        |        | $ | (6,711 | )       |        | $ | 11,730  |        
|                                                           |                  |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |        
|Equity in earnings (loss) of Acquisition
    Partnerships: |                  |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |        
|                                                           | Domestic:        |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |         |       
|                                                           |                  | WAMCO Partnerships |        | $                 | 923   |      |        | $      | 1,205  |   |        | $       | 6,797  |   |         | $       | 6,092  | 
|                                                           |                  | Other              |        |                   | 386   |      |        |        | (31    | ) |        |         | 1,014  |   |         |         | 576    | 
|                                                           | Mexico           |                    |        | (812              | )     |      |        | (653   | )      |   |        | (2,726  | )      |   |         | (995    | )     
|                                                           | France and Italy |                    |        | 415               |       |      |        | 652    |        |   |        | 1,409   |        |   |         | 2,166   |       
|                                                           |                  |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |        
|                                                           |                  | $                  | 912    |                   |       | $    | 1,173  |        |        | $ | 6,494  |         |        | $ | 7,839   |        
|                                                           |                  |                    |        |                   |       |      |        |        |        |   |        |         |        |   |         |        

The Company recorded a $.3 million addition
to equity in the first nine months of 2002 as a result of
unrealized gains on residual interests in securitization
transactions held by one Acquisition Partnership. Also, the
Company recorded $.9 million in foreign currency
translation adjustments in the first nine months of 2002
relating to equity investments in foreign Acquisition
Partnerships and servicing entities.

13



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

FirstCity also has an investment in Drive that is
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,
|                                      |                   | 2002                    |         | 2001        
|                                      |                   |                         |         |             
|Cash                                  |                   | $                       | 16,648  |              |       | $ | 7,303   |        
|Retail installment contracts, net     |                   |                         | 310,540 |              |       |   | 70,447  |        
|Residual interests in securitizations |                   |                         | 68,568  |              |       |   | 77,407  |        
|Other assets                          |                   |                         | 20,539  |              |       |   | 10,321  |        
|                                      |                   |                         |         |              |       |   |         |        
|                                      | Total assets      |                         | $       | 416,295      |       |   | $       | 165,478 |      
|                                      |                   |                         |         |              |       |   |         |        
|Notes payable                         |                   | $                       | 371,098 |              |       | $ | 126,665 |        
|Other liabilities                     |                   |                         | 19,146  |              |       |   | 13,323  |        
|                                      |                   |                         |         |              |       |   |         |        
|                                      | Total liabilities |                         |         | 390,244      |       |   |         | 139,988 |      
|Net equity                            |                   |                         | 26,051  |              |       |   | 25,490  |        
|                                      |                   |                         |         |              |       |   |         |        
|                                      |                   | $                       | 416,295 |              |       | $ | 165,478 |        
|                                      |                   |                         |         |              |       |   |         |        
|Equity investment in Drive            |                   | $                       | 10,092  |              |       | $ | 9,877   |        
|                                      | Minority interest |                         |         | (2,016       | )     |   |         | (1,975  | )    
|                                      |                   |                         |         |              |       |   |         |        
|                                      |                   | Net investment in Drive |         | $            | 8,076 |   |         | $       | 7,902 | 
|                                      |                   |                         |         |              |       |   |         |        

Condensed Consolidated Summary Of
Operations

|                                         |                                        |                    |        |                   |  |      |        |        |   |   |        |        |   |   |        |        | 
|---------------------------------------- | -------------------------------------- | ------------------ | ------ | ----------------- |  | ---- | ------ | ------ | - | - | ------ | ------ | - | - | ------ | ------ | 
|                                         |                                        |                    |        |                  
|                                         |                                        | Three Months Ended |        | Nine Months Ended
|                                         |                                        | September 30,      |        | September 30,    
|                                         |                                        |                    |        |                  
|                                         |                                        | 2002               |        | 2001              |  | 2002 |        | 2001  
|                                         |                                        |                    |        |                   |  |      |        |       
|Interest income                          |                                        | $                  | 35,694 |                   |  | $    | 9,431  |        |   | $ | 64,253 |        |   | $ | 27,628 |       
|Gain on sale of loans                    |                                        |                    |       |                   |  |      | 3,042  |        |   |   |       |        |   |   | 28,524 |       
|Service fees and other                   |                                        |                    | 2,850  |                   |  |      | 3,718  |        |   |   | 9,701  |        |   |   | 6,157  |       
|                                         |                                        |                    |        |                   |  |      |        |        |   |   |        |        |   |   |        |       
|                                         | Revenues                               |                    |        | 38,544            |  |      |        | 16,191 |   |   |        | 73,954 |   |   |        | 62,309 | 
|                                         |                                        |                    |        |                   |  |      |        |        |   |   |        |        |   |   |        |       
|Interest expense                         |                                        |                    | 4,896  |                   |  |      | 1,890  |        |   |   | 10,638 |        |   |   | 9,097  |       
|Salaries and benefits                    |                                        |                    | 9,832  |                   |  |      | 8,351  |        |   |   | 30,279 |        |   |   | 23,203 |       
|Provision for loan and impairment losses |                                        |                    | 16,472 |                   |  |      | 2,224  |        |   |   | 16,452 |        |   |   | 8,799  |       
|Other expenses                           |                                        |                    | 6,431  |                   |  |      | 8,117  |        |   |   | 17,861 |        |   |   | 13,912 |       
|                                         |                                        |                    |        |                   |  |      |        |        |   |   |        |        |   |   |        |       
|                                         | Expenses                               |                    |        | 37,631            |  |      |        | 20,582 |   |   |        | 75,230 |   |   |        | 55,011 | 
|                                         |                                        |                    |        |                   |  |      |        |        |   |   |        |        |   |   |        |       
|Net income (loss)                        |                                        | $                  | 913    |                   |  | $    | (4,391 | )      |   | $ | (1,276 | )      |   | $ | 7,298  |       
|                                         |                                        |                    |        |                   |  |      |        |        |   |   |        |        |   |   |        |       
|Equity in earnings (loss) of Drive       |                                        | $                  | 353    |                   |  | $    | (1,702 | )      |   | $ | (495   | )      |   | $ | 3,131  |       
|Cumulative effect of accounting change   |                                        |                    |       |                   |  |      |       |        |   |   |       |        |   |   | (304   | )     
|Minority interest                        |                                        |                    | (71    | )                 |  |      | 340    |        |   |   | 99     |        |   |   | (565   | )     
|                                         |                                        |                    |        |                   |  |      |        |        |   |   |        |        |   |   |        |       
|                                         | Net equity in earnings (loss) of Drive |                    | $      | 282               |  |      | $      | (1,362 | ) |   | $      | (396   | ) |   | $      | 2,262  | 
|                                         |                                        |                    |        |                   |  |      |        |        |   |   |        |        |   |   |        |       

The Company recorded a $.6 million addition
to equity in the first nine months of 2002 because of unrealized
gains on residual interests in securitization transactions held
by Drive.

14



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(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. 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 is conducted through the Companys equity
investment in Drive. Drive is a specialized consumer finance
company engaged in the purchase, securitization and servicing of
retail installment contracts originated by automobile dealers.
The following is a summary of results of operations for each of
the segments and reconciliation to earnings (loss) from
continuing operations for the three months and nine months ended
September 30, 2002 and 2001.

|                                                |                                              |                                                |       |                   |       |       |   |      |        |        |   |       |       |        |   |       |       |        | 
|----------------------------------------------- | -------------------------------------------- | ---------------------------------------------- | ----- | ----------------- | ----- | ----- | - | ---- | ------ | ------ | - | ----- | ----- | ------ | - | ----- | ----- | ------ | 
|                                                |                                              |                                                |       |                  
|                                                |                                              | Three Months Ended                             |       | Nine Months Ended
|                                                |                                              | September 30,                                  |       | September 30,    
|                                                |                                              |                                                |       |                  
|                                                |                                              | 2002                                           |       | 2001              |       | 2002  |   | 2001
|                                                |                                              |                                                |       |                   |       |       |   |     
|Portfolio Asset Acquisition and
    Resolution: |                                              |                                                |       |                   |       |       |   |      |        |        |   |       |       |        |   |      
|                                                | Revenues:                                    |                                                |       |                   |       |       |   |      |        |        |   |       |       |        |   |       |      
|                                                |                                              | Servicing fees                                 |       | $                 | 3,263 |       |   | $    | 2,177  |        |   | $     | 9,655 |        |   | $     | 7,846 |       
|                                                |                                              | Gain on resolution of Portfolio Assets         |       |                   | 225   |       |   |      | 443    |        |   |       | 925   |        |   |       | 875   |       
|                                                |                                              | Equity in earnings of investments              |       |                   | 924   |       |   |      | 1,183  |        |   |       | 7,186 |        |   |       | 8,836 |       
|                                                |                                              | Interest income                                |       |                   | 1,240 |       |   |      | 1,733  |        |   |       | 3,899 |        |   |       | 4,357 |       
|                                                |                                              | Gain on sale of interest in equity investments |       |                   |      |       |   |      | 182    |        |   |       | 1,779 |        |   |       | 3,316 |       
|                                                |                                              | Other                                          |       |                   | 491   |       |   |      | 267    |        |   |       | 1,588 |        |   |       | 1,095 |       
|                                                |                                              |                                                |       |                   |       |       |   |      |        |        |   |       |       |        |   |      
|                                                |                                              |                                                | Total |                   |       | 6,143 |   |      |        | 5,985  |   |       |       | 25,032 |   |       |       | 26,325 | 
|                                                | Expenses:                                    |                                                |       |                   |       |       |   |      |        |        |   |       |       |        |   |       |      
|                                                |                                              | Interest and fees on notes payable             |       |                   | 628   |       |   |      | 1,178  |        |   |       | 2,132 |        |   |       | 3,289 |       
|                                                |                                              | Salaries and benefits                          |       |                   | 2,871 |       |   |      | 1,775  |        |   |       | 7,548 |        |   |       | 5,309 |       
|                                                |                                              | Provision for loan and impairment losses       |       |                   | 157   |       |   |      | 1,000  |        |   |       | 278   |        |   |       | 3,128 |       
|                                                |                                              | Occupancy, data processing and other           |       |                   | 1,672 |       |   |      | 1,852  |        |   |       | 5,939 |        |   |       | 7,351 |       
|                                                |                                              |                                                |       |                   |       |       |   |      |        |        |   |       |       |        |   |      
|                                                |                                              |                                                | Total |                   |       | 5,328 |   |      |        | 5,805  |   |       |       | 15,897 |   |       |       | 19,077 | 
|                                                |                                              |                                                |       |                   |       |       |   |      |        |        |   |       |       |        |   |      
|                                                | Operating contribution before direct taxes   |                                                | $     | 815               |       |       | $ | 180  |        |        | $ | 9,135 |       |        | $ | 7,248 |      
|                                                |                                              |                                                |       |                   |       |       |   |      |        |        |   |       |       |        |   |      
|                                                | Operating contribution , net of direct taxes |                                                | $     | 787               |       |       | $ | 153  |        |        | $ | 9,100 |       |        | $ | 7,230 |      
|                                                |                                              |                                                |       |                   |       |       |   |      |        |        |   |       |       |        |   |      
|Consumer Lending:                               |                                              |                                                |       |                   |       |       |   |      |        |        |   |       |       |        |   |      
|                                                | Revenues:                                    |                                                |       |                   |       |       |   |      |        |        |   |       |       |        |   |       |      
|                                                |                                              | Equity in earnings (loss) of investment        |       | $                 | 353   |       |   | $    | (1,702 | )      |   | $     | (495  | )      |   | $     | 3,131 |       
|                                                |                                              | Interest income                                |       |                   |      |       |   |      | 1      |        |   |       |      |        |   |       | 7     |       
|                                                |                                              |                                                |       |                   |       |       |   |      |        |        |   |       |       |        |   |      
|                                                |                                              |                                                | Total |                   |       | 353   |   |      |        | (1,701 | ) |       |       | (495   | ) |       |       | 3,138  | 

15



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                    |                                                                                       |                                                                     |                                                              |                   |    |       |   |        |      |        |   |       |     |       |   |       |     |       | 
|------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------- | -- | ----- | - | ------ | ---- | ------ | - | ----- | --- | ----- | - | ----- | --- | ----- | 
|                    |                                                                                       |                                                                     |                                                              |                  
|                    |                                                                                       | Three Months Ended                                                  |                                                              | Nine Months Ended
|                    |                                                                                       | September 30,                                                       |                                                              | September 30,    
|                    |                                                                                       |                                                                     |                                                              |                  
|                    |                                                                                       | 2002                                                                |                                                              | 2001              |    | 2002  |   | 2001  
|                    |                                                                                       |                                                                     |                                                              |                   |    |       |   |       
|                    | Expenses:                                                                             |                                                                     |                                                              |                   |    |       |   |        |      |        |   |       |     |       |   |       |    
|                    |                                                                                       | Occupancy, data processing and other (net of
    minority interest) |                                                              |                   | 73 |       |   |        | (334 | )      |   |       | (89 | )     |   |       | 910 |      
|                    |                                                                                       |                                                                     |                                                              |                   |    |       |   |        |      |        |   |       |     |       |   |      
|                    |                                                                                       |                                                                     | Total                                                        |                   |    | 73    |   |        |      | (334   | ) |       |     | (89   | ) |       |     | 910   | 
|                    |                                                                                       |                                                                     |                                                              |                   |    |       |   |        |      |        |   |       |     |       |   |      
|                    | Operating contribution (loss) before direct taxes                                     |                                                                     | $                                                            | 280               |    |       | $ | (1,367 | )    |        | $ | (406  | )   |       | $ | 2,228 |    
|                    |                                                                                       |                                                                     |                                                              |                   |    |       |   |        |      |        |   |       |     |       |   |      
|                    | Operating contribution (loss), net of direct taxes                                    |                                                                     | $                                                            | 280               |    |       | $ | (1,367 | )    |        | $ | (406  | )   |       | $ | 2,228 |    
|                    |                                                                                       |                                                                     |                                                              |                   |    |       |   |        |      |        |   |       |     |       |   |      
|                    |                                                                                       |                                                                     | Total operating contribution (loss), net of
    direct taxes |                   | $  | 1,067 |   |        | $    | (1,214 | ) |       | $   | 8,694 |   |       | $   | 9,458 | 
|Corporate Overhead: |                                                                                       |                                                                     |                                                              |                   |    |       |   |        |      |        |   |       |     |       |   |      
|                    | Corporate interest expense                                                            |                                                                     |                                                              | 939               |    |       |   | 1,102  |      |        |   | 2,608 |     |       |   | 3,745 |    
|                    | Salaries and benefits, occupancy, professional
    and other income and expenses, net |                                                                     |                                                              | 1,265             |    |       |   | 1,289  |      |        |   | 3,855 |     |       |   | 3,829 |    
|                    |                                                                                       |                                                                     |                                                              |                   |    |       |   |        |      |        |   |       |     |       |   |      
|                    | Earnings (loss) from continuing operations                                            |                                                                     | $                                                            | (1,137            | )  |       | $ | (3,605 | )    |        | $ | 2,231 |     |       | $ | 1,884 |    
|                    |                                                                                       |                                                                     |                                                              |                   |    |       |   |        |      |        |   |       |     |       |   |      

All of the revenues from the consumer lending
segment are attributable to domestic operations. Revenues from
the Portfolio Asset acquisition and resolution segment are
attributable to domestic and foreign operations as follows:

|                 |       |               |       |                   |  |      |       |       |  |   |        |        |  |   |        |        | 
|---------------- | ----- | ------------- | ----- | ----------------- |  | ---- | ----- | ----- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                 |       |               |       |                   |  |     
|                 |       | Three Months  |       |                  
|                 |       | Ended         |       | Nine Months Ended
|                 |       | September 30, |       | September 30,    
|                 |       |               |       |                  
|                 |       | 2002          |       | 2001              |  | 2002 |       | 2001 
|                 |       |               |       |                   |  |      |       |      
|Domestic         |       | $             | 3,361 |                   |  | $    | 3,232 |       |  | $ | 15,322 |        |  | $ | 15,969 |       
|Mexico           |       |               | 2,379 |                   |  |      | 2,047 |       |  |   | 5,746  |        |  |   | 7,040  |       
|France and Italy |       |               | 401   |                   |  |      | 706   |       |  |   | 3,957  |        |  |   | 3,296  |       
|Other foreign    |       |               | 2     |                   |  |      |      |       |  |   | 7      |        |  |   | 20     |       
|                 |       |               |       |                   |  |      |       |       |  |   |        |        |  |   |        |       
|                 | Total |               | $     | 6,143             |  |      | $     | 5,985 |  |   | $      | 25,032 |  |   | $      | 26,325 | 
|                 |       |               |       |                   |  |      |       |       |  |   |        |        |  |   |        |       

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

|                                            |                  |               |        |              |         |  |        |        |         | 
|------------------------------------------- | ---------------- | ------------- | ------ | ------------ | ------- |  | ------ | ------ | ------- | 
|                                            |                  | September 30, |        | December 31,
|                                            |                  | 2002          |        | 2001        
|                                            |                  |               |        |             
|Portfolio acquisition and resolution assets |                  |               |        |              |         |  |        |       
|                                            | Domestic         |               | $      | 42,142       |         |  | $      | 48,202 |        
|                                            | Mexico           |               |        | 19,093       |         |  |        | 19,766 |        
|                                            | France and Italy |               |        | 14,401       |         |  |        | 11,367 |        
|Consumer assets                             |                  |               | 10,168 |              |         |  | 10,205 |       
|Deferred tax benefit, net                   |                  |               | 20,101 |              |         |  | 20,101 |       
|Cash                                        |                  |               | 8,260  |              |         |  | 5,583  |       
|Other assets, net                           |                  |               | 8,678  |              |         |  | 7,012  |       
|Net assets of discontinued operations       |                  |               | 9,793  |              |         |  | 16,657 |       
|                                            |                  |               |        |              |         |  |        |       
|                                            |                  | Total assets  |        | $            | 132,636 |  |        | $      | 138,893 | 
|                                            |                  |               |        |              |         |  |        |       

16



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(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 a
valuation allowance to value the net deferred tax asset at a
level, which more likely than not, will be realized. Realization
is determined based on managements expectation of
generating sufficient taxable income in a look forward period
over the next four years. The ultimate realization of the
resulting net deferred tax asset is dependent upon generating
sufficient taxable income from its continuing operations prior
to expiration of the NOLs. Although realization is not assured,
management believes it is more likely than not that all of the
recorded deferred tax asset, net of the allowance, will be
realized. The amount of the deferred tax asset considered
realizable, however, could be adjusted in the future if
estimates of future taxable income during the carryforward
period change. The ability of the Company to realize the
deferred tax asset is periodically reviewed and the valuation
allowance is adjusted accordingly.

(10)     Commitments
and Contingencies

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 liquidation proceedings 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 included fraudulent and preferential transfer of
assets of the Harbor entities, fraud and conspiracy. The
Trustee, FirstCity, the other defendants and the insurers
providing Directors and Officers Insurance coverage
for FirstCity and its subsidiaries (the Insurers)
have executed a settlement agreement setting forth the terms of
the compromise of the claims brought in the adversary
proceedings, which has been approved by the Bankruptcy Court.
Under the terms of the settlement agreement, the Trustee
released 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 (i) the
payment of the sum of $3,575,000 by the Insurers to the Trustee,
(ii) a payment by FirstCity to the Trustee in the sum of
$225,000, and (iii) 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, with the
exception of a portion of the administrative claim of FirstCity
as noted below. FirstCitys administrative claim in the
Bankruptcy Case was allowed in the amount of $300,000, which
claim FirstCity was assigned to the Insurers and paid by the
Trustee directly to the Insurers.

Periodically, FirstCity, its subsidiaries, its
affiliates and the Acquisition Partnerships are parties to or
otherwise involved in legal proceedings arising in the normal
course of business. FirstCity 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 FirstCity, 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, 2002, advances of
$2.4 million had been made under the obligation.

17



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

In connection with the transactions contemplated
by the Securities Purchase Agreement pursuant to which the
Company sold its 49% equity interest in Drive, effective
August 1, 2000, FirstCity Consumer Lending Corporation
(Consumer Corp.) and FirstCity Funding LP
(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 FirstCity
Funding GP Corp. (Funding GP) made various
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 BoS(USA), and certain of its
subsidiaries 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
($18 million outstanding as of September 30, 2002) to
Drive by BoS(USA). 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. To
date, no payments have been made by the Company pursuant to this
guaranty.

