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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q



|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended June 30, 2001 or



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

Commission File Number 033-19694

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

|                                                                       |  |                                     
|---------------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                               |  | 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 [X ] No [  ]

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

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TABLE OF CONTENTS



|                             |                                                                                                |                                                                                            |  |  |  |  |  | 
|---------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | ITEM 1. Financial Statements                                                                  
|                             |                                                                                                | CONSOLIDATED BALANCE SHEETS                                                               
|                             |                                                                                                | CONSOLIDATED STATEMENTS OF OPERATIONS                                                     
|                             |                                                                                                | CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
AND ACCUMULATED OTHER COMPREHENSIVE INCOME
|                             |                                                                                                | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                     
|                             |                                                                                                | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                
|                             | ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                             | ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.                           
|PART II                     
|OTHER INFORMATION           
|                             | ITEM 1. Legal Proceedings                                                                     
|                             | ITEM 3. Defaults Upon Senior Securities                                                       
|                             | ITEM 4. Submission of Matters to a Vote of Security Holders                                   
|                             | ITEM 6. Exhibits and Reports on Form 8-K                                                      
|SIGNATURES                  



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##### Table of Contents






PART I

FINANCIAL INFORMATION




ITEM 1. Financial Statements




FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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

|                                                  |                                                                                                                                                                                                                                         |                                                                  |                                                                        |         |   |          |        |         |              |         |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------------------------- | ------- | - | -------- | ------ | ------- | ------------ | ------- |  | 
|                                                  |                                                                                                                                                                                                                                         |                                                                  |                                                                        |         |   | June 30, |        |         | December 31, |        
|                                                  |                                                                                                                                                                                                                                         |                                                                  |                                                                        |         |   | 2001     |        |         | 2000         |        
|                                                  |                                                                                                                                                                                                                                         |                                                                  |                                                                        |         |   |          |        |         |              |        
|                                                  |                                                                                                                                                                                                                                         |                                                                  |                                                                        | ASSETS 
|                                                 
|                                                 
|                                                 
|                                                 
|Cash and cash equivalents                         |                                                                                                                                                                                                                                         | $                                                                | 7,611                                                                  |         |   | $        | 8,043  |        
|                                                 
|                                                 
|                                                 
|                                                 
|Portfolio Assets, net                             |                                                                                                                                                                                                                                         |                                                                  | 23,012                                                                 |         |   |          | 30,018 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Loans receivable, net                             |                                                                                                                                                                                                                                         |                                                                  | 18,787                                                                 |         |   |          | 14,539 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Equity investments                                |                                                                                                                                                                                                                                         |                                                                  | 52,768                                                                 |         |   |          | 39,022 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Deferred tax benefit, net                         |                                                                                                                                                                                                                                         |                                                                  | 20,101                                                                 |         |   |          | 20,101 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Other assets, net                                 |                                                                                                                                                                                                                                         |                                                                  | 9,374                                                                  |         |   |          | 8,824  |        
|                                                 
|                                                 
|                                                 
|                                                 
|Net assets of discontinued operations             |                                                                                                                                                                                                                                         |                                                                  | 19,953                                                                 |         |   |          | 20,444 |        
|                                                  |                                                                                                                                                                                                                                         |                                                                  |                                                                        |         |   |         
|                                                  |                                                                                                                                                                                                                                         |                                                                  | Total Assets                                                           |         | $ | 151,606  |        |         | $            | 140,991 | 
|                                                  |                                                                                                                                                                                                                                         |                                                                  |                                                                        |         |   |         
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                                                                                                                                                         | LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS EQUITY
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Liabilities:                                     
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Notes payable                                                                                                                                                                                                                           |                                                                  |                                                                        | 95,875  |   |          | $      | 93,764  |             
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Other liabilities                                                                                                                                                                                                                       |                                                                  |                                                                        | 11,131  |   |          |        | 9,216   |             
|                                                  |                                                                                                                                                                                                                                         |                                                                  |                                                                        |         |   |         
|                                                  |                                                                                                                                                                                                                                         |                                                                  | Total Liabilities                                                      |         |   | 107,006  |        |         |              | 102,980 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Commitments and contingencies (notes 2, 4, 9, 10)
|                                                 
|                                                 
|                                                 
|                                                 
|Redeemable preferred stock:                      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Adjusting rate preferred stock, including accumulated
dividends in arrears of $5,136 and $3,852,
respectively (par value $.01; redemption value of $21
per share; 2,000,000 shares authorized; 1,222,901
shares issued and outstanding) |                                                                  |                                                                        | 30,817  |   |          |        | 29,533  |             
|                                                 
|                                                 
|                                                 
|                                                 
|Shareholders equity:                            
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Optional preferred stock (par value $.01 per share;
98,000,000 shares authorized; no shares issued or
outstanding)                                                                                                                      |                                                                  |                                                                        |        |   |          |        |        |             
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Common stock (par value $.01 per share; 100,000,000
shares authorized; issued and outstanding: 8,376,500
and 8,368,344 shares, respectively)                                                                                            |                                                                  |                                                                        | 84      |   |          |        | 84      |             
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Paid in capital                                                                                                                                                                                                                         |                                                                  |                                                                        | 79,645  |   |          |        | 79,634  |             
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accumulated deficit                                                                                                                                                                                                                     |                                                                  |                                                                        | (67,926 | ) |          |        | (71,131 | )           
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accumulated other comprehensive income (loss)                                                                                                                                                                                           |                                                                  |                                                                        | 1,980   |   |          |        | (109    | )           
|                                                  |                                                                                                                                                                                                                                         |                                                                  |                                                                        |         |   |         
|                                                  |                                                                                                                                                                                                                                         |                                                                  | Total Shareholders Equity                                             |         |   | 13,783   |        |         |              | 8,478   | 
|                                                  |                                                                                                                                                                                                                                         |                                                                  |                                                                        |         |   |         
|                                                  |                                                                                                                                                                                                                                         |                                                                  | Total Liabilities, Redeemable Preferred Stock and
Shareholders Equity |         | $ | 151,606  |        |         | $            | 140,991 | 
|                                                  |                                                                                                                                                                                                                                         |                                                                  |                                                                        |         |   |         