18



---



##### 



WAMCO PARTNERSHIPS

Combined Financial Statements

September 30, 2002


(Unaudited)


19



---



##### 



WAMCO PARTNERSHIPS

COMBINED BALANCE SHEETS

|                                                                                                |                   |                        |         |              |  |   |         |         | 
|----------------------------------------------------------------------------------------------- | ----------------- | ---------------------- | ------- | ------------ |  | - | ------- | ------- | 
|                                                                                                |                   | September 30,          |         | December 31,
|                                                                                                |                   | 2002                   |         | 2001        
|                                                                                                |                   |                        |         |             
|                                                                                                |                   |                       
|                                                                                                |                   | (Dollars in thousands)
|                                                                                                |                   | (Unaudited)           
|ASSETS                                                                                         
|Cash                                                                                            |                   | $                      | 7,969   |              |  | $ | 13,397  |        
|Portfolio Assets, net                                                                           |                   |                        | 123,082 |              |  |   | 218,731 |        
|Investments in partnerships                                                                     |                   |                        | 2,302   |              |  |   | 2,302   |        
|Investments in trust certificates                                                               |                   |                        | 7,901   |              |  |   | 8,223   |        
|Deferred profit sharing                                                                         |                   |                        | 17,549  |              |  |   | 15,506  |        
|Other assets, net                                                                               |                   |                        | 926     |              |  |   | 1,458   |        
|                                                                                                |                   |                        |         |              |  |   |         |        
|                                                                                                |                   | $                      | 159,729 |              |  | $ | 259,617 |        
|                                                                                                |                   |                        |         |              |  |   |         |        
|                                                                                               
|LIABILITIES AND PARTNERS
    CAPITAL                                                          
|Notes payable (including $20,748 and $101,178 to
    affiliates in 2002 and 2001, respectively) |                   |                        | 57,841  |              |  |   | 140,411 |        
|Deferred compensation                                                                           |                   |                        | 21,526  |              |  |   | 20,552  |        
|Other liabilities (including $532 and $558 to
    affiliates in 2002 and 2001, respectively)    |                   |                        | 2,956   |              |  |   | 3,800   |        
|                                                                                                |                   |                        |         |              |  |   |         |        
|                                                                                                | Total liabilities |                        |         | 82,323       |  |   |         | 164,763 | 
|Commitments and contingencies                                                                   |                   |                        |        |              |  |   |        |        
|Preferred equity                                                                                |                   |                        | 4,413   |              |  |   | 4,605   |        
|Partners capital                                                                               |                   |                        | 72,993  |              |  |   | 90,249  |        
|                                                                                                |                   |                        |         |              |  |   |         |        
|                                                                                                |                   | $                      | 159,729 |              |  | $ | 259,617 |        
|                                                                                                |                   |                        |         |              |  |   |         |        

See accompanying notes to combined financial
statements.

20



---



##### 



WAMCO PARTNERSHIPS






COMBINED STATEMENTS OF OPERATIONS


|                                                    |                                        |                        |        |                   |  |      |        |       |  |   |         |        |  |   |        |        | 
|--------------------------------------------------- | -------------------------------------- | ---------------------- | ------ | ----------------- |  | ---- | ------ | ----- |  | - | ------- | ------ |  | - | ------ | ------ | 
|                                                    |                                        |                        |        |                  
|                                                    |                                        | Three Months Ended     |        | Nine Months Ended
|                                                    |                                        | September 30,          |        | September 30,    
|                                                    |                                        |                        |        |                  
|                                                    |                                        | 2002                   |        | 2001              |  | 2002 |        | 2001 
|                                                    |                                        |                        |        |                   |  |      |        |      
|                                                    |                                        |                       
|                                                    |                                        | (Dollars in thousands)
|                                                    |                                        | (Unaudited)           
|Proceeds from resolution of Portfolio Assets        |                                        | $                      | 12,382 |                   |  | $    | 15,042 |       |  | $ | 117,983 |        |  | $ | 50,820 |       
|Cost of Portfolio Assets resolved                   |                                        |                        | 9,084  |                   |  |      | 10,033 |       |  |   | 91,843  |        |  |   | 30,550 |       
|                                                    |                                        |                        |        |                   |  |      |        |       |  |   |         |        |  |   |        |       
|                                                    | Gain on resolution of Portfolio Assets |                        |        | 3,298             |  |      |        | 5,009 |  |   |         | 26,140 |  |   |        | 20,270 | 
|Interest income on performing Portfolio Assets      |                                        |                        | 1,926  |                   |  |      | 4,914  |       |  |   | 9,515   |        |  |   | 14,837 |       
|Interest and fees on notes payable 
    affiliates |                                        |                        | (675   | )                 |  |      | (2,141 | )     |  |   | (3,296  | )      |  |   | (9,684 | )     
|Interest and fees on notes payable 
    other      |                                        |                        | (757   | )                 |  |      | (856   | )     |  |   | (2,512  | )      |  |   | (1,097 | )     
|Provision for loan losses                           |                                        |                        | (108   | )                 |  |      | (219   | )     |  |   | (207    | )      |  |   | (370   | )     
|Servicing fees  affiliate                          |                                        |                        | (665   | )                 |  |      | (779   | )     |  |   | (3,191  | )      |  |   | (2,439 | )     
|General, administrative and operating expenses      |                                        |                        | (1,272 | )                 |  |      | (2,267 | )     |  |   | (3,927  |        |  |   | (6,020 | )     
|Other income, net                                   |                                        |                        | 463    |                   |  |      | 504    |       |  |   | 1,414   |        |  |   | 1,408  |       
|                                                    |                                        |                        |        |                   |  |      |        |       |  |   |         |        |  |   |        |       
|                                                    | Net earnings                           |                        | $      | 2,210             |  |      | $      | 4,165 |  |   | $       | 23,936 |  |   | $      | 16,905 | 
|                                                    |                                        |                        |        |                   |  |      |        |       |  |   |         |        |  |   |        |       

See accompanying notes to combined financial
statements.

21



---



##### 



WAMCO PARTNERSHIPS






COMBINED STATEMENTS OF CHANGES IN
PARTNERS CAPITAL


|                              |                                        |                        |     |          |   |          |       |          |   |          |       |       |   |   |       |      |   |   |        |         |   |   |        |         |  
|----------------------------- | -------------------------------------- | ---------------------- | --- | -------- | - | -------- | ----- | -------- | - | -------- | ----- | ----- | - | - | ----- | ---- | - | - | ------ | ------- | - | - | ------ | ------- | -
|                              |                                        |                        |     | Class B  |   |          |       |          |   |         
|                              |                                        | Class A Equity         |     | Equity   |   |          |       |          |   |         
|                              |                                        |                        |     |          |   |          |       |          |   |         
|                              |                                        | General                |     | Limited  |   | Limited  |       | General  |   | Limited  |       |      
|                              |                                        | Partners               |     | Partners |   | Partners |       | Partners |   | Partners |       | Total
|                              |                                        |                        |     |          |   |          |       |          |   |          |       |      
|                              |                                        |                       
|                              |                                        | (Dollars in thousands)
|                              |                                        | (Unaudited)           
|Balance at December 31, 2000  |                                        | $                      | 117 |          |   | $        | 5,715 |          |   | $        | 1,147 |       |   | $ | 870   |      |   | $ | 53,755 |         |   | $ | 61,604 |        
|                              | Contributions                          |                        |     |         |   |          |       |         |   |          |       |      |   |   |       | 265  |   |   |        | 26,265  |   |   |        | 26,530  |  
|                              | Distributions                          |                        |     | (26      | ) |          |       | (1,271   | ) |          |       | (145  | ) |   |       | (311 | ) |   |        | (18,194 | ) |   |        | (19,947 | )
|                              | Comprehensive income:                  |                        |     |          |   |          |       |          |   |          |       |       |   |   |       |      |   |   |        |         |   |   |        |         |  
|                              | Net earnings                           |                        |     | 26       |   |          |       | 1,291    |   |          |       | 106   |   |   |       | 253  |   |   |        | 19,452  |   |   |        | 21,128  |  
|                              | Unrealized net gain on Securitizations |                        |     | 14       |   |          |       | 667      |   |          |       |      |   |   |       | 5    |   |   |        | 248     |   |   |        | 934     |  
|                              |                                        |                        |     |          |   |          |       |          |   |          |       |       |   |   |       |      |   |   |        |         |   |   |        |        
|                              | Total comprehensive income             |                        |     | 40       |   |          |       | 1,958    |   |          |       | 106   |   |   |       | 258  |   |   |        | 19,700  |   |   |        | 22,062  |  
|                              |                                        |                        |     |          |   |          |       |          |   |          |       |       |   |   |       |      |   |   |        |         |   |   |        |        
|Balance at December 31, 2001  |                                        |                        | 131 |          |   |          | 6,402 |          |   |          | 1,108 |       |   |   | 1,082 |      |   |   | 81,526 |         |   |   | 90,249 |        
|                              | Contributions                          |                        |     |         |   |          |       |         |   |          |       |      |   |   |       | 82   |   |   |        | 8,116   |   |   |        | 8,198   |  
|                              | Distributions                          |                        |     | (40      | ) |          |       | (1,931   | ) |          |       | (123  | ) |   |       | (543 | ) |   |        | (47,379 | ) |   |        | (50,016 | )
|                              | Comprehensive income:                  |                        |     |          |   |          |       |          |   |          |       |       |   |   |       |      |   |   |        |         |   |   |        |         |  
|                              | Net earnings                           |                        |     | 21       |   |          |       | 1,007    |   |          |       | 49    |   |   |       | 263  |   |   |        | 22,596  |   |   |        | 23,936  |  
|                              | Unrealized net gain on securitization  |                        |     | 9        |   |          |       | 443      |   |          |       | 6     |   |   |       | 3    |   |   |        | 165     |   |   |        | 626     |  
|                              |                                        |                        |     |          |   |          |       |          |   |          |       |       |   |   |       |      |   |   |        |         |   |   |        |        
|                              | Total comprehensive income             |                        |     | 30       |   |          |       | 1,450    |   |          |       | 55    |   |   |       | 266  |   |   |        | 22,761  |   |   |        | 24,562  |  
|                              |                                        |                        |     |          |   |          |       |          |   |          |       |       |   |   |       |      |   |   |        |         |   |   |        |        
|Balance at September 30, 2002 |                                        | $                      | 121 |          |   | $        | 5,921 |          |   | $        | 1,040 |       |   | $ | 887   |      |   | $ | 65,024 |         |   | $ | 72,993 |        
|                              |                                        |                        |     |          |   |          |       |          |   |          |       |       |   |   |       |      |   |   |        |         |   |   |        |        

See accompanying notes to combined financial
statements.

22



---



##### 



WAMCO PARTNERSHIPS






COMBINED STATEMENTS OF CASH FLOWS


|                                      |                                                                                                   |                                                          |                                                         |          |         |          |        |         |         |         |  
|------------------------------------- | ------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------------- | -------- | ------- | -------- | ------ | ------- | ------- | ------- | -
|                                      |                                                                                                   |                                                         
|                                      |                                                                                                   | Nine Months Ended                                       
|                                      |                                                                                                   | September 30,                                           
|                                      |                                                                                                   |                                                         
|                                      |                                                                                                   | 2002                                                     |                                                         | 2001    
|                                      |                                                                                                   |                                                          |                                                         |         
|                                      |                                                                                                   |                                                         
|                                      |                                                                                                   | (Dollars in thousands)                                  
|                                      |                                                                                                   | (Unaudited)                                             
|Cash flows from operating activities: |                                                                                                   |                                                          |                                                         |          |         |          |        |        
|                                      | Net earnings                                                                                      |                                                          | $                                                       | 23,936   |         |          | $      | 16,905  |        
|                                      | Adjustments to reconcile net earnings to net cash
    provided by (used in) operating activities: |                                                          |                                                         |          |         |          |        |         |        
|                                      |                                                                                                   | Amortization of loan origination and commitment
    fees |                                                         |          | 414     |          |        |         | 686     |        
|                                      |                                                                                                   | Amortization of deferred profit sharing                  |                                                         |          | 661     |          |        |         | 1,153   |        
|                                      |                                                                                                   | Provision for loan losses                                |                                                         |          | 207     |          |        |         | 370     |        
|                                      |                                                                                                   | Gain on resolution of Portfolio Assets                   |                                                         |          | (26,140 | )        |        |         | (20,270 | )      
|                                      |                                                                                                   | Purchase of Portfolio Assets                             |                                                         |          | (12,639 | )        |        |         | (95,599 | )      
|                                      |                                                                                                   | Capitalized costs on Portfolio Assets                    |                                                         |          | (3,662  | )        |        |         | (544    | )      
|                                      |                                                                                                   | Capitalized interest on Portfolio Assets                 |                                                         |          | (654    | )        |        |         | (1,011  | )      
|                                      |                                                                                                   | Capitalized interest on trust certificates               |                                                         |          | (145    | )        |        |         | (340    | )      
|                                      |                                                                                                   | Proceeds from Repurchase of Portfolio Assets             |                                                         |          |        |          |        |         | 1,594   |        
|                                      |                                                                                                   | Proceeds from resolution of Portfolio Assets             |                                                         |          | 117,983 |          |        |         | 50,820  |        
|                                      |                                                                                                   | Principal payments on Performing Portfolio Assets        |                                                         |          | 20,554  |          |        |         | 24,815  |        
|                                      |                                                                                                   | Increase in deferred profit sharing                      |                                                         |          | (2,704  | )        |        |         | (295    | )      
|                                      |                                                                                                   | Increase in other assets                                 |                                                         |          | (75     | )        |        |         | (568    | )      
|                                      |                                                                                                   | Increase in deferred compensation                        |                                                         |          | 2,704   |          |        |         | 295     |        
|                                      |                                                                                                   | Deferred compensation paid                               |                                                         |          | (1,730  | )        |        |         | (2,365  | )      
|                                      |                                                                                                   | Increase (decrease) in other liabilities                 |                                                         |          | (849    | )        |        |         | 2,107   |        
|                                      |                                                                                                   |                                                          |                                                         |          |         |          |        |        
|                                      |                                                                                                   |                                                          | Net cash provided by (used in) operating
    activities |          |         | 117,861  |        |         |         | (22,247 | )
|Cash flows from investing activities: |                                                                                                   |                                                          |                                                         |          |         |          |        |        
|                                      | Contribution to subsidiaries                                                                      |                                                          |                                                         |         |         |          |        | (25     | )      
|                                      | Principal payments on trust certificates                                                          |                                                          |                                                         | 1,291    |         |          |        | 77      |        
|                                      |                                                                                                   |                                                          |                                                         |          |         |          |        |        
|                                      |                                                                                                   |                                                          | Net cash provided by investing activities               |          |         | 1,291    |        |         |         | 52      |  
|Cash flows from financing activities: |                                                                                                   |                                                          |                                                         |          |         |          |        |        
|                                      | Borrowing of debt-affiliates                                                                      |                                                          |                                                         | 24,564   |         |          |        | 76,621  |        
|                                      | Borrowing of debt                                                                                 |                                                          |                                                         | 28,500   |         |          |        | 45,900  |        
|                                      | Repayment of debt-affiliates                                                                      |                                                          |                                                         | (104,994 | )       |          |        | (97,151 | )      
|                                      | Repayment of debt                                                                                 |                                                          |                                                         | (30,640  | )       |          |        | (3,946  | )      
|                                      | Change in preferred equity                                                                        |                                                          |                                                         | (192     | )       |          |        | 957     |        
|                                      | Capital contributions                                                                             |                                                          |                                                         | 8,198    |         |          |        | 20,856  |        
|                                      | Capital distributions                                                                             |                                                          |                                                         | (50,016  | )       |          |        | (12,918 | )      
|                                      |                                                                                                   |                                                          |                                                         |          |         |          |        |        
|                                      |                                                                                                   |                                                          | Net cash provided by (used in) financing
    activities |          |         | (124,580 | )      |         |         | 30,319  |  
|                                      |                                                                                                   |                                                          |                                                         |          |         |          |        |        
|Net increase (decrease) in cash       |                                                                                                   |                                                          | (5,428                                                  | )        |         |          | 8,124  |        
|Cash at beginning of period           |                                                                                                   |                                                          | 13,397                                                  |          |         |          | 6,083  |        
|                                      |                                                                                                   |                                                          |                                                         |          |         |          |        |        
|Cash at end of period                 |                                                                                                   | $                                                        | 7,969                                                   |          |         | $        | 14,207 |        
|                                      |                                                                                                   |                                                          |                                                         |          |         |          |        |        

Supplemental disclosure of cash flow information:

Cash paid for interest was approximately $5,460
and $9,419 for the nine months ended September 30, 2002 and
2001, respectively.

Unrealized net gain on trust certificates
recorded in partners capital was $829 and zero for the
nine months ended September 30, 2002 and 2001, respectively.

See accompanying notes to combined financial
statements.

23



---



##### 



WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL
STATEMENTS

September 30, 2002


(Dollars in thousands)


(Unaudited)


(1)     Basis of
Presentation

The unaudited combined financial statements of
the WAMCO Partnerships reflect, in the opinion of management,
all adjustments, consisting only of normal and recurring
adjustments, necessary to present fairly the combined financial
position at September 30, 2002, the results of operations
for the three-month and nine-month periods ended
September 30, 2002 and 2001, and the cash flows for the
nine-month periods ended September 30, 2002 and 2001.

(2)     Organization
and Partnership Agreements

The combined financial statements represent
domestic Texas limited partnerships and limited liability
companies (Acquisition Partnerships or
Partnerships) and include the accounts of
WAMCO III, Ltd. (WAMCO III); WAMCO IX,
Ltd. (WAMCO IX); WAMCO XXIV, Ltd. (WAMCO
XXIV); WAMCO XXV, Ltd. (WAMCO XXV); WAMCO XXVI
Ltd.; WAMCO XXVII Ltd. (WAMCO XXVII); WAMCO XXVIII
Ltd. (WAMCO XXVIII); WAMCO XXIX, Ltd. (WAMCO
XXIX); WAMCO XXX, Ltd.; Calibat Fund, LLC; First B Realty,
Ltd.; First Paradee, Ltd.; FirstStreet Investments LLC
(FirstStreet); FC Properties, Ltd. (FC
Properties); and Community Development Investment, LLC.
FirstCity Financial Corporation or its subsidiaries, FirstCity
Commercial Corporation and FirstCity Holdings Corporation
(together FirstCity), share limited partnership
interests and participate as general partners in common with
Cargill Financial Services, Inc. in all of the Partnerships. FC
Properties, WAMCO XXIV, WAMCO XXV and WAMCO XXVIII are
considered significant subsidiaries of FirstCity.

The Partnerships were formed to acquire, hold and
dispose of Portfolio Assets acquired from the Federal Deposit
Insurance Corporation, Resolution Trust Corporation and other
nongovernmental agency sellers, pursuant to certain purchase
agreements or assignments of such purchase agreements. In
accordance with the purchase agreements, the Partnerships retain
certain rights of return regarding the assets related to
defective title, past due real estate taxes, environmental
contamination, structural damage and other limited legal
representations and warranties.

Generally, the partnership agreements of the
Partnerships provide for certain preferences as to the
distribution of cash flows. Proceeds from disposition of and
payments received on the Portfolio Assets are allocated based on
the partnership and other agreements which ordinarily provide
for the payment of interest and mandatory principal installments
on outstanding debt before payment of intercompany servicing
fees and return of capital and restricted distributions to
partners.

The partnership agreement for WAMCO III
provides for Class A and Class B Equity partners. The
Class A Equity partners are WAMCO III of Texas, Inc.,
FirstCity Commercial Corporation and CFSC Capital Corp. II,
and the Class B Equity partner is CFSC Capital
Corp. II. The Class B Equity limited partner is
allocated 20 percent net income or loss, excluding equity
earnings in FirstStreet, recognized by the partnership prior to
allocation of net income or loss to the Class A Equity
partners. Net earnings in FirstStreet are allocated to the
Class A Equity partners in proportion to their respective
ownership percentages. Net income or loss is credited or charged
to the Class A Equity partners capital accounts in
proportion to their respective capital account balances after
the 20% allocation to the Class B Equity limited partner.
Distributions are allocated using the same methodology as net
income or loss. The Class B Equity limited partner is not
required to make capital contributions.

During June 2001, First Paradee, Ltd. was merged
with and into WAMCO XXV with WAMCO XXV being the surviving
entity. Also during June 2001, WAMCO IX sold, at cost, its
remaining Portfolio Assets that had projected estimated
remaining collections to WAMCO XXV.

24



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED
FINANCIAL STATEMENTS  (Continued)

(3)     Combining
Financial Statements

FC Properties, WAMCO XXIV, WAMCO XXV and WAMCO
XXVIII are considered significant subsidiaries of FirstCity. The
following tables summarize the combining balance sheets and
changes in partners capital of the WAMCO Partnerships as
of September 30, 2002 and December 31, 2001, the
related combining statements of operations for the three and
nine months ended September 30, 2002 and 2001, and
combining cash flows for the nine months ended
September 30, 2002 and 2001.

Combining Balance Sheets

September 30, 2002


|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |          |        |        |  |   |        |        |  |   |      |      |   |   |         |        | 
|------------------------------------------------------------------- | ----------------- | ---------------------- | ------ | ------ |  | ----- | ------ | ------ |  | ------------ | ------ | ------------ |  | -------- | ------ | ------ |  | - | ------ | ------ |  | - | ---- | ---- | - | - | ------- | ------ | 
|                                                                    |                   | FC                     |        | WAMCO  |  | WAMCO |        | WAMCO  |  | Other        |        |              |  |         
|                                                                    |                   | Properties             |        | XXIV   |  | XXV   |        | XXVIII |  | Partnerships |        | Eliminations |  | Combined
|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |         
|                                                                    |                   |                       
|                                                                    |                   | (Dollars in thousands)
|                                                                    |                   | (Unaudited)           
|ASSETS                                                             
|Cash                                                                |                   | $                      | 909    |        |  | $     | 600    |        |  | $            | 1,903  |              |  | $        | 1,519  |        |  | $ | 3,038  |        |  | $ |     |      |   | $ | 7,969   |       
|Portfolio Assets, net                                               |                   |                        | 15,232 |        |  |       | 21,864 |        |  |              | 25,631 |              |  |          | 36,087 |        |  |   | 24,268 |        |  |   |     |      |   |   | 123,082 |       
|Investments in partnerships                                         |                   |                        |       |        |  |       |       |        |  |              |       |              |  |          |       |        |  |   | 2,302  |        |  |   |     |      |   |   | 2,302   |       
|Investments in trust certificates                                   |                   |                        |       |        |  |       |       |        |  |              |       |              |  |          |       |        |  |   | 7,901  |        |  |   |     |      |   |   | 7,901   |       
|Notes receivable from affiliates                                    |                   |                        |       |        |  |       |       |        |  |              | 913    |              |  |          |       |        |  |   |       |        |  |   | (913 | )    |   |   |        |       
|Deferred profit sharing                                             |                   |                        | 17,549 |        |  |       |       |        |  |              |       |              |  |          |       |        |  |   |       |        |  |   |     |      |   |   | 17,549  |       
|Other assets, net                                                   |                   |                        | 13     |        |  |       | 177    |        |  |              | 198    |              |  |          | 401    |        |  |   | 141    |        |  |   | (4   | )    |   |   | 926     |       
|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |          |        |        |  |   |        |        |  |   |      |      |   |   |         |       
|                                                                    |                   | $                      | 33,703 |        |  | $     | 22,641 |        |  | $            | 28,645 |              |  | $        | 38,007 |        |  | $ | 37,650 |        |  | $ | (917 | )    |   | $ | 159,729 |       
|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |          |        |        |  |   |        |        |  |   |      |      |   |   |         |       
|                                                                   
|LIABILITIES AND PARTNERS
    CAPITAL                              
|Notes payable                                                       |                   | $                      |       |        |  | $     | 10,949 |        |  | $            | 15,973 |              |  | $        | 21,120 |        |  | $ | 10,712 |        |  | $ | (913 | )    |   | $ | 57,841  |       
|Deferred compensation                                               |                   |                        | 21,526 |        |  |       |       |        |  |              |       |              |  |          |       |        |  |   |       |        |  |   |     |      |   |   | 21,526  |       
|Other liabilities                                                   |                   |                        | 383    |        |  |       | 88     |        |  |              | 978    |              |  |          | 1,339  |        |  |   | 172    |        |  |   | (4   | )    |   |   | 2,956   |       
|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |          |        |        |  |   |        |        |  |   |      |      |   |   |         |       
|                                                                    | Total liabilities |                        |        | 21,909 |  |       |        | 11,037 |  |              |        | 16,951       |  |          |        | 22,459 |  |   |        | 10,884 |  |   |      | (917 | ) |   |         | 82,323 | 
|Commitments and contingencies                                       |                   |                        |       |        |  |       |       |        |  |              |       |              |  |          |       |        |  |   |       |        |  |   |     |      |   |   |        |       
|Preferred equity                                                    |                   |                        |       |        |  |       | 4,413  |        |  |              |       |              |  |          |       |        |  |   |       |        |  |   |     |      |   |   | 4,413   |       
|Partners capital                                                   |                   |                        | 11,794 |        |  |       | 7,191  |        |  |              | 11,694 |              |  |          | 15,548 |        |  |   | 26,766 |        |  |   |     |      |   |   | 72,993  |       
|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |          |        |        |  |   |        |        |  |   |      |      |   |   |         |       
|                                                                    |                   | $                      | 33,703 |        |  | $     | 22,641 |        |  | $            | 28,645 |              |  | $        | 38,007 |        |  | $ | 37,650 |        |  | $ | (917 | )    |   | $ | 159,729 |       
|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |          |        |        |  |   |        |        |  |   |      |      |   |   |         |       
|Notes payable owed to affiliates included in
    above balances     |                   | $                      |       |        |  | $     | 10,949 |        |  | $            |       |              |  | $        |       |        |  | $ | 10,712 |        |  | $ | (913 | )    |   | $ | 20,748  |       
|Other liabilities owed to affiliates included in
    above balances |                   |                        | 2      |        |  |       | 20     |        |  |              | 370    |              |  |          | 60     |        |  |   | 84     |        |  |   | (4   | )    |   |   | 532     |       

25



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED
FINANCIAL STATEMENTS  (Continued)

Combining Balance Sheets

December 31, 2001


|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |          |        |        |  |   |        |        |  |   |        |        |   |   |         |         | 
|------------------------------------------------------------------- | ----------------- | ---------------------- | ------ | ------ |  | ----- | ------ | ------ |  | ------------ | ------ | ------------ |  | -------- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | - | - | ------- | ------- | 
|                                                                    |                   | FC                     |        | WAMCO  |  | WAMCO |        | WAMCO  |  | Other        |        |              |  |         
|                                                                    |                   | Properties             |        | XXIV   |  | XXV   |        | XXVIII |  | Partnerships |        | Eliminations |  | Combined
|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |         
|                                                                    |                   |                       
|                                                                    |                   | (Dollars in thousands)
|ASSETS                                                             
|Cash                                                                |                   | $                      | 1,942  |        |  | $     | 1,108  |        |  | $            | 1,928  |              |  | $        | 3,510  |        |  | $ | 4,909  |        |  | $ |       |        |   | $ | 13,397  |        
|Portfolio Assets, net                                               |                   |                        | 15,566 |        |  |       | 27,625 |        |  |              | 30,023 |              |  |          | 70,283 |        |  |   | 75,234 |        |  |   |       |        |   |   | 218,731 |        
|Investments in partnerships                                         |                   |                        |       |        |  |       |       |        |  |              |       |              |  |          |       |        |  |   | 2,302  |        |  |   |       |        |   |   | 2,302   |        
|Investments in trust certificates                                   |                   |                        |       |        |  |       |       |        |  |              |       |              |  |          |       |        |  |   | 8,223  |        |  |   |       |        |   |   | 8,223   |        
|Notes receivable from affiliates                                    |                   |                        |       |        |  |       |       |        |  |              | 1,752  |              |  |          |       |        |  |   |       |        |  |   | (1,752 | )      |   |   |        |        
|Deferred profit sharing                                             |                   |                        | 15,506 |        |  |       |       |        |  |              |       |              |  |          |       |        |  |   |       |        |  |   |       |        |   |   | 15,506  |        
|Other assets, net                                                   |                   |                        | 5      |        |  |       | 241    |        |  |              | 378    |              |  |          | 143    |        |  |   | 1,316  |        |  |   | (625   | )      |   |   | 1,458   |        
|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |          |        |        |  |   |        |        |  |   |        |        |   |   |         |        
|                                                                    |                   | $                      | 33,019 |        |  | $     | 28,974 |        |  | $            | 34,081 |              |  | $        | 73,936 |        |  | $ | 91,984 |        |  | $ | (2,377 | )      |   | $ | 259,617 |        
|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |          |        |        |  |   |        |        |  |   |        |        |   |   |         |        
|                                                                   
|LIABILITIES AND PARTNERS
    CAPITAL                              
|Notes payable                                                       |                   | $                      |       |        |  | $     | 16,081 |        |  | $            | 20,571 |              |  | $        | 47,964 |        |  | $ | 57,547 |        |  | $ | (1,752 | )      |   | $ | 140,411 |        
|Deferred compensation                                               |                   |                        | 20,552 |        |  |       |        |        |  |              |       |              |  |          |       |        |  |   |       |        |  |   |       |        |   |   | 20,552  |        
|Other liabilities                                                   |                   |                        | 443    |        |  |       | 130    |        |  |              | 1,396  |              |  |          | 1,162  |        |  |   | 1,294  |        |  |   | (625   | )      |   |   | 3,800   |        
|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |          |        |        |  |   |        |        |  |   |        |        |   |   |         |        
|                                                                    | Total liabilities |                        |        | 20,995 |  |       |        | 16,211 |  |              |        | 21,967       |  |          |        | 49,126 |  |   |        | 58,841 |  |   |        | (2,377 | ) |   |         | 164,763 | 
|Commitments and contingencies                                       |                   |                        |       |        |  |       |       |        |  |              |       |              |  |          |       |        |  |   |       |        |  |   |       |        |   |   |        |        
|Preferred equity                                                    |                   |                        |       |        |  |       | 4,605  |        |  |              |       |              |  |          |       |        |  |   |       |        |  |   |       |        |   |   | 4,605   |        
|Partners capital                                                   |                   |                        | 12,024 |        |  |       | 8,158  |        |  |              | 12,114 |              |  |          | 24,810 |        |  |   | 33,143 |        |  |   |       |        |   |   | 90,249  |        
|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |          |        |        |  |   |        |        |  |   |        |        |   |   |         |        
|                                                                    |                   | $                      | 33,019 |        |  | $     | 28,974 |        |  | $            | 34,081 |              |  | $        | 73,936 |        |  | $ | 91,984 |        |  | $ | (2,377 | )      |   | $ | 259,617 |        
|                                                                    |                   |                        |        |        |  |       |        |        |  |              |        |              |  |          |        |        |  |   |        |        |  |   |        |        |   |   |         |        
|Notes payable owed to affiliates included in
    above balances     |                   | $                      |       |        |  | $     | 14,539 |        |  | $            |       |              |  | $        | 47,964 |        |  | $ | 40,427 |        |  | $ | (1,752 | )      |   | $ | 101,178 |        
|Other liabilities owed to affiliates included in
    above balances |                   |                        | 1      |        |  |       | 40     |        |  |              | 948    |              |  |          | 95     |        |  |   | 99     |        |  |   | (625   | )      |   |   | 558     |        

26



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED
FINANCIAL STATEMENTS  (Continued)

Combining Statements of Operations

Three Months Ended September 30,
2002


|                                                    |                     |                        |      |       |   |       |       |        |  |              |      |              |  |          |       |       |  |   |       |       |  |   |     |   |  |   |        |       | 
|--------------------------------------------------- | ------------------- | ---------------------- | ---- | ----- | - | ----- | ----- | ------ |  | ------------ | ---- | ------------ |  | -------- | ----- | ----- |  | - | ----- | ----- |  | - | --- | - |  | - | ------ | ----- | 
|                                                    |                     | FC                     |      | WAMCO |   | WAMCO |       | WAMCO  |  | Other        |      |              |  |         
|                                                    |                     | Properties             |      | XXIV  |   | XXV   |       | XXVIII |  | Partnerships |      | Eliminations |  | Combined
|                                                    |                     |                        |      |       |   |       |       |        |  |              |      |              |  |         
|                                                    |                     |                       
|                                                    |                     | (Dollars in thousands)
|                                                    |                     |                       
|                                                    |                     | (Unaudited)           
|Proceeds from resolution of Portfolio Assets        |                     | $                      | 99   |       |   | $     | 1,347 |        |  | $            | 364  |              |  | $        | 6,818 |       |  | $ | 3,754 |       |  | $ |    |   |  | $ | 12,382 |      
|Cost of Portfolio Assets resolved                   |                     |                        | 9    |       |   |       | 1,266 |        |  |              | 250  |              |  |          | 4,990 |       |  |   | 2,569 |       |  |   |    |   |  |   | 9,084  |      
|                                                    |                     |                        |      |       |   |       |       |        |  |              |      |              |  |          |       |       |  |   |       |       |  |   |     |   |  |   |        |      
|Gain on resolution of Portfolio Assets              |                     |                        | 90   |       |   |       | 81    |        |  |              | 114  |              |  |          | 1,828 |       |  |   | 1,185 |       |  |   |    |   |  |   | 3,298  |      
|Interest income on performing Portfolio Assets      |                     |                        |     |       |   |       | 591   |        |  |              | 381  |              |  |          | 611   |       |  |   | 358   |       |  |   | (15 | ) |  |   | 1,926  |      
|Interest and fees on notes payable 
    affiliates |                     |                        |     |       |   |       | (350  | )      |  |              |     |              |  |          |      |       |  |   | (340  | )     |  |   | 15  |   |  |   | (675   | )    
|Interest and fees on notes payable 
    other      |                     |                        | (9   | )     |   |       |      |        |  |              | (232 | )            |  |          | (516  | )     |  |   |      |       |  |   |    |   |  |   | (757   | )    
|Provision for loan losses                           |                     |                        |     |       |   |       |      |        |  |              | (94  | )            |  |          |      |       |  |   | (14   | )     |  |   |    |   |  |   | (108   | )    
|Service fees  affiliate                            |                     |                        | (3   | )     |   |       | (96   | )      |  |              | (44  | )            |  |          | (312  | )     |  |   | (210  | )     |  |   |    |   |  |   | (665   | )    
|General, administrative and operating expenses      |                     |                        | (413 | )     |   |       | (14   | )      |  |              | (64  | )            |  |          | (602  | )     |  |   | (179  | )     |  |   |    |   |  |   | (1,272 | )    
|Other income, net                                   |                     |                        | 6    |       |   |       | 1     |        |  |              | 3    |              |  |          | 7     |       |  |   | 446   |       |  |   |    |   |  |   | 463    |      
|                                                    |                     |                        |      |       |   |       |       |        |  |              |      |              |  |          |       |       |  |   |       |       |  |   |     |   |  |   |        |      
|                                                    | Net earnings (loss) |                        | $    | (329  | ) |       | $     | 213    |  |              | $    | 64           |  |          | $     | 1,016 |  |   | $     | 1,246 |  |   | $   |  |  |   | $      | 2,210 | 
|                                                    |                     |                        |      |       |   |       |       |        |  |              |      |              |  |          |       |       |  |   |       |       |  |   |     |   |  |   |        |      

Combining Statements of Operations

Three Months Ended September 30,
2001


|                                                          |              |                        |       |       |  |       |       |        |  |              |       |              |  |          |       |     |  |   |        |       |  |   |     |   |  |   |        |       | 
|--------------------------------------------------------- | ------------ | ---------------------- | ----- | ----- |  | ----- | ----- | ------ |  | ------------ | ----- | ------------ |  | -------- | ----- | --- |  | - | ------ | ----- |  | - | --- | - |  | - | ------ | ----- | 
|                                                          |              | FC                     |       | WAMCO |  | WAMCO |       | WAMCO  |  | Other        |       |              |  |         
|                                                          |              | Properties             |       | XXIV  |  | XXV   |       | XXVIII |  | Partnerships |       | Eliminations |  | Combined
|                                                          |              |                        |       |       |  |       |       |        |  |              |       |              |  |         
|                                                          |              |                       
|                                                          |              | (Dollars in thousands)
|                                                          |              |                       
|                                                          |              | (Unaudited)           
|Proceeds from resolution of Portfolio Assets              |              | $                      | 1,624 |       |  | $     | 1,060 |        |  | $            | 2,803 |              |  | $        | 6,707 |     |  | $ | 2,848  |       |  | $ |    |   |  | $ | 15,042 |      
|Cost of Portfolio Assets resolved                         |              |                        | 289   |       |  |       | 993   |        |  |              | 2,128 |              |  |          | 4,569 |     |  |   | 2,054  |       |  |   |    |   |  |   | 10,033 |      
|                                                          |              |                        |       |       |  |       |       |        |  |              |       |              |  |          |       |     |  |   |        |       |  |   |     |   |  |   |        |      
|Gain on resolution of Portfolio Assets                    |              |                        | 1,335 |       |  |       | 67    |        |  |              | 675   |              |  |          | 2,138 |     |  |   | 794    |       |  |   |    |   |  |   | 5,009  |      
|Interest income on performing Portfolio Assets            |              |                        |      |       |  |       | 964   |        |  |              | 572   |              |  |          | 813   |     |  |   | 2,565  |       |  |   |     |   |  |   | 4,914  |      
|Interest income on Notes from Affiliates                  |              |                        |      |       |  |       |      |        |  |              | 34    |              |  |          |      |     |  |   |       |       |  |   | (34 | ) |  |   |       |      
|Interest and fees on notes payable 
    other affiliates |              |                        |      |       |  |       | (480  | )      |  |              | (73   | )            |  |          | (765  | )   |  |   | (857   | )     |  |   | 34  |   |  |   | (2,141 | )    
|Interest and fees on notes payable 
    other            |              |                        |      |       |  |       | (30   | )      |  |              | (387  | )            |  |          | (124  | )   |  |   | (315   | )     |  |   |    |   |  |   | (856   | )    
|Provision for loan losses                                 |              |                        |      |       |  |       |      |        |  |              |      |              |  |          |      |     |  |   | (219   | )     |  |   |    |   |  |   | (219   | )    
|Service fees  affiliate                                  |              |                        | (49   | )     |  |       | (95   | )      |  |              | (88   | )            |  |          | (280  | )   |  |   | (267   | )     |  |   |    |   |  |   | (779   | )    
|General, administrative and operating expenses            |              |                        | (241  | )     |  |       | (21   | )      |  |              | (138  | )            |  |          | (821  | )   |  |   | (1,046 | )     |  |   |    |   |  |   | (2,267 | )    
|Other income, net                                         |              |                        | 7     |       |  |       | 6     |        |  |              | 13    |              |  |          | 19    |     |  |   | 459    |       |  |   |    |   |  |   | 504    |      
|                                                          |              |                        |       |       |  |       |       |        |  |              |       |              |  |          |       |     |  |   |        |       |  |   |     |   |  |   |        |      
|                                                          | Net earnings |                        | $     | 1,052 |  |       | $     | 411    |  |              | $     | 608          |  |          | $     | 980 |  |   | $      | 1,114 |  |   | $   |  |  |   | $      | 4,165 | 
|                                                          |              |                        |       |       |  |       |       |        |  |              |       |              |  |          |       |     |  |   |        |       |  |   |     |   |  |   |        |      

27



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED
FINANCIAL STATEMENTS  (Continued)