See accompanying notes to consolidated financial statements.

2



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##### Table of Contents



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES




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

|                                                                                                        |                                                     |                |        |                    |        |   |                  |       |        |      |        |        |        |   |         |        |        | 
|------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | -------------- | ------ | ------------------ | ------ | - | ---------------- | ----- | ------ | ---- | ------ | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                                        |                                                     |                |        | Three Months Ended |        |   | Six Months Ended |      
|                                                                                                        |                                                     |                |        | June 30,           |        |   | June 30,         |      
|                                                                                                        |                                                     |                |        |                    |        |   |                  |      
|                                                                                                        |                                                     |                |        | 2001               |        |   | 2000             |       |        | 2001 |        |        | 2000   |  
|                                                                                                        |                                                     |                |        |                    |        |   |                  |       |        |      |        |        |        |  
|Revenues:                                                                                              
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Servicing fees                                      |                | $      | 3,204              |        |   | $                | 3,940 |        |      | $      | 5,669  |        |   | $       | 7,236  |       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Gain on resolution of Portfolio Assets              |                |        | 214                |        |   |                  | 689   |        |      |        | 432    |        |   |         | 1,770  |       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Equity in earnings of investments                   |                |        | 10,426             |        |   |                  | 1,257 |        |      |        | 12,486 |        |   |         | 3,870  |       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Interest income                                     |                |        | 1,413              |        |   |                  | 6,059 |        |      |        | 2,653  |        |   |         | 11,064 |       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Gain on sale of interest in equity investment       |                |        |                   |        |   |                  |      |        |      |        | 3,134  |        |   |         |       |       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Gain on sale of automobile loans                    |                |        |                   |        |   |                  |      |        |      |        |       |        |   |         | 2,836  |       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Other income                                        |                |        | 428                |        |   |                  | 445   |        |      |        | 548    |        |   |         | 1,290  |       
|                                                                                                        |                                                     |                |        |                    |        |   |                  |       |        |      |        |       
|                                                                                                        |                                                     | Total revenues |        |                    | 15,685 |   |                  |       | 12,390 |      |        |        | 24,922 |   |         |        | 28,066 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Expenses:                                                                                              
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Interest and fees on notes payable                  |                |        | 2,312              |        |   |                  | 6,194 |        |      |        | 4,754  |        |   |         | 11,703 |       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Salaries and benefits                               |                |        | 2,769              |        |   |                  | 4,944 |        |      |        | 4,992  |        |   |         | 9,614  |       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Provision for loan and impairment losses            |                |        | 1,543              |        |   |                  | 2,730 |        |      |        | 2,128  |        |   |         | 3,835  |       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Occupancy, data processing, communication
and other |                |        | 2,889              |        |   |                  | 5,625 |        |      |        | 5,467  |        |   |         | 9,887  |       
|                                                                                                        |                                                     |                |        |                    |        |   |                  |       |        |      |        |       
|                                                                                                        |                                                     | Total expenses |        |                    | 9,513  |   |                  |       | 19,493 |      |        |        | 17,341 |   |         |        | 35,039 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Earnings (loss) from continuing operations
before income taxes, minority interest and
accounting change |                                                     |                | 6,172  |                    |        |   | (7,103           | )     |        |      | 7,581  |        |        |   | (6,973  | )     
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Benefit (provision) for income taxes                                                                    |                                                     |                | (7     | )                  |        |   | (7,302           | )     |        |      | 8      |        |        |   | (7,321  | )     
|                                                                                                        |                                                     |                |        |                    |        |   |                  |       |        |      |        |       
|Earnings (loss) from continuing operations
before minority interest and accounting
change               |                                                     |                | 6,165  |                    |        |   | (14,405          | )     |        |      | 7,589  |        |        |   | (14,294 | )     
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Minority interest                                                                                       |                                                     |                | (1,997 | )                  |        |   | 427              |       |        |      | (1,796 | )      |        |   | 187     |       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Cumulative effect of accounting change                                                                  |                                                     |                | (304   | )                  |        |   |                 |       |        |      | (304   | )      |        |   |        |       
|                                                                                                        |                                                     |                |        |                    |        |   |                  |       |        |      |        |       
|Earnings (loss) from continuing operations                                                              |                                                     |                | 3,864  |                    |        |   | (13,978          | )     |        |      | 5,489  |        |        |   | (14,107 | )     
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Loss from discontinued operations                                                                       |                                                     |                | (1,000 | )                  |        |   | (5,000           | )     |        |      | (1,000 | )      |        |   | (5,000  | )     
|                                                                                                        |                                                     |                |        |                    |        |   |                  |       |        |      |        |       
|Net earnings (loss)                                                                                     |                                                     |                | 2,864  |                    |        |   | (18,978          | )     |        |      | 4,489  |        |        |   | (19,107 | )     
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Accumulated preferred dividends in arrears                                                              |                                                     |                | (642   | )                  |        |   | (642             | )     |        |      | (1,284 | )      |        |   | (1,284  | )     
|                                                                                                        |                                                     |                |        |                    |        |   |                  |       |        |      |        |       
|Net earnings (loss) to common shareholders                                                              |                                                     | $              | 2,222  |                    |        | $ | (19,620          | )     |        | $    | 3,205  |        |        | $ | (20,391 | )     
|                                                                                                        |                                                     |                |        |                    |        |   |                  |       |        |      |        |       
|Basic and diluted earnings (loss) per common
share are as follows:                                     
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Earnings (loss) from continuing operations          |                | $      | 0.43               |        |   | $                | (1.75 | )      |      | $      | 0.54   |        |   | $       | (1.84  | )     
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Cumulative effect of accounting change              |                |        | (0.04              | )      |   |                  |      |        |      |        | (0.04  | )      |   |         |       |       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Discontinued operations per common share            |                |        | (0.12              | )      |   |                  | (0.60 | )      |      |        | (0.12  | )      |   |         | (0.60  | )     
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Net earnings (loss) per common share                |                | $      | 0.27               |        |   | $                | (2.35 | )      |      | $      | 0.38   |        |   | $       | (2.44  | )     
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Weighted average common shares outstanding          |                |        | 8,376              |        |   |                  | 8,348 |        |      |        | 8,372  |        |   |         | 8,341  |       