COMBINING STATEMENTS OF OPERATIONS

Nine Months Ended September 30,
2002


|                                                    |              |                        |        |       |  |       |        |        |  |              |       |              |  |          |        |       |  |   |        |        |  |   |     |   |  |   |         |        | 
|--------------------------------------------------- | ------------ | ---------------------- | ------ | ----- |  | ----- | ------ | ------ |  | ------------ | ----- | ------------ |  | -------- | ------ | ----- |  | - | ------ | ------ |  | - | --- | - |  | - | ------- | ------ | 
|                                                    |              | FC                     |        | WAMCO |  | WAMCO |        | WAMCO  |  | Other        |       |              |  |         
|                                                    |              | Properties             |        | XXIV  |  | XXV   |        | XXVIII |  | Partnerships |       | Eliminations |  | Combined
|                                                    |              |                        |        |       |  |       |        |        |  |              |       |              |  |         
|                                                    |              |                       
|                                                    |              | (Dollars in thousands)
|                                                    |              |                       
|                                                    |              | (Unaudited)           
|Proceeds from resolution of Portfolio Assets        |              | $                      | 5,819  |       |  | $     | 2,907  |        |  | $            | 1,611 |              |  | $        | 43,141 |       |  | $ | 64,505 |        |  | $ |    |   |  | $ | 117,983 |       
|Cost of Portfolio Assets resolved                   |              |                        | 1,698  |       |  |       | 2,751  |        |  |              | 1,112 |              |  |          | 31,026 |       |  |   | 55,256 |        |  |   |    |   |  |   | 91,843  |       
|                                                    |              |                        |        |       |  |       |        |        |  |              |       |              |  |          |        |       |  |   |        |        |  |   |     |   |  |   |         |       
|Gain on resolution of Portfolio Assets              |              |                        | 4,121  |       |  |       | 156    |        |  |              | 499   |              |  |          | 12,115 |       |  |   | 9,249  |        |  |   |    |   |  |   | 26,140  |       
|Interest income on performing Portfolio Assets      |              |                        |       |       |  |       | 1,900  |        |  |              | 1,442 |              |  |          | 2,304  |       |  |   | 3,923  |        |  |   | (54 | ) |  |   | 9,515   |       
|Interest and fees on notes payable 
    affiliates |              |                        |       |       |  |       | (1,103 | )      |  |              |      |              |  |          | (1,044 | )     |  |   | (1,203 | )      |  |   | 54  |   |  |   | (3,296  | )     
|Interest and fees on notes payable 
    other      |              |                        | (9     | )     |  |       | (30    | )      |  |              | (737  | )            |  |          | (912   | )     |  |   | (824   | )      |  |   |    |   |  |   | (2,512  | )     
|Provision for loan losses                           |              |                        | (17    | )     |  |       |       |        |  |              | (94   | )            |  |          |       |       |  |   | (96    | )      |  |   |    |   |  |   | (207    | )     
|Service fees  affiliate                            |              |                        | (175   | )     |  |       | (282   | )      |  |              | (150  | )            |  |          | (1,385 | )     |  |   | (1,199 | )      |  |   |    |   |  |   | (3,191  | )     
|General, administrative and operating expenses      |              |                        | (1,571 | )     |  |       | (45    | )      |  |              | (300  | )            |  |          | (1,270 | )     |  |   | (741   | )      |  |   |    |   |  |   | (3,927  | )     
|Other income, net                                   |              |                        | 16     |       |  |       | 7      |        |  |              | 9     |              |  |          | 29     |       |  |   | 1,353  |        |  |   |    |   |  |   | 1,414   |       
|                                                    |              |                        |        |       |  |       |        |        |  |              |       |              |  |          |        |       |  |   |        |        |  |   |     |   |  |   |         |       
|                                                    | Net earnings |                        | $      | 2,365 |  |       | $      | 603    |  |              | $     | 669          |  |          | $      | 9,837 |  |   | $      | 10,462 |  |   | $   |  |  |   | $       | 23,936 | 
|                                                    |              |                        |        |       |  |       |        |        |  |              |       |              |  |          |        |       |  |   |        |        |  |   |     |   |  |   |         |       

Combining Statements of Operations

Nine Months Ended September 30,
2001


|                                                    |              |                        |        |       |  |       |        |        |  |              |        |              |  |          |        |       |  |   |        |       |  |   |        |   |  |   |        |        | 
|--------------------------------------------------- | ------------ | ---------------------- | ------ | ----- |  | ----- | ------ | ------ |  | ------------ | ------ | ------------ |  | -------- | ------ | ----- |  | - | ------ | ----- |  | - | ------ | - |  | - | ------ | ------ | 
|                                                    |              | FC                     |        | WAMCO |  | WAMCO |        | WAMCO  |  | Other        |        |              |  |         
|                                                    |              | Properties             |        | XXIV  |  | XXV   |        | XXVIII |  | Partnerships |        | Eliminations |  | Combined
|                                                    |              |                        |        |       |  |       |        |        |  |              |        |              |  |         
|                                                    |              |                       
|                                                    |              | (Dollars in thousands)
|                                                    |              |                       
|                                                    |              | (Unaudited)           
|Proceeds from resolution of Portfolio Assets        |              | $                      | 9,440  |       |  | $     | 4,308  |        |  | $            | 7,957  |              |  | $        | 19,805 |       |  | $ | 10,516 |       |  | $ | (1,206 | ) |  | $ | 50,820 |       
|Cost of Portfolio Assets resolved                   |              |                        | 2,102  |       |  |       | 3,257  |        |  |              | 5,931  |              |  |          | 14,003 |       |  |   | 6,463  |       |  |   | (1,206 | ) |  |   | 30,550 |       
|                                                    |              |                        |        |       |  |       |        |        |  |              |        |              |  |          |        |       |  |   |        |       |  |   |        |   |  |   |        |       
|Gain on resolution of Portfolio Assets              |              |                        | 7,338  |       |  |       | 1,051  |        |  |              | 2,026  |              |  |          | 5,802  |       |  |   | 4,053  |       |  |   |       |   |  |   | 20,270 |       
|Interest income on performing Portfolio Assets      |              |                        |       |       |  |       | 3,312  |        |  |              | 2,391  |              |  |          | 2,089  |       |  |   | 7,045  |       |  |   |       |   |  |   | 14,837 |       
|Interest income on Notes from Affiliates            |              |                        |       |       |  |       |       |        |  |              | 150    |              |  |          |       |       |  |   |       |       |  |   | (150   | ) |  |   |       |       
|Interest and fees on notes payable 
    affiliates |              |                        | (159   | )     |  |       | (1,642 | )      |  |              | (1,584 | )            |  |          | (2,471 | )     |  |   | (3,978 | )     |  |   | 150    |   |  |   | (9,684 | )     
|Interest and fees on notes payable 
    other      |              |                        |       |       |  |       | (99    | )      |  |              | (387   | )            |  |          | (207   | )     |  |   | (404   | )     |  |   |       |   |  |   | (1,097 | )     
|Provision for loan losses                           |              |                        |       |       |  |       |       |        |  |              |       |              |  |          |       |       |  |   | (370   | )     |  |   |       |   |  |   | (370   | )     
|Service fees  affiliate                            |              |                        | (283   | )     |  |       | (363   | )      |  |              | (213   | )            |  |          | (732   | )     |  |   | (848   | )     |  |   |       |   |  |   | (2,439 | )     
|General, administrative and operating expenses      |              |                        | (2,034 | )     |  |       | (60    | )      |  |              | (382   | )            |  |          | (1,375 | )     |  |   | (2,169 | )     |  |   |       |   |  |   | (6,020 | )     
|Other income, net                                   |              |                        | 24     |       |  |       | 29     |        |  |              | 49     |              |  |          | 53     |       |  |   | 1,253  |       |  |   |       |   |  |   | 1,408  |       
|                                                    |              |                        |        |       |  |       |        |        |  |              |        |              |  |          |        |       |  |   |        |       |  |   |        |   |  |   |        |       
|                                                    | Net earnings |                        | $      | 4,886 |  |       | $      | 2,228  |  |              | $      | 2,050        |  |          | $      | 3,159 |  |   | $      | 4,582 |  |   | $      |  |  |   | $      | 16,905 | 
|                                                    |              |                        |        |       |  |       |        |        |  |              |        |              |  |          |        |       |  |   |        |       |  |   |        |   |  |   |        |       

28



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED
FINANCIAL STATEMENTS  (Continued)

Combining Statements of Changes in
Partners Capital

|                              |                            |                                       |        |        |       |       |       |        |       |              |        |              |       |          |        |         |       |   |        |         |        |   |   |   |   |   |        |         |        | 
|----------------------------- | -------------------------- | ------------------------------------- | ------ | ------ | ----- | ----- | ----- | ------ | ----- | ------------ | ------ | ------------ | ----- | -------- | ------ | ------- | ----- | - | ------ | ------- | ------ | - | - | - | - | - | ------ | ------- | ------ | 
|                              |                            | FC                                    |        | WAMCO  |       | WAMCO |       | WAMCO  |       | Other        |        |              |       |         
|                              |                            | Properties                            |        | XXIV   |       | XXV   |       | XXVIII |       | Partnerships |        | Eliminations |       | Combined
|                              |                            |                                       |        |        |       |       |       |        |       |              |        |              |       |         
|                              |                            |                                      
|                              |                            | (Dollars in thousands)               
|                              |                            | (Unaudited)                          
|Balance at December 31, 2000. |                            | $                                     | 8,846  |        |       | $     | 9,847 |        |       | $            | 12,476 |              |       | $        | 4,216  |         |       | $ | 26,219 |         |        | $ |  |   |   | $ | 61,604 |        
|                              | Contributions              |                                       |        |       |       |       |       |       |       |              |        |             |       |          |        | 18,890  |       |   |        | 7,640   |        |   |   |  |   |   |        | 26,530  |       
|                              | Distributions              |                                       |        | (1,093 | )     |       |       | (4,201 | )     |              |        | (2,232       | )     |          |        | (4,132  | )     |   |        | (8,289  | )      |   |   |  |   |   |        | (19,947 | )     
|                              | Comprehensive income:      |                                       |        |        |       |       |       |        |       |              |        |              |       |          |        |         |       |   |        |         |        |   |   |   |   |   |        |         |       
|                              |                            | Net earnings                          |        |        | 4,271 |       |       |        | 2,512 |              |        |              | 1,870 |          |        |         | 5,836 |   |        |         | 6,639  |   |   |   |  |   |        |         | 21,128 | 
|                              |                            | Unrealized net gain on securitization |        |        |      |       |       |        |      |              |        |              |      |          |        |         |      |   |        |         | 934    |   |   |   |  |   |        |         | 934    | 
|                              |                            |                                       |        |        |       |       |       |        |       |              |        |              |       |          |        |         |       |   |        |         |        |   |   |   |   |   |        |        
|                              | Total comprehensive income |                                       |        | 4,271  |       |       |       | 2,512  |       |              |        | 1,870        |       |          |        | 5,836   |       |   |        | 7,573   |        |   |   |  |   |   |        | 22,062  |       
|                              |                            |                                       |        |        |       |       |       |        |       |              |        |              |       |          |        |         |       |   |        |         |        |   |   |   |   |   |        |        
|Balance at December 31, 2001. |                            |                                       | 12,024 |        |       |       | 8,158 |        |       |              | 12,114 |              |       |          | 24,810 |         |       |   | 33,143 |         |        |   |  |   |   |   | 90,249 |        
|                              | Contributions              |                                       |        |       |       |       |       |       |       |              |        |             |       |          |        |        |       |   |        | 8,198   |        |   |   |  |   |   |        | 8,198   |       
|                              | Distributions              |                                       |        | (2,595 | )     |       |       | (1,570 | )     |              |        | (1,089       | )     |          |        | (19,099 | )     |   |        | (25,663 | )      |   |   |  |   |   |        | (50,016 | )     
|                              | Comprehensive income:      |                                       |        |        |       |       |       |        |       |              |        |              |       |          |        |         |       |   |        |         |        |   |   |   |   |   |        |         |       
|                              |                            | Net earnings                          |        |        | 2,365 |       |       |        | 603   |              |        |              | 669   |          |        |         | 9,837 |   |        |         | 10,462 |   |   |   |  |   |        |         | 23,936 | 
|                              |                            | Unrealized net gain on securitization |        |        |      |       |       |        |      |              |        |              |      |          |        |         |      |   |        |         | 626    |   |   |   |  |   |        |         | 626    | 
|                              |                            |                                       |        |        |       |       |       |        |       |              |        |              |       |          |        |         |       |   |        |         |        |   |   |   |   |   |        |        
|                              | Total comprehensive income |                                       |        | 2,365  |       |       |       | 603    |       |              |        | 669          |       |          |        | 9,837   |       |   |        | 11,088  |        |   |   |  |   |   |        | 24,562  |       
|                              |                            |                                       |        |        |       |       |       |        |       |              |        |              |       |          |        |         |       |   |        |         |        |   |   |   |   |   |        |        
|Balance at September 30,      |                            |                                       |        |        |       |       |       |        |       |              |        |              |       |          |        |         |       |   |        |         |        |   |   |   |   |   |        |        
|                              | 2002.                      |                                       | $      | 11,794 |       |       | $     | 7,191  |       |              | $      | 11,694       |       |          | $      | 15,548  |       |   | $      | 26,766  |        |   | $ |  |   |   | $      | 72,993  |       
|                              |                            |                                       |        |        |       |       |       |        |       |              |        |              |       |          |        |         |       |   |        |         |        |   |   |   |   |   |        |        

29



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED
FINANCIAL STATEMENTS  (Continued)

Combining Statements of Cash Flows

Nine Months Ended September 30,
2002


|                                                               |                                                                                         |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |          |        |         |         |         |        |         |         |         |   |     |      |      |        |          |         |          |  
|-------------------------------------------------------------- | --------------------------------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------- | ------ | ------ | ------ | ----- | ------ | ----- | ------------ | ----- | ------------ | ----- | -------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | - | --- | ---- | ---- | ------ | -------- | ------- | -------- | -
|                                                               |                                                                                         | FC                                                       |                                           | WAMCO  |        | WAMCO  |       | WAMCO  |       | Other        |       |              |       |         
|                                                               |                                                                                         | Properties                                               |                                           | XXIV   |        | XXV    |       | XXVIII |       | Partnerships |       | Eliminations |       | Combined
|                                                               |                                                                                         |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |         
|                                                               |                                                                                         |                                                         
|                                                               |                                                                                         | (Dollars in thousands)                                  
|                                                               |                                                                                         |                                                         
|                                                               |                                                                                         | (Unaudited)                                             
|Cash flows from operating activities:                          |                                                                                         |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |          |        |         |         |         |        |         |         |         |   |     |      |      |        |         
|                                                               | Net earnings                                                                            |                                                          | $                                         | 2,365  |        |        | $     | 603    |       |              | $     | 669          |       |          | $      | 9,837   |         |         | $      | 10,462  |         |         | $ |    |      |      | $      | 23,936   |        
|                                                               | Adjustments to reconcile net earnings to net cash
    provided by operating activities: |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |          |        |         |         |         |        |         |         |         |   |     |      |      |        |          |        
|                                                               |                                                                                         | Amortization of loan origination and commitment
    fees |                                           |        |       |        |       |        | 17    |              |       |              | 137   |          |        |         | 44      |         |        |         | 216     |         |   |     |     |      |        |          | 414     |         
|                                                               |                                                                                         | Amortization of deferred profit sharing                  |                                           |        | 661    |        |       |        |      |              |       |              |      |          |        |         |        |         |        |         |        |         |   |     |     |      |        |          | 661     |         
|                                                               |                                                                                         | Provision for loan losses                                |                                           |        | 17     |        |       |        |      |              |       |              | 94    |          |        |         |        |         |        |         | 96      |         |   |     |     |      |        |          | 207     |         
|                                                               |                                                                                         | Gain on resolution of Portfolio Assets                   |                                           |        | (4,121 | )      |       |        | (156  | )            |       |              | (499  | )        |        |         | (12,115 | )       |        |         | (9,249  | )       |   |     |     |      |        |          | (26,140 | )       
|                                                               |                                                                                         | Purchase of Portfolio Assets                             |                                           |        |       |        |       |        |      |              |       |              |      |          |        |         |        |         |        |         | (12,639 | )       |   |     |     |      |        |          | (12,639 | )       
|                                                               |                                                                                         | Capitalized costs on Portfolio Assets                    |                                           |        | (1,381 | )      |       |        |      |              |       |              | 5     |          |        |         | (2,134  | )       |        |         | (152    | )       |   |     |     |      |        |          | (3,662  | )       
|                                                               |                                                                                         | Capitalized interest on Portfolio Assets                 |                                           |        |       |        |       |        | (351  | )            |       |              | (176  | )        |        |         | (92     | )       |        |         | (35     | )       |   |     |     |      |        |          | (654    | )       
|                                                               |                                                                                         | Capitalized interest on Trust Certificates               |                                           |        |       |        |       |        |      |              |       |              |      |          |        |         |        |         |        |         | (145    | )       |   |     |     |      |        |          | (145    | )       
|                                                               |                                                                                         | Proceeds from resolution of Portfolio Assets             |                                           |        | 5,819  |        |       |        | 2,907 |              |       |              | 1,611 |          |        |         | 43,141  |         |        |         | 64,505  |         |   |     |      |      |        |          | 117,983 |         
|                                                               |                                                                                         | Principal payments on Performing Portfolio Assets        |                                           |        |       |        |       |        | 3,361 |              |       |              | 3,357 |          |        |         | 5,396   |         |        |         | 8,440   |         |   |     |     |      |        |          | 20,554  |         
|                                                               |                                                                                         | Increase in deferred profit sharing                      |                                           |        | (2,704 | )      |       |        |      |              |       |              |      |          |        |         |        |         |        |         |        |         |   |     |     |      |        |          | (2,704  | )       
|                                                               |                                                                                         | (Increase) decrease in other assets                      |                                           |        | (7     | )      |       |        | 47    |              |       |              | 266   |          |        |         | (304    | )       |        |         | 762     |         |   |     | (839 | )    |        |          | (75     | )       
|                                                               |                                                                                         | Increase in deferred compensation                        |                                           |        | 2,704  |        |       |        |      |              |       |              |      |          |        |         |        |         |        |         |        |         |   |     |     |      |        |          | 2,704   |         
|                                                               |                                                                                         | Deferred compensation paid                               |                                           |        | (1,730 | )      |       |        |      |              |       |              |      |          |        |         |        |         |        |         |        |         |   |     |     |      |        |          | (1,730  | )       
|                                                               |                                                                                         | Increase (decrease) in other liabilities                 |                                           |        | (61    | )      |       |        | (42   | )            |       |              | 198   |          |        |         | 179     |         |        |         | (1,123  | )       |   |     |     |      |        |          | (849    | )       
|                                                               |                                                                                         |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |          |        |         |         |         |        |         |         |         |   |     |      |      |        |         
|                                                               |                                                                                         |                                                          | Net cash provided by operating Activities |        |        | 1,562  |       |        |       | 6,386        |       |              |       | 5,662    |        |         |         | 43,952  |        |         |         | 61,138  |   |     |      | (839 | )      |          |         | 117,861  |  
|Cash flows from investing activities:                          |                                                                                         |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |          |        |         |         |         |        |         |         |         |   |     |      |      |        |         
|                                                               | Principal payments on trust certificates                                                |                                                          |                                           |       |        |        |       |       |       |              |       |             |       |          |        |        |         |         |        | 1,291   |         |         |   |    |      |      |        | 1,291    |        
|                                                               |                                                                                         |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |          |        |         |         |         |        |         |         |         |   |     |      |      |        |         
|                                                               |                                                                                         |                                                          | Net cash provided by investing activities |        |        |       |       |        |       |             |       |              |       |         |        |         |         |        |        |         |         | 1,291   |   |     |      |     |        |          |         | 1,291    |  
|Cash flows from financing activities:                          |                                                                                         |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |          |        |         |         |         |        |         |         |         |   |     |      |      |        |         
|                                                               | Borrowing of debt  affiliates                                                          |                                                          |                                           |       |        |        |       |       |       |              |       |             |       |          |        |        |         |         |        | 24,612  |         |         |   | (48 | )    |      |        | 24,564   |        
|                                                               | Borrowing of debt                                                                       |                                                          |                                           |       |        |        |       |       |       |              |       |             |       |          |        | 28,500  |         |         |        |        |         |         |   |    |      |      |        | 28,500   |        
|                                                               | Repayment of debt  affiliates                                                          |                                                          |                                           |       |        |        |       | (3,590 | )     |              |       |             |       |          |        | (47,964 | )       |         |        | (54,327 | )       |         |   | 887 |      |      |        | (104,994 | )      
|                                                               | Repayment of debt                                                                       |                                                          |                                           |       |        |        |       | (1,542 | )     |              |       | (4,598       | )     |          |        | (7,380  | )       |         |        | (17,120 | )       |         |   |    |      |      |        | (30,640  | )      
|                                                               | Change in preferred equity                                                              |                                                          |                                           |       |        |        |       | (192   | )     |              |       |             |       |          |        |        |         |         |        |        |         |         |   |    |      |      |        | (192     | )      
|                                                               | Capital contributions                                                                   |                                                          |                                           |       |        |        |       |       |       |              |       |             |       |          |        |        |         |         |        | 8,198   |         |         |   |    |      |      |        | 8,198    |        
|                                                               | Capital distributions                                                                   |                                                          |                                           | (2,595 | )      |        |       | (1,570 | )     |              |       | (1,089       | )     |          |        | (19,099 | )       |         |        | (25,663 | )       |         |   |    |      |      |        | (50,016  | )      
|                                                               |                                                                                         |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |          |        |         |         |         |        |         |         |         |   |     |      |      |        |         
|                                                               |                                                                                         |                                                          | Net cash used in financing activities     |        |        | (2,595 | )     |        |       | (6,894       | )     |              |       | (5,687   | )      |         |         | (45,943 | )      |         |         | (64,300 | ) |     |      | 839  |        |          |         | (124,580 | )
|                                                               |                                                                                         |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |          |        |         |         |         |        |         |         |         |   |     |      |      |        |         
|Net decrease in cash                                           |                                                                                         |                                                          | (1,033                                    | )      |        |        | (508  | )      |       |              | (25   | )            |       |          | (1,991 | )       |         |         | (1,871 | )       |         |         |  |     |      |      | (5,428 | )       
|Cash at beginning of period                                    |                                                                                         |                                                          | 1,942                                     |        |        |        | 1,108 |        |       |              | 1,928 |              |       |          | 3,510  |         |         |         | 4,909  |         |         |         |  |     |      |      | 13,397 |         
|                                                               |                                                                                         |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |          |        |         |         |         |        |         |         |         |   |     |      |      |        |         
|Cash at end of period                                          |                                                                                         | $                                                        | 909                                       |        |        | $      | 600   |        |       | $            | 1,903 |              |       | $        | 1,519  |         |         | $       | 3,038  |         |         | $       |  |     |      | $    | 7,969  |         
|                                                               |                                                                                         |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |          |        |         |         |         |        |         |         |         |   |     |      |      |        |         
|Supplemental disclosure of cash flow information
    (note 7): |                                                                                         |                                                          |                                           |        |        |        |       |        |       |              |       |              |       |          |        |         |         |         |        |         |         |         |   |     |      |      |        |         
|                                                               | Approximate cash paid for interest                                                      |                                                          | $                                         |       |        |        | $     | 899    |       |              | $     | 617          |       |          | $      | 1,997   |         |         | $      | 2,006   |         |         | $ | (59 | )    |      | $      | 5,460    |        

30



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED
FINANCIAL STATEMENTS  (Continued)

Combining Statements of Cash Flows

Nine Months Ended September 30,
2001


|                                                               |                                                                                                   |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |          |       |         |         |         |       |         |         |        |   |       |        |        |        |         |         |         |  
|-------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------------- | ------ | ------ | ------ | ----- | ------ | ------ | ------------ | ----- | ------------ | ------ | -------- | ----- | ------- | ------- | ------- | ----- | ------- | ------- | ------ | - | ----- | ------ | ------ | ------ | ------- | ------- | ------- | -
|                                                               |                                                                                                   | FC                                                       |                                                         | WAMCO  |        | WAMCO  |       | WAMCO  |        | Other        |       |              |        |         
|                                                               |                                                                                                   | Properties                                               |                                                         | XXIV   |        | XXV    |       | XXVIII |        | Partnerships |       | Eliminations |        | Combined
|                                                               |                                                                                                   |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |         
|                                                               |                                                                                                   |                                                         
|                                                               |                                                                                                   | (Dollars in thousands)                                  
|                                                               |                                                                                                   |                                                         
|                                                               |                                                                                                   | (Unaudited)                                             
|Cash flows from operating activities:                          |                                                                                                   |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |          |       |         |         |         |       |         |         |        |   |       |        |        |        |        
|                                                               | Net earnings                                                                                      |                                                          | $                                                       | 4,886  |        |        | $     | 2,228  |        |              | $     | 2,050        |        |          | $     | 3,159   |         |         | $     | 4,582   |         |        | $ |      |        |        | $      | 16,905  |        
|                                                               | Adjustments to reconcile net earnings to net cash
    provided by (used in) operating activities: |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |          |       |         |         |         |       |         |         |        |   |       |        |        |        |         |        
|                                                               |                                                                                                   | Amortization of loan origination and commitment
    fees |                                                         |        | 74     |        |       |        | 20     |              |       |              | 391    |          |       |         |        |         |       |         | 201     |        |   |       |       |        |        |         | 686     |        
|                                                               |                                                                                                   | Amortization of deferred profit sharing                  |                                                         |        | 1,153  |        |       |        |       |              |       |              |       |          |       |         |        |         |       |         |        |        |   |       |       |        |        |         | 1,153   |        
|                                                               |                                                                                                   | Provision for loan losses                                |                                                         |        |        |        |       |        |       |              |       |              |       |          |       |         |        |         |       |         | 370     |        |   |       |       |        |        |         | 370     |        
|                                                               |                                                                                                   | Gain on resolution of Portfolio Assets                   |                                                         |        | (7,338 | )      |       |        | (1,051 | )            |       |              | (2,026 | )        |       |         | (5,802  | )       |       |         | (4,053  | )      |   |       |       |        |        |         | (20,270 | )      
|                                                               |                                                                                                   | Purchase of Portfolio Assets                             |                                                         |        |       |        |       |        |       |              |       |              | (1,206 | )        |       |         | (60,403 | )       |       |         | (35,196 | )      |   |       | 1,206  |        |        |         | (95,599 | )      
|                                                               |                                                                                                   | Capitalized costs on Portfolio Assets                    |                                                         |        | (425   | )      |       |        | (4     | )            |       |              |       |          |       |         |        |         |       |         | (115    | )      |   |       |       |        |        |         | (544    | )      
|                                                               |                                                                                                   | Capitalized interest on Portfolio Assets                 |                                                         |        |       |        |       |        | (427   | )            |       |              | (478   | )        |       |         | (7      | )       |       |         | (99     | )      |   |       |       |        |        |         | (1,011  | )      
|                                                               |                                                                                                   | Capitalized interest on Trust Certificates               |                                                         |        |       |        |       |        |       |              |       |              |       |          |       |         |        |         |       |         | (340    | )      |   |       |       |        |        |         | (340    | )      
|                                                               |                                                                                                   | Proceeds from Repurchase of Portfolio Assets             |                                                         |        |       |        |       |        |       |              |       |              |       |          |       |         |        |         |       |         | 1,594   |        |   |       |       |        |        |         | 1,594   |        
|                                                               |                                                                                                   | Proceeds from resolution of Portfolio Assets             |                                                         |        | 9,440  |        |       |        | 4,308  |              |       |              | 7,957  |          |       |         | 19,805  |         |       |         | 10,516  |        |   |       | (1,206 | )      |        |         | 50,820  |        
|                                                               |                                                                                                   | Principal payments on Performing Portfolio Assets        |                                                         |        |       |        |       |        | 2,271  |              |       |              | 1,522  |          |       |         | 3,836   |         |       |         | 17,186  |        |   |       |       |        |        |         | 24,815  |        
|                                                               |                                                                                                   | Increase in deferred profit sharing                      |                                                         |        | (295   | )      |       |        |       |              |       |              |       |          |       |         |        |         |       |         |        |        |   |       |       |        |        |         | (295    | )      
|                                                               |                                                                                                   | (Increase) decrease in other assets                      |                                                         |        | 82     |        |       |        | 194    |              |       |              | 972    |          |       |         | (191    | )       |       |         | (609    | )      |   |       | (1,016 | )      |        |         | (568    | )      
|                                                               |                                                                                                   | Increase in deferred compensation                        |                                                         |        | 295    |        |       |        |       |              |       |              |       |          |       |         |        |         |       |         |        |        |   |       |       |        |        |         | 295     |        
|                                                               |                                                                                                   | Deferred compensation paid                               |                                                         |        | (2,365 | )      |       |        |       |              |       |              |       |          |       |         |        |         |       |         |        |        |   |       |       |        |        |         | (2,365  | )      
|                                                               |                                                                                                   | Increase (decrease) in other liabilities                 |                                                         |        | (571   | )      |       |        | (528   | )            |       |              | 198    |          |       |         | 1,562   |         |       |         | 1,446   |        |   |       |       |        |        |         | 2,107   |        
|                                                               |                                                                                                   |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |          |       |         |         |         |       |         |         |        |   |       |        |        |        |        
|                                                               |                                                                                                   |                                                          | Net cash provided by (used in) operating
    activities |        |        | 4,936  |       |        |        | 7,011        |       |              |        | 9,380    |       |         |         | (38,041 | )     |         |         | (4,517 | ) |       |        | (1,016 | )      |         |         | (22,247 | )
|Cash flows from investing activities:                          |                                                                                                   |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |          |       |         |         |         |       |         |         |        |   |       |        |        |        |        
|                                                               | Contribution to subsidiaries                                                                      |                                                          |                                                         |       |        |        |       |       |        |              |       |             |        |          |       |        |         |         |       | (25     | )       |        |   |      |        |        |        | (25     | )      
|                                                               | Principal payments on trust certificates                                                          |                                                          |                                                         |       |        |        |       |       |        |              |       |             |        |          |       |        |         |         |       | 77      |         |        |   |      |        |        |        | 77      |        
|                                                               |                                                                                                   |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |          |       |         |         |         |       |         |         |        |   |       |        |        |        |        
|                                                               |                                                                                                   |                                                          | Net cash provided by investing activities               |        |        |       |       |        |        |             |       |              |        |         |       |         |         |        |       |         |         | 52     |   |       |        |       |        |         |         | 52      |  
|Cash flows from financing activities:                          |                                                                                                   |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |          |       |         |         |         |       |         |         |        |   |       |        |        |        |        
|                                                               | Borrowing of debt  affiliates                                                                    |                                                          |                                                         | 41     |        |        |       |       |        |              |       | 221          |        |          |       | 47,237  |         |         |       | 29,210  |         |        |   | (88   | )      |        |        | 76,621  |        
|                                                               | Borrowing of debt                                                                                 |                                                          |                                                         |       |        |        |       |       |        |              |       | 25,800       |        |          |       |        |         |         |       | 20,100  |         |        |   |      |        |        |        | 45,900  |        
|                                                               | Repayment of debt  affiliates                                                                    |                                                          |                                                         | (3,165 | )      |        |       | (3,952 | )      |              |       | (29,620      | )      |          |       | (17,794 | )       |         |       | (43,724 | )       |        |   | 1,104 |        |        |        | (97,151 | )      
|                                                               | Repayment of debt                                                                                 |                                                          |                                                         |       |        |        |       | (526   | )      |              |       | (2,605       | )      |          |       |        |         |         |       | (815    | )       |        |   |      |        |        |        | (3,946  | )      
|                                                               | Change in preferred equity                                                                        |                                                          |                                                         |       |        |        |       | 957    |        |              |       |             |        |          |       |        |         |         |       |        |         |        |   |      |        |        |        | 957     |        
|                                                               | Capital contributions                                                                             |                                                          |                                                         |       |        |        |       |       |        |              |       |             |        |          |       | 13,240  |         |         |       | 7,616   |         |        |   |      |        |        |        | 20,856  |        
|                                                               | Capital distributions                                                                             |                                                          |                                                         | (1,093 | )      |        |       | (3,006 | )      |              |       | (1,656       | )      |          |       | (1,425  | )       |         |       | (5,738  | )       |        |   |      |        |        |        | (12,918 | )      
|                                                               |                                                                                                   |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |          |       |         |         |         |       |         |         |        |   |       |        |        |        |        
|                                                               |                                                                                                   |                                                          | Net cash provided by (used in) financing
    activities |        |        | (4,217 | )     |        |        | (6,527       | )     |              |        | (7,860   | )     |         |         | 41,258  |       |         |         | 6,649  |   |       |        | 1,016  |        |         |         | 30,319  |  
|                                                               |                                                                                                   |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |          |       |         |         |         |       |         |         |        |   |       |        |        |        |        
|Net increase in cash                                           |                                                                                                   |                                                          | 719                                                     |        |        |        | 484   |        |        |              | 1,520 |              |        |          | 3,217 |         |         |         | 2,184 |         |         |        |  |       |        |        | 8,124  |        
|Cash at beginning of period                                    |                                                                                                   |                                                          | 1,270                                                   |        |        |        | 608   |        |        |              | 574   |              |        |          | 873   |         |         |         | 2,758 |         |         |        |  |       |        |        | 6,083  |        
|                                                               |                                                                                                   |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |          |       |         |         |         |       |         |         |        |   |       |        |        |        |        
|Cash at end of period                                          |                                                                                                   | $                                                        | 1,989                                                   |        |        | $      | 1,092 |        |        | $            | 2,094 |              |        | $        | 4,090 |         |         | $       | 4,942 |         |         | $      |  |       |        | $      | 14,207 |        
|                                                               |                                                                                                   |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |          |       |         |         |         |       |         |         |        |   |       |        |        |        |        
|Supplemental disclosure of cash flow information
    (note 7): |                                                                                                   |                                                          |                                                         |        |        |        |       |        |        |              |       |              |        |          |       |         |         |         |       |         |         |        |   |       |        |        |        |        
|                                                               | Approximate cash paid for interest                                                                |                                                          | $                                                       | 107    |        |        | $     | 1,318  |        |              | $     | 1,698        |        |          | $     | 2,359   |         |         | $     | 4,092   |         |        | $ | (155  | )      |        | $      | 9,419   |        

31



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED
FINANCIAL STATEMENTS  (Continued)

(3)     Portfolio
Assets

Portfolio Assets are summarized as follows:

|                                                                    |                        |                    |        |        |  |       |        |        |  |              |         |          |  |   |         |        |  |   |         |        |  |   |          |         | 
|------------------------------------------------------------------- | ---------------------- | ------------------ | ------ | ------ |  | ----- | ------ | ------ |  | ------------ | ------- | -------- |  | - | ------- | ------ |  | - | ------- | ------ |  | - | -------- | ------- | 
|                                                                    |                        |                   
|                                                                    |                        | September 30, 2002
|                                                                    |                        |                   
|                                                                    |                        | FC                 |        | WAMCO  |  | WAMCO |        | WAMCO  |  | Other        |         |         
|                                                                    |                        | Properties         |        | XXIV   |  | XXV   |        | XXVIII |  | Partnerships |         | Combined
|                                                                    |                        |                    |        |        |  |       |        |        |  |              |         |         
|Non-performing Portfolio Assets                                     |                        | $                  |       |        |  | $     |       |        |  | $            | 12,502  |          |  | $ | 68,239  |        |  | $ | 62,359  |        |  | $ | 143,100  |        
|Performing Portfolio Assets                                         |                        |                    |       |        |  |       | 30,527 |        |  |              | 23,176  |          |  |   | 21,139  |        |  |   | 8,492   |        |  |   | 83,334   |        
|Real estate Portfolios                                              |                        |                    | 15,232 |        |  |       |       |        |  |              |        |          |  |   |        |        |  |   | 1,129   |        |  |   | 16,361   |        
|                                                                    |                        |                    |        |        |  |       |        |        |  |              |         |          |  |   |         |        |  |   |         |        |  |   |          |        
|                                                                    | Total Portfolio Assets |                    |        | 15,232 |  |       |        | 30,527 |  |              |         | 35,678   |  |   |         | 89,378 |  |   |         | 71,980 |  |   |          | 242,795 | 
|Discount required to reflect Portfolio Assets at
    carrying value |                        |                    |       |        |  |       | (8,663 | )      |  |              | (10,047 | )        |  |   | (53,291 | )      |  |   | (47,712 | )      |  |   | (119,713 | )      
|                                                                    |                        |                    |        |        |  |       |        |        |  |              |         |          |  |   |         |        |  |   |         |        |  |   |          |        
|                                                                    | Portfolio Assets, net  |                    | $      | 15,232 |  |       | $      | 21,864 |  |              | $       | 25,631   |  |   | $       | 36,087 |  |   | $       | 24,268 |  |   | $        | 123,082 | 
|                                                                    |                        |                    |        |        |  |       |        |        |  |              |         |          |  |   |         |        |  |   |         |        |  |   |          |        

|                                                                    |                        |                   |        |        |  |       |         |        |  |              |         |          |  |   |         |         |  |   |         |         |  |   |          |         | 
|------------------------------------------------------------------- | ---------------------- | ----------------- | ------ | ------ |  | ----- | ------- | ------ |  | ------------ | ------- | -------- |  | - | ------- | ------- |  | - | ------- | ------- |  | - | -------- | ------- | 
|                                                                    |                        |                  
|                                                                    |                        | December 31, 2001
|                                                                    |                        |                  
|                                                                    |                        | FC                |        | WAMCO  |  | WAMCO |         | WAMCO  |  | Other        |         |         
|                                                                    |                        | Properties        |        | XXIV   |  | XXV   |         | XXVIII |  | Partnerships |         | Combined
|                                                                    |                        |                   |        |        |  |       |         |        |  |              |         |         
|Non-performing Portfolio Assets                                     |                        | $                 |       |        |  | $     |        |        |  | $            | 13,604  |          |  | $ | 104,735 |         |  | $ | 48,944  |         |  | $ | 167,283  |        
|Performing Portfolio Assets                                         |                        |                   |       |        |  |       | 38,337  |        |  |              | 27,283  |          |  |   | 39,762  |         |  |   | 82,687  |         |  |   | 188,069  |        
|Real estate Portfolios                                              |                        |                   | 15,566 |        |  |       |        |        |  |              |        |          |  |   |        |         |  |   | 1,526   |         |  |   | 17,092   |        
|                                                                    |                        |                   |        |        |  |       |         |        |  |              |         |          |  |   |         |         |  |   |         |         |  |   |          |        
|                                                                    | Total Portfolio Assets |                   |        | 15,566 |  |       |         | 38,337 |  |              |         | 40,887   |  |   |         | 144,497 |  |   |         | 133,157 |  |   |          | 372,444 | 
|Discount required to reflect Portfolio Assets at
    carrying value |                        |                   |       |        |  |       | (10,712 | )      |  |              | (10,864 | )        |  |   | (74,214 | )       |  |   | (57,923 | )       |  |   | (153,713 | )      
|                                                                    |                        |                   |        |        |  |       |         |        |  |              |         |          |  |   |         |         |  |   |         |         |  |   |          |        
|                                                                    | Portfolio Assets, net  |                   | $      | 15,566 |  |       | $       | 27,625 |  |              | $       | 30,023   |  |   | $       | 70,283  |  |   | $       | 75,234  |  |   | $        | 218,731 | 
|                                                                    |                        |                   |        |        |  |       |         |        |  |              |         |          |  |   |         |         |  |   |         |         |  |   |          |        

Portfolio Assets are pledged to secure
non-recourse notes payable. During the second quarter of 2002,
three Partnerships (WAMCO XXVII, WAMCO XXVIII and WAMCO XXIX)
completed a bulk loan sale of performing and non-performing
Portfolio Assets with a carrying value of $59,149. Total
proceeds on the sale were $71,128 generating a gain on
resolution of Portfolio Assets of $11,979.

(4)     Interest
Related to Residual Interest in Trust Certificates

Residual certificates held by the Partnerships to
which the Partnerships receives all the economic benefits and
risks consist of retained interests in the amount of $7,901 and
$8,223 at September 30, 2002 and December 31, 2001,
respectively. The Partnerships recognized interest income on
these certificates utilizing a yield of 20.89% and 20.02% for
the nine months ended September 30, 2002 and 2001,
respectively.

(5)     Deferred
Profit Sharing and Deferred Compensation

In connection with the formation of FC
Properties, an agreement was entered into which provided for
potential payments to the project manager based on a percentage
of total estimated sales. An equal amount of deferred profit
participation and deferred compensation is recorded based on
such estimates with the deferred profit participation being
amortized into expense in proportion to actual sales realized.
No profit participation was paid until the limited partners
recognized a 20% return on their investment. This return
threshold was met in 2001. At September 30, 2002 and
December 31, 2001, the estimated liability for this profit
participation was $21,526 and $20,552, respectively, and was
included in deferred compensation in the accompanying combined

32



---



##### 



WAMCO PARTNERSHIPS


NOTES TO COMBINED
FINANCIAL STATEMENTS  (Continued)

balance sheets. Additionally, amortization of
$661 and $1,153 was recognized during the nine months ended
September 30, 2002 and 2001, respectively, and has been
included in general, administrative and operating expenses in
the accompanying combined statements of operations.

(6)     Transactions
with Affiliates

Under the terms of the various servicing
agreements between the Partnerships and FirstCity, FirstCity
receives a servicing fee based on proceeds from resolution of
the Portfolio Assets for processing transactions on the
Portfolio Assets and for conducting settlement, collection and
other resolution activities. Included in the accompanying
combined statements of operations is $3,191 and $2,439 in
servicing fees incurred by the Partnerships during the nine
months ended September 30, 2002 and 2001, respectively.

In March 2001, FirstCity sold 35% of its equity
interest in FC Properties, Ltd. to CFSC Capital Corp. II.
FirstCity recognized a gain of $3,134 on this sale.

During 2001, WAMCO IX sold its portfolio assets
that had projected estimated remaining collections to WAMCO XXV.
The assets were sold for their historical cost book value of
$1,206. The sale resulted in no gain or goodwill being recorded.
This transaction was eliminated in the combining statements of
operations for 2001.

(7)     Preferred
Equity

In 1999, CFSC Capital Corp. XXX contributed
$3,556 as preferred equity in Community Development Investment,
LLC. The preferred equity agreement requires interest to be paid
at a rate equal to the London Interbank Offering Rate (1.82% at
September 30, 2002) plus 5%. Interest in the amount of $17
and $18 has been accrued at September 30, 2002 and
December 31, 2001, respectively. Interest expense on the
preferred equity total $237 and $372 during the nine months
ended September 30, 2002 and 2001, respectively. This
interest expense is included in interest and fees on notes
payable  affiliates in the accompanying combined
statements of operations.

(8)     Commitments
and Contingencies

Calibat Fund, LLC has committed to make
additional investments in partnerships up to $89 at
September 30, 2002.

The Partnerships are involved in various legal
proceedings in the ordinary course of business. In the opinion
of management, the resolution of such matters will not have a
material adverse impact on the combined financial condition,
results of operations or liquidity of the Partnerships.

33



---



##### 



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, conducted
through its subsidiary, FirstCity Commercial Corporation, and
other subsidiaries and affiliates of FirstCity Commercial
Corporation (collectively Commercial Corp.), and in
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 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 and losses of the
Companys Portfolio Asset acquisition and resolution
business, and the type of securitization transactions of Drive,
period to period comparisons of the Companys results of
continuing operations may not be meaningful.

The Company reported a loss from continuing
operations for the quarter ended September 30, 2002 of
$1.1 million. After recording a loss from discontinued
operations of $5.7 million and accrued and unpaid dividends
on the New Preferred Stock, net loss to common stockholders was
$7.5 million or $.89 per share on a basic and diluted
basis.

|                                           |                                            |                    |        |                   |   |      |        |        |   |   |        |        |   |   |        |        |  
|------------------------------------------ | ------------------------------------------ | ------------------ | ------ | ----------------- | - | ---- | ------ | ------ | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                           |                                            |                    |        |                  
|                                           |                                            | Three Months Ended |        | Nine Months Ended
|                                           |                                            | September 30,      |        | September 30,    
|                                           |                                            |                    |        |                  
|                                           |                                            | 2002               |        | 2001              |   | 2002 |        | 2001  
|                                           |                                            |                    |        |                   |   |      |        |       
|Portfolio Asset Acquisition and Resolution |                                            | $                  | 787    |                   |   | $    | 153    |        |   | $ | 9,100  |        |   | $ | 7,230  |       
|Consumer                                   |                                            |                    | 280    |                   |   |      | (1,367 | )      |   |   | (406   | )      |   |   | 2,532  |       
|Corporate interest                         |                                            |                    | (939   | )                 |   |      | (1,102 | )      |   |   | (2,608 | )      |   |   | (3,745 | )     
|Corporate overhead                         |                                            |                    | (1,265 | )                 |   |      | (1,289 | )      |   |   | (3,855 | )      |   |   | (3,829 | )     
|Cumulative effect of accounting change     |                                            |                    |       |                   |   |      |       |        |   |   |       |        |   |   | (304   | )     
|                                           |                                            |                    |        |                   |   |      |        |        |   |   |        |        |   |   |        |       
|                                           | Earnings (loss) from continuing operations |                    |        | (1,137            | ) |      |        | (3,605 | ) |   |        | 2,231  |   |   |        | 1,884  |  
|Accrued preferred dividends                |                                            |                    | (642   | )                 |   |      | (642   | )      |   |   | (1,926 | )      |   |   | (1,926 | )     
|Loss from discontinued operations          |                                            |                    | (5,700 | )                 |   |      | (2,000 | )      |   |   | (7,700 | )      |   |   | (3,000 | )     
|                                           |                                            |                    |        |                   |   |      |        |        |   |   |        |        |   |   |        |       
|                                           | Net loss to common shareholders            |                    | $      | (7,479            | ) |      | $      | (6,247 | ) |   | $      | (7,395 | ) |   | $      | (3,042 | )
|                                           |                                            |                    |        |                   |   |      |        |        |   |   |        |        |   |   |        |       

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.



| |                                                      
| | -----------------------------------------------------
| | Third Quarter 2002 Compared to Third
    Quarter 2001

The Company reported a loss from continuing
operations of $1.1 million in the third quarter of 2002.
Net loss to common stockholders was $7.5 million in the
third quarter of 2002 compared to $6.2 million in the third
quarter of 2001. On a per share basis, basic and diluted net
loss attributable to common stockholders was $.89 in the third
quarter of 2002 compared to a loss of $.75 in the third quarter
of 2001.

34



---



##### 





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

The operating contribution of $.8 million in
the third quarter of 2002 increased by $.6 million compared
with the third quarter of 2001 primarily from increased
servicing fee revenues and reduced provisions for loan and
impairment losses. Commercial Corp. purchased $44.2 million
of Portfolio Assets during the third quarter of 2002 through the
Acquisition Partnerships, compared to $52.5 million in
acquisitions in the third quarter of 2001. Commercial
Corp.s investment in these acquisitions was
$2.5 million and $5.2 million in the third quarter of
2002 and 2001, respectively. There were no purchases of wholly
owned Portfolio Assets during either period. Commercial
Corp.s quarter end investment in wholly owned Portfolio
Assets decreased to $10.5 million from $17.6 million
at September 30, 2002 and 2001, respectively.

Servicing fee revenues.Servicing fee revenues increased by
50% to $3.3 million in the third quarter of 2002 from
$2.2 million in the third quarter of 2001. FirstCity
received higher service fees on one domestic portfolio acquired
in 2002 due to the type of assets and the level of servicing
required on each asset. Also, service fees from the Mexican
partnerships increased 22% with increased servicing
responsibilities in Mexico. For the Mexican Acquisition
Partnerships, FirstCity earns a servicing fee based on costs of
servicing plus a profit margin.

Gain on resolution of Portfolio Assets.The net gain on resolution of
Portfolio Assets decreased from $.4 million in the third
quarter of 2001 to $.2 million in the third quarter of
2002. Proceeds from the resolution of Portfolio Assets decreased
by 85% to $.6 million in the third quarter of 2002 from
$4.1 million in the third quarter of 2001. The weighted
average gross profit percentage on the resolution of Portfolio
Assets in the third quarter of 2002 was 37% as compared to 11%
in the third quarter of 2001.

Equity in earnings of investments.Equity in earnings of Acquisition
Partnerships decreased 22% to $.9 million in the third
quarter of 2002 compared to $1.2 million in the third
quarter of 2001. The Acquisition Partnerships reflected a net
loss of $4.8 million in the third quarter of 2002 compared
to net earnings of $.2 million in the third quarter of
2001. Following is a discussion of equity earnings by geographic
region.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Domestic
    Equity in earnings of domestic Acquisition Partnerships
    increased 11% to $1.3 million in the third quarter of 2002
    from $1.2 million in 2001. Approximately $.4 million
    or 32% of the third quarter 2002 equity earnings were derived
    from one partnership that began operations in April 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Mexico
    Equity in losses of Mexican Acquisition Partnerships increased
    24% to $.8 million in the third quarter of 2002 from
    $.7 million in 2001. These partnerships reflected a net
    loss of $10.5 million in the third quarter of 2002 compared
    to $7.2 million in 2001. The majority of these losses are
    due to interest expense owed to the investors of these
    partnerships. Excluding interest expense, these partnerships
    reflected net earnings of $2.2 million in the third quarter
    of 2002 compared to $8.3 million in 2001. The decrease in
    earnings (excluding interest expense) is primarily due to the
    Mexican partnerships receiving $16 million or 43% less
    collections in the third quarter of 2002 compared to 2001.
|
| |  | France and
    Italy Equity in earnings
    of Acquisition Partnerships located in France and Italy
    decreased 36% to $.4 million in the third quarter of 2002
    from $.7 million in 2001. During the second quarter of
    2002, the Company sold its investment in eight French
    Acquisition Partnerships.                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Interest income.Interest income decreased from
$1.7 million in the third quarter of 2001 to
$1.2 million in the third quarter of 2002 due to average
balances in Portfolio Assets and loans receivable decreasing to
$32.5 million in the third quarter of 2002 from
$40.9 million in the third quarter of 2001.

Gain on sale of interest in equity
investments.In the third quarter of
2001, FirstCity sold its investment in a domestic Acquisition
Partnership for $.6 million resulting in a gain of
$.2 million.

Operating expenses.Operating expenses decreased
$.5 million or 8%, primarily as a result of decreased
provisions for loan and impairment losses.

Interest and fees on notes payable decreased
$.6 million or 47% due to average debt for the quarter
decreasing to $28.6 million in the third quarter of 2002
from $43.7 million in the third quarter of 2001. In

35



---



##### 



addition, the average cost of borrowing decreased
from 10.78% in the third quarter of 2001 to 8.78% in the third
quarter of 2002.


Salaries and benefits increased to
$2.9 million, or 62%, due to increased servicing personnel
in Mexico. Total personnel within the Portfolio Asset
acquisition and resolution segment increased from 124 to 172 at
September 30, 2001 and 2002, respectively, with the
personnel in Mexico increasing from 46 to 88. FirstCity
also recorded additional servicing fee revenues with the
increased servicing responsibilities in Mexico.

The provision for loan and impairment losses
totaled $.2 million in the third quarter of 2002 compared
to $1.0 million in the third quarter of 2001.

Minimal provisions were recorded in the third
quarter of 2002 for performing or non-performing Portfolios as
the economic conditions during that period did not negatively
impact the Companys expectation of future cash flows. In
the third quarter of 2001, a provision of $.4 million in
one nonperforming Portfolio was recorded as estimated future
collections were reduced primarily due to the Company accepting
discounted payoffs in lieu of extended payouts. Impairment on
performing Portfolio Assets is measured based on the present
value of the expected future cash flows in the aggregate
discounted at the loans risk adjusted rates, which
approximates the effective interest rates, or the fair value of
the collateral, less estimated selling costs, if any loans are
collateral dependent and foreclosure is probable. Impairment on
nonperforming Portfolios is evaluated by analyzing the expected
future cashflows from the underlying assets within each
Portfolio. The expected future cash flows are reviewed monthly
and adjusted as deemed necessary. Changes in various factors
including, but not limited to, economic conditions,
deterioration of collateral values, deterioration in the
borrowers financial condition and other conditions described in
the risk factors discussed later in this document, could have a
negative impact on the estimated future cash flows of the
Portfolio. Significant decreases in estimated future cash flows
can reduce a Portfolios present value to below the
Companys carrying value of that Portfolio, causing
impairment.

The Company recorded permanent valuation
impairments of $.1 million in the third quarter of 2002 and
$.6 million in the third quarter of 2001 on one real estate
Portfolio due to deterioration of property values and market
conditions, as well as additional expected disposal costs. For
real estate Portfolios, the evaluation of impairment is
determined quarterly based on the review of the estimated future
cash receipts less estimated costs to sell, which represents the
net realizable value of the real estate Portfolio. A valuation
allowance is established for any impairment identified through
provisions charged to operations in the period the impairment is
identified.

There were no provisions recorded on loans
receivable from Acquisition Partnerships during the third
quarter of 2002 and 2001. The loans receivable from the Mexican
partnerships are secured by the assets/loans acquired by the
Mexican partnerships with purchase money loans provided by the
investors to the Mexican partnerships to purchase the asset
pools held in those entities. These loans are evaluated for
impairment by analyzing the expected future cash flows from the
underlying assets within each pool to determine that the cash
flows were sufficient to repay these notes. The Company applies
the asset valuation methodology consistently in all venues and
uses the same proprietary asset management system to evaluate
impairment on all asset pools. The results of this evaluation
indicated that cash flows from the pools will be sufficient to
repay the loans and no allowances for impairment were necessary.

Occupancy, data processing and other expenses
decreased $.2 million or 10% due primarily to certain
subservice fees incurred on the Acquisition Partnerships in
Mexico, which were paid by the Company in the third quarter of
2001. In the third quarter of 2002, these subservice fees are
paid directly by the Acquisition Partnerships.



| |                 
| | ----------------
| | Consumer Lending

FirstCitys consumer lending segment
consists of the Companys net investment in Drive. The
operating contribution for the third quarter of 2002 was
$.3 million compared to an operating loss of
$1.4 million during the third quarter of 2001. Drive
recorded net income of $.9 million in the third quarter of
2002 compared to a loss of $4.4 million in the third
quarter of 2001.

36



---



##### 





| |                                 
| | --------------------------------
| | 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 15% to $.9 million in the third quarter of
2002 from $1.1 million in the third quarter of 2001 due to
reduced interest rates. Other corporate overhead expenses were
flat from year to year.

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 the
third quarters of 2002 and 2001.

Discontinued Operations.The Company recorded a provision of
$5.7 million in the third quarter of 2002 and
$2.0 million in 2001 for additional losses from
discontinued operations. The additional provisions primarily
relate to a decrease in the estimated future gross cash receipts
on residual interests in securitizations. These securities are
in run-off, and the Company is contractually
obligated to service these assets. The assumptions used in the
valuation model consider both industry as well as the
Companys historical experience. The decrease in the
estimated future gross cash receipts is partially a result of
the actual losses exceeding the losses projected by the
valuation model. In addition, prepayment assumptions have
increased to take into consideration the lower market rates and
higher than predicted actual prepayments over the past quarter.
As the securities run off, assumptions are reviewed
in light of historical evidence in revising the prospective
results of the model. These revised assumptions could
potentially result in either an increase or decrease in the
estimated cash receipts. An additional provision is booked based
on the output of the valuation model if deemed necessary.



| |                                                                    
| | -------------------------------------------------------------------
| | First Nine Months of 2002 Compared to First
    Nine Months of 2001

The Company reported earnings from continuing
operations of $2.2 million in the first nine months of
2002. Net loss to common stockholders was $7.4 million in
the first nine months of 2002 compared to $3.0 million in
the first nine months of 2001. On a per share basis, basic and
diluted net loss attributable to common stockholders was $.88 in
2002 compared to $.36 for the first nine months of 2001.



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

The operating contribution of $9.1 million
in the first nine months of 2002 increased by $1.9 million,
or 26%, compared with the first nine months of 2001. Commercial
Corp. purchased $121 million of Portfolio Assets during
2002 through the Acquisition Partnerships, compared to
$173 million in acquisitions in the first nine months of
2001. Commercial Corp.s investment in these acquisitions
was $11.7 million and $18.6 million in the first nine
months of 2002 and 2001, respectively. There were no purchases
of wholly owned Portfolio Assets during either period.
Commercial Corp.s quarter end investment in wholly owned
Portfolio Assets decreased to $10.5 million in the third
quarter of 2002 from $17.6 million in the third quarter of
2001 with regular collections from those Portfolios.

Servicing fee revenues.Servicing fee revenues increased by
23% to $9.7 million in 2002 from $7.8 million in 2001
primarily as a result of increased collections in domestic
Acquisition Partnerships. In June 2002, three domestic
Acquisition Partnerships completed a bulk loan sale of
performing and non-performing Portfolio Assets with a carrying
value of $59 million for proceeds of $71 million. As a
result of the sale, the Company recorded servicing fee revenues
of $.9 million. Also, FirstCity received higher service
fees on one portfolio acquired in 2002 due to the type of assets
and level of servicing required on each asset.

Gain on resolution of Portfolio Assets.The net gain on resolution of
Portfolio Assets was flat from period to period.

Equity in earnings of investments.Equity in earnings of Acquisition
Partnerships decreased 19% to $7.2 million in the first
nine months of 2002 compared to $8.8 million in the first
nine months of 2001. The

37



---



##### 



Acquisition Partnerships reflected a net loss of
$6.7 million in the first nine months of 2002 compared to
net earnings of $11.7 million in the first nine months of
2001. Following is a discussion of equity earnings by geographic
region.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Domestic
    Equity in earnings of domestic Acquisition Partnerships
    increased 17% to $7.8 million in the first nine months of
    2002 from $6.7 million in 2001. This increase was primarily
    due to one partnership that began operations in April 2002 from
    which FirstCity recorded $.8 million in equity earnings
    during the first nine months of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Mexico
    Equity in losses of Mexican Acquisition Partnerships increased
    to $2.7 million in the first nine months of 2002 from
    $1.0 million in 2001. These partnerships reflected a net
    loss of $40.9 million in the first nine months of 2002
    compared to $16.8 million in 2001. The majority of these
    losses are due to interest expense owed to the investors of
    these partnerships. Excluding interest expense, these
    partnerships reflected net earnings of $.7 million in the
    first nine months of 2002 compared to $25.3 million in
    2001. The decrease in earnings (excluding interest expense) is
    primarily due to the Mexican partnerships receiving
    $32 million or 32% fewer collections in the first nine
    months of 2002 compared to 2001.
|
| |  | France and
    Italy Equity in earnings
    of Acquisition Partnerships located in France and Italy
    decreased 35% to $1.4 million in the first nine months of
    2002 from $2.2 million in 2001. This decrease is primarily
    due to the sale of FirstCitys investment in eight French
    Acquisition Partnerships during the second quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                        

Interest income.Interest income decreased from
$4.4 million in the first nine months of 2001 to
$3.9 million in 2002 due to average balances in Portfolio
Assets and loans receivable decreasing to $33.6 million in
first nine months of 2002 from $42.6 million in 2001.

Gain on sale of interest in equity
investments.In the first nine months
of 2002, the Company sold its investment in eight French
Acquisition Partnerships for $3.4 million resulting in a
gain of $1.8 million. In the first nine months of 2001, the
Company sold equity investments in two domestic Acquisition
Partnerships for $7.6 million resulting in a gain of
$3.3 million.

Operating expenses.Operating expenses decreased
$3.2 million or 17%, primarily because of provisions for
impairment on Portfolio Assets recorded in the first nine months
of 2001.

Interest and fees on notes payable decreased
$1.2 million or 35% due to average debt decreasing to
$33.6 million in the first nine months of 2002 from
$43.2 million in the first nine months of 2001. In
addition, the average cost of borrowing decreased from 10.15% in
the first nine months of 2001 to 8.46% in the first nine months
of 2002.

Salaries and benefits increased to
$7.5 million, or 42%, due to increased servicing personnel
in Mexico. Total personnel within the Portfolio Asset
acquisition and resolution segment increased from 124 to 172 at
September 30, 2001 and 2002, respectively, with the
personnel in Mexico increasing from 46 to 88. FirstCity
also recorded additional servicing fee revenues with the
increased servicing responsibilities in Mexico.

The provision for loan and impairment losses
totaled $.3 million in the first nine months of 2002
compared to $3.1 million in the first nine months of 2001.

Minimal provisions were recorded in the first
nine months of 2002 for performing or non-performing Portfolios
as the economic conditions during that period did not negatively
impact the Companys expectation of future cash flows. In
the first nine months of 2001, provisions of $1.5 million
on two non-performing Portfolios and $.5 million on one
performing Portfolio were recorded as estimated future
collections were reduced primarily due to the Company accepting
discounted payoffs in lieu of extended payouts.

The Company recorded permanent valuation
impairments of $.2 million in the first nine months of 2002
and $1.1 million in the first nine months of 2001 on two
real estate Portfolios due to deterioration of property values
and market conditions, as well as additional expected disposal
costs.

38



---



##### 



Occupancy, data processing and other expenses
decreased $1.4 million or 19% due primarily to certain
subservice fees incurred on the Acquisition Partnerships in
Mexico, which were paid by the Company in the first nine months
of 2001. In the first nine months of 2002, these subservice fees
are paid directly by the Acquisition Partnerships.



| |                 
| | ----------------
| | Consumer Lending

The operating loss for the first nine months of
2002 was $.4 million compared to earnings of
$2.2 million during the first nine months of 2001
(including a $.3 million cumulative effect of accounting
change). Drive recorded a net loss of $1.3 million in the
first nine months of 2002 compared to earnings of
$7.3 million in 2001. In the first nine months of 2002,
Drive completed a securitization that was treated as a
financing, and therefore, recorded no gain on sale from the
securitization. In the first nine months of 2001, FirstCity
recorded equity earnings of $3.1 million from Drive, which
completed a securitization of $286 million in retail
installment contracts for a net gain of $28.5 million.



| |                                 
| | --------------------------------
| | 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 30% to $2.6 million in the first nine months
of 2002 from $3.7 million in the first nine months of 2001
as a result of reduced interest rates. Other corporate overhead
expenses were flat from period to period.

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 the
first nine months of 2002 and 2001.

Discontinued Operations.The Company recorded a provision of
$7.7 million in the first nine months of 2002 and
$3.0 million in 2001 for additional losses from
discontinued operations. The additional provisions primarily
relate to a decrease in the estimated future gross cash receipts
on residual interests in securitizations. These securities are
in run-off, and the Company is contractually
obligated to service these assets. The assumptions used in the
valuation model consider both industry as well as the
Companys historical experience. The decrease in the
estimated future gross cash receipts is a result of the actual
losses exceeding the losses projected by the valuation model. In
addition, prepayment assumptions have increased to take into
consideration the lower market rates and higher than predicted
actual prepayments over the past quarter. As the securities
run off, assumptions are reviewed in light of
historical evidence in revising the prospective results of the
model. These revised assumptions could potentially result in
either an increase or decrease in the estimated cash receipts.
An additional provision is booked based on the output of the
valuation model if deemed necessary.

Proposed Recapitalization

On October 28, 2002 FirstCity commenced an
exchange offer of its outstanding shares of New Preferred Stock,
par value $0.01 per share (New Preferred
Stock). The exchange offer will expire November 25,
2002, unless the offer is extended.

FirstCity is offering to exchange each share of
its New Preferred Stock for, at the holders election,
either:



| |                                                                 
| | ----------------------------------------------------------------
| | (1) $10.00 cash and 2 shares of
    FirstCitys common stock, or
|
| | (2) $8.00 cash and 3 shares of
    FirstCitys common stock.    

The exchange offer is conditioned on, among other
things, the tender of at least 80% of the outstanding shares of
New Preferred Stock. There are currently 1,222,901 shares
of New Preferred Stock outstanding.

39



---



##### 



The exchange offer is a part of a
recapitalization of FirstCity, which includes:



| |   |                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the exchange offer,                                                                                                                                                                                                                                                         
|
| |  | a non-recourse loan in the amount of
    $16 million by BoS(USA), Inc. (BoS(USA)) to
    FirstCity, secured by (among other things) a 20% interest in
    Drive Financial Services LP which will provide the cash portion
    of the consideration for the exchange offer,
|
| |  | the use of the remainder of the cash proceeds
    from the $16 million loan by BoS(USA) to reduce
    FirstCitys debt owed to Bank of Scotland and BoS(USA)
    (the Senior Lenders),                                                                                    
|
| |  | FirstCitys payment of an arrangement fee to
    BoS(USA). The arrangement fee will be equal to 20% of all
    amounts more than $16 million that are paid to FirstCity
    from:                                                                                           



| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | any sale or other disposition of FirstCitys
    interest in Drive Financial Services LP
    (Drive), and         
|
| |  | all dividends and other distributions paid by
    Drive or its general partner on FirstCitys interest in
    Drive,



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | FirstCitys purchase of the 20% interest in
    FirstCitys indirect subsidiary, FirstCity Holdings
    Corporation, held by Terry R. DeWitt, G. Stephen Fillip and
    James C. Holmes, each of whom are Senior Vice Presidents of
    FirstCity (the FCHC Group),                                                                                                                                                                                                                       
|
| |  | the refinancing of the remainder of
    FirstCitys debt facilities with Bank of Scotland and
    BoS(USA), with a total commitment by Bank of Scotland and
    BoS(USA) of up to a maximum of $47 million to
    $49 million, consisting of (a) a cash flow note of up
    to a maximum of $35 million to $37 million and
    (b) a $12 million term note,                                                                                                                                 
|
| |  | Bank of Scotlands providing new financing
    to FirstCity, with a total commitment by Bank of Scotland of up
    to a maximum of $58 million to $60 million. The new
    financing will consist of (a) a $5 million revolving
    credit loan and (b) an acquisition term loan in a maximum
    amount of up to $53 million to $55 million. The total
    commitment by Bank of Scotland and BoS(USA) for the refinancing
    combined with the new financing will not exceed $77 million,
|
| |  | the release of FirstCity from its guaranty of
    $4 million of Drives indebtedness to
    BoS(USA), and                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | the cancellation of BoS(USA)s existing
    option to acquire a warrant to
    purchase 1,975,000 shares of FirstCitys
    non-voting common stock.                                                                                                                                                                                                                                                                                                                                        

The successful completion of the exchange offer
is, or FirstCity believes will be, a condition to all of the
items listed above.

In addition to the 80% condition described above,
the exchange offer is also subject to other conditions,
including:



| |                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) the closing of the $16 million loan
    from BoS(USA) described above,                                                                                                                                                                                                                                                                                                                     
|
| | (2) the lack of any change or development
    involving a prospective change in or affecting FirstCitys
    business or financial affairs that, in the reasonable judgment
    of FirstCitys board of directors, would or might prohibit,
    restrict or delay consummation of the exchange offer or
    materially impair the contemplated benefits to FirstCity of the
    exchange offer.

Because there are multiple conditions to the
closing of the transactions contemplated by the recapitalization
that are beyond the control of FirstCity, FirstCity cannot
provide any assurances that these conditions will be satisfied
and that the exchange offer and the recapitalization will close.

40



---



##### 



Portfolio Asset Acquisition and
Resolution

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

|                       |  |          |         |            |  |   |        | 
|---------------------- |  | -------- | ------- | ---------- |  | - | ------ | 
|                       |  | Purchase |         | FirstCity 
|                       |  | Price    |         | Investment
|                       |  |          |         |           
|First Nine Months 2002 |  | $        | 120,839 |            |  | $ | 11,684 | 
|Total 2001             |  |          | 224,927 |            |  |   | 24,319 | 
|Total 2000             |  |          | 394,927 |            |  |   | 22,140 | 
|Total 1999             |  |          | 210,799 |            |  |   | 11,203 | 
|Total 1998             |  |          | 139,691 |            |  |   | 28,478 | 

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,    
|                                                       |                                                                  |                    |       |                  
|                                                       |                                                                  | 2002               |       | 2001              |        | 2002   |   | 2001
|                                                       |                                                                  |                    |       |                   |        |        |   |     
|Income from Portfolio Assets and Loans
    Receivable: |                                                                  |                    |       |                   |        |        |   |      |        |        |   |   |        |        |   |  
|                                                       | Average investment in Portfolio Assets and loans
    receivable: |                    |       |                   |        |        |   |      |        |        |   |   |        |        |   |   |       
|                                                       |                                                                  | Domestic           |       | $                 | 12,347 |        |   | $    | 20,650 |        |   | $ | 13,564 |        |   | $ | 25,793 |       
|                                                       |                                                                  | Mexico             |       |                   | 20,106 |        |   |      | 20,272 |        |   |   | 20,006 |        |   |   | 16,773 |       
|                                                       |                                                                  |                    |       |                   |        |        |   |      |        |        |   |   |        |        |   |  
|                                                       |                                                                  |                    | Total |                   | $      | 32,453 |   |      | $      | 40,922 |   |   | $      | 33,570 |   |   | $      | 42,566 |  
|                                                       |                                                                  |                    |       |                   |        |        |   |      |        |        |   |   |        |        |   |  
|                                                       | Income from Portfolio Assets and loans receivable:               |                    |       |                   |        |        |   |      |        |        |   |   |        |        |   |   |       
|                                                       |                                                                  | Domestic           |       | $                 | 485    |        |   | $    | 882    |        |   | $ | 1,769  |        |   | $ | 2,351  |       
|                                                       |                                                                  | Mexico             |       |                   | 947    |        |   |      | 1,217  |        |   |   | 2,953  |        |   |   | 2,698  |       
|                                                       |                                                                  |                    |       |                   |        |        |   |      |        |        |   |   |        |        |   |  
|                                                       |                                                                  |                    | Total |                   | $      | 1,432  |   |      | $      | 2,099  |   |   | $      | 4,722  |   |   | $      | 5,049  |  
|                                                       |                                                                  |                    |       |                   |        |        |   |      |        |        |   |   |        |        |   |  
|                                                       | Average return (annualized):                                     |                    |       |                   |        |        |   |      |        |        |   |   |        |        |   |   |       
|                                                       |                                                                  | Domestic           |       |                   | 15.71  | %      |   |      | 17.08  | %      |   |   | 17.39  | %      |   |   | 12.15  | %     
|                                                       |                                                                  | Mexico             |       |                   | 18.84  | %      |   |      | 24.01  | %      |   |   | 19.68  | %      |   |   | 21.45  | %     
|                                                       |                                                                  |                    | Total |                   |        | 17.65  | % |      |        | 20.52  | % |   |        | 18.75  | % |   |        | 15.82  | %

41



---



##### 



|                        |                                      |                         |       |                   |        |      |       |        |        |   |       |        |         |   |       |        |         |  
|----------------------- | ------------------------------------ | ----------------------- | ----- | ----------------- | ------ | ---- | ----- | ------ | ------ | - | ----- | ------ | ------- | - | ----- | ------ | ------- | -
|                        |                                      |                         |       |                  
|                        |                                      | Three Months Ended      |       | Nine Months Ended
|                        |                                      | September 30,           |       | September 30,    
|                        |                                      |                         |       |                  
|                        |                                      | 2002                    |       | 2001              |        | 2002 |       | 2001  
|                        |                                      |                         |       |                   |        |      |       |       
|Servicing fee revenues: |                                      |                         |       |                   |        |      |       |        |        |   |       |        |         |   |       |       
|                        | Domestic partnerships:               |                         |       |                   |        |      |       |        |        |   |       |        |         |   |       |        |        
|                        |                                      | $ Collected             |       | $                 | 26,653 |      |       | $      | 26,407 |   |       | $      | 162,864 |   |       | $      | 94,300  |  
|                        |                                      | Servicing fee revenue   |       |                   | 1,249  |      |       |        | 711    |   |       |        | 4,399   |   |       |        | 2,550   |  
|                        |                                      | Average servicing fee % |       |                   | 4.69   | %    |       |        | 2.69   | % |       |        | 2.70    | % |       |        | 2.70    | %
|                        | Mexico partnerships:                 |                         |       |                   |        |      |       |        |        |   |       |        |         |   |       |        |        
|                        |                                      | $ Collected             |       | $                 | 20,895 |      |       | $      | 36,924 |   |       | $      | 69,245  |   |       | $      | 101,345 |  
|                        |                                      | Servicing fee revenue   |       |                   | 1,791  |      |       |        | 1,466  |   |       |        | 4,777   |   |       |        | 4,887   |  
|                        |                                      | Average servicing fee % |       |                   | 8.57   | %    |       |        | 3.97   | % |       |        | 6.90    | % |       |        | 4.82    | %
|                        | Incentive service fees               |                         | $     | 223               |        |      | $     |       |        |   | $     | 479    |         |   | $     | 409    |        
|                        | Total Service Fees:                  |                         |       |                   |        |      |       |        |        |   |       |        |         |   |       |        |        
|                        |                                      | $ Collected             |       | $                 | 47,548 |      |       | $      | 63,331 |   |       | $      | 232,109 |   |       | $      | 195,645 |  
|                        |                                      | Servicing fee revenue   |       |                   | 3,263  |      |       |        | 2,177  |   |       |        | 9,655   |   |       |        | 7,846   |  
|                        |                                      | Average servicing fee % |       |                   | 6.86   | %    |       |        | 3.44   | % |       |        | 4.16    | % |       |        | 4.01    | %
|Personnel:              |                                      |                         |       |                   |        |      |       |        |        |   |       |        |         |   |       |       
|Personnel expenses      |                                      | $                       | 2,871 |                   |        | $    | 1,775 |        |        | $ | 7,548 |        |         | $ | 5,309 |       
|                        | Number of personnel (at period end): |                         |       |                   |        |      |       |        |        |   |       |        |         |   |       |        |        
|                        |                                      | Production              |       |                   | 26     |      |       |        | 25     |   |       |        |         |   |       |        |         |  
|                        |                                      | Servicing               |       |                   | 146    |      |       |        | 99     |   |       |        |         |   |       |        |         |  
|Interest expense:       |                                      |                         |       |                   |        |      |       |        |        |   |       |        |         |   |       |       
|                        | Average debt                         |                         | $     | 28,617            |        |      | $     | 43,704 |        |   | $     | 33,609 |         |   | $     | 43,186 |        
|                        | Interest expense                     |                         |       | 628               |        |      |       | 1,178  |        |   |       | 2,132  |         |   |       | 3,289  |        
|                        | Average cost (annualized)            |                         |       | 8.78              | %      |      |       | 10.78  | %      |   |       | 8.46   | %       |   |       | 10.15  | %      

42



---



##### 



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,    
|                                               |                                                               |                      |     |                  
|                                               |                                                               | 2002                 |     | 2001              |        | 2002 |       | 2001  
|                                               |                                                               |                      |     |                   |        |      |       |       
|Revenues:                                      |                                                               |                      |     |                   |        |      |       |        |        |   |       |        |        |   |       |       
|                                               | Gain on resolution of Portfolio Assets                        |                      | $   | 16,849            |        |      | $     | 24,082 |        |   | $     | 69,532 |        |   | $     | 79,369 |       
|                                               | Gross profit percentage on resolution of
    Portfolio Assets |                      |     | 36.26             | %      |      |       | 40.63  | %      |   |       | 31.45  | %      |   |       | 44.36  | %     
|                                               | Interest income                                               |                      | $   | 2,699             |        |      | $     | 6,054  |        |   | $     | 11,961 |        |   | $     | 18,746 |       
|                                               | Other income                                                  |                      |     | 572               |        |      |       | 609    |        |   |       | 1,802  |        |   |       | 2,327  |       
|Interest expense(1):                           |                                                               |                      |     |                   |        |      |       |        |        |   |       |        |        |   |       |       
|                                               | Interest expense                                              |                      | $   | 14,322            |        |      | $     | 18,844 |        |   | $     | 48,121 |        |   | $     | 54,068 |       
|                                               | Average cost (annualized)                                     |                      |     | 14.55             | %      |      |       | 15.79  | %      |   |       | 15.16  | %      |   |       | 15.21  | %     
|Other expenses:                                |                                                               |                      |     |                   |        |      |       |        |        |   |       |        |        |   |       |       
|                                               | Service fees                                                  |                      |     | 3,199             |        |      |       | 3,417  |        |   |       | 14,271 |        |   |       | 9,736  |       
|                                               | Other operating costs                                         |                      |     | 3,816             |        |      |       | 4,992  |        |   |       | 11,358 |        |   |       | 14,542 |       
|                                               | Income taxes                                                  |                      |     | (4,285            | )      |      |       | 2,743  |        |   |       | (1,658 | )      |   |       | 17,235 |       
|                                               | Foreign currency loss (gain)                                  |                      |     | 7,894             |        |      |       | 529    |        |   |       | 17,914 |        |   |       | (6,869 | )     
|                                               |                                                               |                      |     |                   |        |      |       |        |        |   |       |        |        |   |       |       
|                                               |                                                               | Total other expenses |     |                   | 10,624 |      |       |        | 11,681 |   |       |        | 41,885 |   |       |        | 34,644 | 
|                                               |                                                               |                      |     |                   |        |      |       |        |        |   |       |        |        |   |       |       
|                                               |                                                               | Net earnings (loss)  |     | $                 | (4,826 | )    |       | $      | 220    |   |       | $      | (6,711 | ) |       | $      | 11,730 | 
|                                               |                                                               |                      |     |                   |        |      |       |        |        |   |       |        |        |   |       |       
|Equity in earnings of Acquisition Partnerships |                                                               | $                    | 912 |                   |        | $    | 1,173 |        |        | $ | 6,494 |        |        | $ | 7,839 |       
|Equity in earnings of Servicing Entities       |                                                               |                      | 12  |                   |        |      | 10    |        |        |   | 692   |        |        |   | 997   |       
|                                               |                                                               |                      |     |                   |        |      |       |        |        |   |       |        |        |   |       |       
|                                               |                                                               | $                    | 924 |                   |        | $    | 1,183 |        |        | $ | 7,186 |        |        | $ | 8,836 |       
|                                               |                                                               |                      |     |                   |        |      |       |        |        |   |       |        |        |   |       |       



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 from 19%
    to 20%. The average cost on debt excluding the Mexican
    Acquisition Partnerships was 5.85% and 7.14% for the three
    months ended September 30, 2002 and 2001, respectively and
    6.16% and 8.01% for the nine months ended September 30,
    2002 and 2001, respectively.

43



---



##### 



Consumer Lending

The following table presents selected information
regarding consumer lending:

Analysis of Selected Data

Consumer Lending


|                                                             |                                     |                    |         |                   |   |      |         |         |   |   |         |       |   |   |         |       |  
|------------------------------------------------------------ | ----------------------------------- | ------------------ | ------- | ----------------- | - | ---- | ------- | ------- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                                             |                                     |                    |         |                  
|                                                             |                                     | Three Months Ended |         | Nine Months Ended
|                                                             |                                     | September 30,      |         | September 30,    
|                                                             |                                     |                    |         |                  
|                                                             |                                     | 2002               |         | 2001              |   | 2002 |         | 2001   
|                                                             |                                     |                    |         |                   |   |      |         |        
|Retail installment contracts acquired                        |                                     | $                  | 100,430 |                   |   | $    | 100,187 |         |   | $ | 314,611 |       |   | $ | 330,631 |      
|Origination characteristics:                                 |                                     |                    |         |                   |   |      |         |         |   |   |         |       |   |   |         |      
|                                                             | Face value to wholesale value       |                    |         | 98.07             | % |      |         | 97.99   | % |   |         | 99.69 | % |   |         | 99.80 | %
|                                                             | Weighted average coupon             |                    |         | 20.93             | % |      |         | 20.68   | % |   |         | 21.02 | % |   |         | 20.61 | %
|                                                             | Purchase discount (% of face value) |                    |         | 15.02             | % |      |         | 14.98   | % |   |         | 15.41 | % |   |         | 15.15 | %
|Servicing portfolio                                          |                                     |                    |         |                   |   |      |         |         |   |   |         |       |   |   |         |      
|                                                             | Owned                               |                    | $       | 170,387           |   |      | $       | 123,031 |   |   |         |       |   |   |         |       |  
|                                                             | Securitized                         |                    |         | 493,371           |   |      |         | 414,469 |   |   |         |       |   |   |         |       |  
|                                                             |                                     |                    |         |                   |   |      |         |         |   |   |         |       |   |   |         |      
|                                                             | Total                               |                    | $       | 663,758           |   |      | $       | 537,500 |   |   |         |       |   |   |         |       |  
|                                                             |                                     |                    |         |                   |   |      |         |         |   |   |         |       |   |   |         |      
|                                                             | Owned  number of contracts         |                    |         | 14,568            |   |      |         | 9,653   |   |   |         |       |   |   |         |       |  
|                                                             | Securitized  number of contracts   |                    |         | 44,497            |   |      |         | 36,829  |   |   |         |       |   |   |         |       |  
|                                                             |                                     |                    |         |                   |   |      |         |         |   |   |         |       |   |   |         |      
|                                                             | Total number of contracts           |                    |         | 59,065            |   |      |         | 46,482  |   |   |         |       |   |   |         |       |  
|                                                             |                                     |                    |         |                   |   |      |         |         |   |   |         |       |   |   |         |      
|Defaults (% of original loan balance at time
    of default) |                                     |                    | 18.73   | %                 |   |      | 15.98   | %       |   |   |         |       |   |   |         |      
|Net losses on defaults after recovery                        |                                     |                    | 9.30    | %                 |   |      | 7.59    | %       |   |   |         |       |   |   |         |      
|Delinquencies (% of total serviced portfolio)                |                                     |                    | 7.53    | %                 |   |      | 7.27    | %       |   |   |         |       |   |   |         |      

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 a valuation allowance to value the net
deferred tax asset at a level, which more likely than not, will
be realized. Realization is determined based on
managements expectation of generating sufficient taxable
income in a look forward period over the next four years. The
ultimate realization of the resulting net deferred tax asset is
dependent upon generating sufficient taxable income from its
continuing operations prior to expiration of the NOLs. Although
realization is not assured, management believes it is more
likely than not that all of the recorded deferred tax asset, net
of the allowance, will be realized. The amount of the deferred
tax asset considered realizable, however, could be adjusted in
the future if estimates of future taxable income during the
carryforward period change. The ability of the Company to
realize the deferred tax asset is periodically reviewed and the
valuation allowance is adjusted accordingly.

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 and other investments by the
Company. The potential sources of liquidity are funds generated
from operations, equity distributions from the Acquisition
Partnerships, funds generated from investments, 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.

44



---



##### 



On November 4, 2002, Nasdaq notified
FirstCity that its common stock had failed to meet the listing
requirements for the Nasdaq National Market because the common
stock had closed below the minimum bid price of $1.00 per
share for 30 consecutive trading days. Accordingly, Nasdaq
provided the Company 90 calendar days, or until February 2,
2003, to regain compliance. To regain compliance, the bid price
of the Companys common stock must close at $1.00 per
share or more for a minimum of 10 consecutive trading days.

In addition, the Company does not currently meet
Nasdaqs $10 million stockholders equity
requirement that took effect on November 1, 2002. Nasdaq
has stated, in connection with the Companys failure to
meet the listing requirements in a prior quarter, that it
believes that the recapitalization described above provides a
definitive plan evidencing the Companys ability to achieve
and sustain compliance with the listing requirements. Nasdaq has
not provided written notification that the Companys
securities will be delisted as of the date of this filing. Upon
receipt of such a notification, the Company intends to appeal
Nasdaqs determination to Nasdaqs Listing
Qualifications Panel. A hearing on any appeal would be
scheduled, to the extent practicable, within forty-five days of
the date of the request for appeal, during which time the
Companys common stock will remain listed on the Nasdaq
National Market. The Company currently expects that all
recapitalization transactions will close before the expiration
of any such appeal process, and the Company believes that, upon
the consummation of the recapitalization, it will be in
compliance with $10 million stockholders equity
listing requirement.

BoS(USA) 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, 2002
if the Companys $12 million Term Loan B owed to
BoS(USA) 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, 2002 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 Company
Stock will terminate. BoS(USA) and the Company have entered into
several amendments to this option to acquire a warrant for
1,975,000 shares extending the exercise date from its initial
exercise date of August 31, 2001. The most recent amendment
extended the date from October 31, 2002 to
December 31, 2002 to allow the Company additional time to
pursue the proposed recapitalization described above. Under the
terms of the proposed recapitalization, the option would be
cancelled.

BoS(USA) 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, 2002
through a transaction involving the issuance of warrants,
BoS(USA) 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) and the Company have also amended
the warrant to extend the exercise date from its initial
exercise date of August 31, 2001 to correspond to the
extension of the initial exercise date of the option described
in the preceding paragraph. The most recent amendment extended
the date from October 31, 2002 to December 31, 2002,
consistent with the amended exercise date of the option as
discussed above.

Currently, the Company has approximately
1.2 million shares of New Preferred Stock outstanding with
accrued and unpaid dividends of approximately $8.3 million.
The Companys 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 dividends on
shares of New Preferred Stock will be paid in the forseeable
future. The Company believes that the proposed recapitalization
plan described above will, if implemented, substantially reduce
the number of outstanding shares of New Preferred Stock and the
corresponding accrued dividends on the New Preferred Stock,
along with eliminating the option of BoS(USA) to acquire a
warrant to purchase 1,975,000 shares.

The Portfolio Asset acquisition and resolution
group of the Company has a $35 million loan facility
(increased from $30 million in August 2002) with CFSC
Capital Corp. XXX, a subsidiary of Cargill. This facility is
being used exclusively to provide equity in new Portfolio
acquisitions in partnerships with Cargill and

45



---



##### 



its affiliates and matures in March 2003. At
September 30, 2002, approximately $21 million was
outstanding under this facility.


Drive has a warehouse line of credit with
BoS(USA), which provides borrowings up to $200 million
(increased from $150 million in May 2002). Drives
obligation under this arrangement at September 30, 2002 was
$142 million. The debt is secured by Drives retail
installment contracts and has been extended to July 2003.

Drive also has a warehouse line of credit
agreement with Variable Funding Capital Corporation, a
subsidiary of First Union National Bank, which provides
borrowings up to $100 million. Drives obligation
under the arrangement at September 30, 2002 was zero. The
debt will be secured by Drives retail installment
contracts and has been extended to September 2003. FirstCity has
not guaranteed and is not otherwise liable for this indebtedness.

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. The
Company has agreed to indemnify BoS(USA) for up to 31% of
losses, which might arise as a result of agreements BoS(USA)
executed as a sponsor in connection with the securitizations
completed by Drive. The Company also agreed to provide support
in connection with securitizations by Consumer Corp. and Drive
prior to the acquisition by BoS(USA) 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) to Drive ($18 million outstanding
balance as of September 30, 2002).

On April 29, 2002, BoS(USA) provided a
commitment to fund up to $5 million on a Term Loan E
to the Company to allow the Company to purchase existing debt
under a term credit facility at a purchase price not to exceed
85% of the unpaid principal balance. Term Loan E, secured
by assets of the Company, provides for an interest rate of LIBOR
plus 6% and matures on March 31, 2004. Through
September 30, 2002, advances of $2.8 million have been
made on this loan and used to purchase notes with aggregate
balances of $3.5 million, resulting in a gain of
$.7 million on early extinguishment of debt included in
other income in the consolidated statements of operations.
Bosque Asset Corp. (Bosque), a wholly owned
subsidiary of FirstCity, issued the original notes pursuant to a
Note Agreement dated June 6, 1997 in connection with its
acquisition of approximately 1,500 loans. Bosque granted a
security interest in the acquired loans to Bankers Trust
Company of California, N.A., as trustee for the noteholders. The
notes issued by Bosque matured according to the original terms
on June 5, 2002. FirstCity has not guaranteed payment or
performance of Bosque under the notes or the Note Agreement. As
of September 30, 2002, the aggregate principal balances of
the notes held by FirstCity was $2.7 million. The notes
acquired by FirstCity were purchased at eighty percent (80%) of
the outstanding principal balance of the notes. As of
September 30, 2002, the aggregate balance of the
outstanding notes held by persons unrelated to FirstCity was
$2.0 million. The current trustee under the Note Agreement
has not taken any action related to the maturity of the notes.
The remaining unfunded commitment provided by BoS(USA) was
$1.7 million at September 30, 2002.

The Company has a revolving line of credit
facility with BoS(USA) used to fund current operating expenses.
On May 1, 2002, the maximum principal balance under this
facility was increased from $10 million to
$14 million. This facility, secured by assets of the
Company, provides for an interest rate of LIBOR plus 2.50% and
matures on December 31, 2003. At September 30, 2002,
the outstanding balance on this facility was $13 million.

Excluding the term acquisition facilities of the
unconsolidated Acquisition Partnerships and the term and
warehouse facilities of Drive, as of September 30, 2002,
the Company and its subsidiaries had credit facilities providing
for borrowings in an aggregate principal amount of
$103 million and outstanding borrowings of $86 million.

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

46



---



##### 



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, 2002 and the outstanding
borrowings under such facilities as of September 30, 2002.

Credit Facilities

|                                                               |                          |                       |     |               |     |               |     |                            |    |                                                                          |              |                                                                                      |  |                                                                                                    |                          | 
|-------------------------------------------------------------- | ------------------------ | --------------------- | --- | ------------- | --- | ------------- | --- | -------------------------- | -- | ------------------------------------------------------------------------ | ------------ | ------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------- | ------------------------ | 
|                                                               |                          | Funded and            |     |               |     |               |     |                           
|                                                               |                          | Unfunded              |     | Outstanding   |     |               |     |                           
|                                                               |                          | Commitment            |     | Borrowings    |     |               |     |                           
|                                                               |                          | Amount as of          |     | as of         |     |               |     |                           
|                                                               |                          | November 14,          |     | September 30, |     |               |     |                           
|                                                               |                          | 2002                  |     | 2002          |     | Interest Rate |     | Other Terms and Conditions
|                                                               |                          |                       |     |               |     |               |     |                           
|                                                               |                          |                       |     |               |     |              
|                                                               |                          | (Dollars in millions) |     |               |     |              
|FirstCity                                                      |                          |                       |     |               |     |               |     |                            |    |                                                                          |              |                                                                                      |  |                                                                                                   
|Company Senior Facility:                                       |                          |                       |     |               |     |               |     |                            |    |                                                                          |              |                                                                                      |  |                                                                                                   
|                                                               | Revolving Line of Credit |                       | $   | 14            |     |               | $   | 13                         |    |                                                                          |              | LIBOR + 2.5%                                                                         |  |                                                                                                    | Secured by the assets of
|                                                               | Term Loan A              |                       |     | 31            |     |               |     | 31                         |    |                                                                          |              | LIBOR + 2.5%                                                                         |  |                                                                                                    | the Company, matures    
|                                                               | Term Loan B              |                       |     | 12            |     |               |     | 12                         |    |                                                                          |              | Prime                                                                                |  |                                                                                                    | December 2003           
|Term Loan E                                                    |                          |                       | 4   |               |     |               | 2   |                            |    |                                                                          | LIBOR + 6.0% |                                                                                      |  | March 2004                                                                                        
|Term credit facility                                           |                          |                       | 3   |               |     |               | 3   |                            |    |                                                                          | LIBOR + 5.0% |                                                                                      |  | Secured by ownership interests in certain
    Acquisition partnerships Matures January 2003       
|Commercial Corp.                                               |                          |                       |     |               |     |               |     |                            |    |                                                                          |              |                                                                                      |  |                                                                                                   
|Acquisition facility                                           |                          |                       | 2   |               |     |               | 2   |                            |    |                                                                          | LIBOR + 4.5% |                                                                                      |  | Secured by existing Portfolio Assets, matures
    January 2003                                    
|Term facilities                                                |                          |                       | 2   |               |     |               | 2   |                            |    | Fixed at 7.00% to 7.66%                                                  |              | Secured by Portfolio Assets, matured June 2002
    and November 2002                
|Equity investment facility                                     |                          |                       | 35  |               |     |               | 21  |                            |    |                                                                          | LIBOR + 4.5% |                                                                                      |  | Acquisition facility for the investment in future
    Acquisition partnerships, matures March 2003
|                                                               |                          | Total                 |     | $             | 103 |               |     | $                          | 86 |                                                                          |              |                                                                                      |  |                                                                                                    |                          | 
|                                                               |                          |                       |     |               |     |               |     |                            |    |                                                                          |              |                                                                                      |  |                                                                                                   
|Unconsolidated Acquisition Partnerships term
    Facilities(1) |                          | $                     | 126 |               |     | $             | 126 |                            |    |                                                                          | Various      |                                                                                      |  | Secured by Portfolio Assets, various Maturities                                                   
|Unconsolidated Drive                                           |                          |                       |     |               |     |               |     |                            |    |                                                                          |              |                                                                                      |  |                                                                                                   
|Warehouse Facility                                             |                          | $                     | 200 |               |     | $             | 142 |                            |    |                                                                          | LIBOR + 1%;  |                                                                                      |  | Secured by warehouse                                                                              
|                                                               |                          |                       |     |               |     |               |     |                            |    |                                                                          | Prime  1.5% |                                                                                      |  | inventory, matures July 2003                                                                      
|Warehouse Facility                                             |                          |                       | 100 |               |     |               |    |                            |    | Rate based on Commercial paper rates combined with certain facility fees |              | Secured by warehouse inventory, matures September
    2003                          
|Bonds payable                                                  |                          |                       | 167 |               |     |               | 167 |                            |    | Fixed at 1.88% to 4.08%                                                  |              | Secured by retail installment contracts, various
    maturities through January 2008
|Subordinate capital Facility                                   |                          |                       | 65  |               |     |               | 44  |                            |    |                                                                          | Fixed at 16% |                                                                                      |  | Secured by all assets of Drive, matures February
    2006                                         

47



---



##### 



|              |  |                       |     |               |  |               |     |                            |  |                          |  |                                                    |  | 
|------------- |  | --------------------- | --- | ------------- |  | ------------- | --- | -------------------------- |  | ------------------------ |  | -------------------------------------------------- |  | 
|              |  | Funded and            |     |               |  |               |     |                           
|              |  | Unfunded              |     | Outstanding   |  |               |     |                           
|              |  | Commitment            |     | Borrowings    |  |               |     |                           
|              |  | Amount as of          |     | as of         |  |               |     |                           
|              |  | November 14,          |     | September 30, |  |               |     |                           
|              |  | 2002                  |     | 2002          |  | Interest Rate |     | Other Terms and Conditions
|              |  |                       |     |               |  |               |     |                           
|              |  |                       |     |               |  |              
|              |  | (Dollars in millions) |     |               |  |              
|Term Facility |  |                       | 18  |               |  |               | 18  |                            |  | LIBOR + 1%; Prime  1.5% |  | Secured by residual interests, matures August 2003
|              |  | $                     | 386 |               |  | $             | 371 |                            |  |                          |  |                                                    |  | 
|              |  |                       |     |               |  |               |     |                            |  |                          |  |                                                    |  | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In addition to the term acquisition facilities of
    the unconsolidated Acquisition Partnerships, the Mexican
    Acquisition Partnerships also have term debt of approximately
    $388 million outstanding as of September 30, 2002 owed
    to affiliates of the investor groups. Of this amount, the
    Company has recorded approximately $19.7 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
consummation and effect of exchange offer and the proposed
recapitalization; 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 assets, loans or 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 that might arise in a bankruptcy proceeding;
factors more fully discussed and identified in the
Companys Annual Report on Form 10-K, filed
March 29, 2002 (including those discussed under
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations), as well as
in other Securities and Exchange Commission filings of the
Company. 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 Companys expectations with regard
thereto or any change in events, conditions or circumstances on
which any forward-looking statement is based.

48



---



##### 



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 consist of investment loans made
to Acquisition Partnerships located in Mexico and bear interest
at predominately fixed rates. The collectibility of these loans
is directly related to the underlying Portfolio Assets of those
Acquisition Partnerships, which are non-performing in nature.
Therefore, changes in benchmark rates would have minimal effect
on the collectibility of 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, 2001.

Item 4.     Controls
and Procedures

The Company maintains controls and procedures
designed to ensure that information required to be disclosed in
the reports that the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission. Based
upon their evaluation of those controls and procedures performed
within 90 days of the filing date of this report, the chief
executive officer and the chief financial officer of the Company
concluded that the Companys disclosure controls and
procedures were adequate.

49



---



##### 



The Company made no significant changes in its
internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation
of those controls by the chief executive officer and chief
financial officer.

PART II

OTHER INFORMATION

Item 1.     Legal
Proceedings

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 liquidation proceedings 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 included fraudulent and preferential transfer of
assets of the Harbor entities, fraud and conspiracy. The
Trustee, FirstCity, the other defendants and the insurers
providing Directors and Officers Insurance coverage
for FirstCity and its subsidiaries (the Insurers)
have executed a settlement agreement setting forth the terms of
the compromise of the claims brought in the adversary
proceedings, which has been approved by the Bankruptcy Court.
Under the terms of the settlement agreement, the Trustee
released 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 (i) the
payment of the sum of $3,575,000 by the Insurers to the Trustee,
(ii) a payment by FirstCity to the Trustee in the sum of
$225,000, and (iii) 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, with the
exception of a portion of the administrative claim of FirstCity
as noted below. FirstCitys administrative claim in the
Bankruptcy Case was allowed in the amount of $300,000, which
claim FirstCity was assigned to the Insurers and paid by the
Trustee directly to the Insurers.

Periodically, FirstCity, its subsidiaries, its
affiliates and the Acquisition Partnerships are parties to or
otherwise involved in legal proceedings arising in the normal
course of business. FirstCity 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 FirstCity, its subsidiaries, its affiliates or the
Acquisition Partnerships.

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, 2002, accumulated dividends in arrears on
such preferred stock totaled $8.3 million, or
$6.825 per share.

50



---



##### 



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).                                                                                                                                                                                                     
|        | 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).                                                                                                                                       

51



---



##### 



|        |    |     |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | -- | --- |  | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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).                                                                                                                                                                             
|        | 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).                                                                                                                                                                                                                                                                      

52



---



##### 



|        |    |     |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | -- | --- |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |            
|Number  |    |     |  | Description
|        |    |     |  |            
|        | 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).                                                                                                                                                       
|        | 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).                                                                                                                      

53



---



##### 



|        |    |     |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | -- | --- |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |            
|Number  |    |     |  | Description
|        |    |     |  |            
|        | 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).                                                                                                                                    
|        | 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 on April 13,
    2001).                                                                                                                 

54



---



##### 



|        |    |     |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | -- | --- |  | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |            
|Number  |    |     |  | Description
|        |    |     |  |            
|        | 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 on 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 on 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 on April 13,
    2001).                                                      
|        | 10 | .48 |  |            |  | Amended and Restated Amendment #4 (Option
    and Option Warrant), dated as of December 31, 2001, between
    the Company and BoS(USA) Inc. (incorporated herein by reference
    to Exhibit 99.1 of the Companys Form 8-K dated
    January 18, 2002, filed with the Commission on
    January 18, 2002).                                                                                                                       
|        | 10 | .49 |  |            |  | Confirmation Letter, dated January 28, 2002,
    among First City, BoS(USA) and Bank of Scotland (incorporated
    herein by reference to Exhibit 10.49 of the Companys
    Form S-4, registration number 333-90258, filed with
    the Commission on June 11, 2002).                                                                                                                                                            
|        | 10 | .50 |  |            |  | Commitment Letter, dated September 25, 2002,
    between FirstCity Financial Corporation and BoS(USA), Inc.
    (incorporated herein by reference to Exhibit 10.50 of the
    Companys Pre-Effective Amendment No. 3 to
    Form S-4, registration number 333-90258, filed with
    the Commission on September 30, 2002).                                                                                                       

(b) Reports on Form 8-K.

On August 14, 2002, the Company filed a
Current Report on Form 8-K to furnish certifications of its
Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

55



---



##### 






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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. Sartain               
| | President and Chief Executive  
| | Officer and Director           
| | (Duly authorized officer of the
| | Registrant)                    



| |     |                   
| | --- | ------------------
| | By: | /s/ J. BRYAN BAKER

| |                                   
| | ----------------------------------
| |                                   
| | J. Bryan Baker                    
| | Senior Vice President and Chief   
| | Financial Officer                 
| | (Duly authorized officer and      
| | principal financial and accounting
| | officer of the Registrant)        

Dated: November 14, 2002

56



---



##### 






CERTIFICATIONS

I, James T. Sartain, certify that:

1. I have reviewed this quarterly report on
Form 10-Q of FirstCity Financial Corporation;

2. Based on my knowledge, this quarterly
report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;

4. The registrants other certifying
officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:



| |                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this quarterly report is being prepared;
|
| | (b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | (c) presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this quarterly report
whether or not there were significant changes in internal
controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.



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

| |                            
| | ---------------------------
| |                            
| | James T. Sartain           
| | Principal Executive Officer

Dated: November 14, 2002

57



---



##### 



CERTIFICATIONS

I, J. Bryan Baker, certify that:

1. I have reviewed this quarterly report on
Form 10-Q of FirstCity Financial Corporation;

2. Based on my knowledge, this quarterly
report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;

4. The registrants other certifying
officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:



| |                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this quarterly report is being prepared;
|
| | (b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | (c) presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this quarterly report
whether or not there were significant changes in internal
controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.



| |     |                   
| | --- | ------------------
| | By: | /s/ J. BRYAN BAKER

| |                            
| | ---------------------------
| |                            
| | J. Bryan Baker             
| | Principal Financial Officer

Dated: November 14, 2002

58



---



##### 



INDEX TO 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).                                                                                                                                                                                                     
|        | 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).                                                                                                                       

59



---



##### 



|        |    |     |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | -- | --- |  | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |            
|Number  |    |     |  | Description
|        |    |     |  |            
|        | 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).                                                                                                                                                                             
|        | 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).                                                                                                                                                                                                           

60



---



##### 



|        |    |     |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | -- | --- |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |            
|Number  |    |     |  | Description
|        |    |     |  |            
|        | 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).                                                                                                                                                       
|        | 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).                                                            

61



---



##### 



|        |    |     |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | -- | --- |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |            
|Number  |    |     |  | Description
|        |    |     |  |            
|        | 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).                                                                                                                                    
|        | 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 on 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 on April 13, 2001).                                                                                                                          

62



---



##### 



|        |    |     |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | -- | --- |  | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |            
|Number  |    |     |  | Description
|        |    |     |  |            
|        | 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 on 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 on April 13,
    2001).                                                      
|        | 10 | .48 |  |            |  | Amended and Restated Amendment #4 (Option
    and Option Warrant), dated as of December 31, 2001, between
    the Company and BoS(USA) Inc. (incorporated herein by reference
    to Exhibit 99.1 of the Companys Form 8-K dated
    January 18, 2002, filed with the Commission on
    January 18, 2002).                                                                                                                       
|        | 10 | .49 |  |            |  | Confirmation Letter, dated January 28, 2002,
    among First City, BoS(USA) and Bank of Scotland (incorporated
    herein by reference to Exhibit 10.49 of the Companys
    Form S-4, registration number 333-90258, filed with
    the Commission on June 11, 2002).                                                                                                                                                            
|        | 10 | .50 |  |            |  | Commitment Letter, dated September 25, 2002,
    between FirstCity Financial Corporation and BoS(USA), Inc.
    (incorporated herein by reference to Exhibit 10.50 of the
    Companys Pre-Effective Amendment No. 3 to
    Form S-4, registration number 333-90258, filed with
    the Commission on September 30, 2002).                                                                                                       

63