See accompanying notes to consolidated financial statements.

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##### Table of Contents



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES




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

|                                                        |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   |         |         |  
|------------------------------------------------------- | --------------------------------------------- |  | --------- | - |  | ------ | -- | - | ------- | - | ------ | ----------- |  | - | ------- | ------- | - | ------------- | ----------- | ----- | ----- | - | ------- | ------- | -
|                                                        |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               | Accumulated |      
|                                                        |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               | Other       |      
|                                                        |                                               |  | Number of |   |  |        |    |   |         |   |        |             |  |   |         |         |   | Comprehensive |             |       | Total |  
|                                                        |                                               |  | Common    |   |  | Common |    |   | Paid in |   |        | Accumulated |  |   | Income  |         |   | Shareholders' |            
|                                                        |                                               |  | Shares    |   |  | Stock  |    |   | Capital |   |        | Deficit     |  |   | (Loss)  |         |   | Equity        |            
|                                                        |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |            
|Balances, December 31, 1999                             |                                               |  | 8,333,300 |   |  | $      | 83 |   |         | $ | 79,562 |             |  | $ | (52,663 | )       |   | $             | (395        | )     |       | $ | 26,587  |        
|                                                       
|                                                       
|                                                       
|                                                       
|Purchase of shares through
employee stock purchase
plan |                                               |  | 35,044    |   |  |        | 1  |   |         |   | 72     |             |  |   |        |         |   |               |            |       |       |   | 73      |        
|                                                       
|                                                       
|                                                       
|                                                       
|Comprehensive loss:                                    
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Net loss for 2000                             |  |           |  |  |        |    |  |         |   |        |            |  |   |         | (15,900 | ) |               |             |      |       |   |         | (15,900 | )
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Foreign currency items                        |  |           |  |  |        |    |  |         |   |        |            |  |   |         |        |   |               |             | 286   |       |   |         | 286     |  
|                                                        |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   |        
|Total comprehensive loss                                |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   | (15,614 | )      
|                                                        |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   |        
|Preferred dividends                                     |                                               |  |          |   |  |        |   |   |         |   |       |             |  |   | (2,568  | )       |   |               |            |       |       |   | (2,568  | )      
|                                                        |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |              
|Balances, December 31, 2000                             |                                               |  | 8,368,344 |   |  |        | 84 |   |         |   | 79,634 |             |  |   | (71,131 | )       |   |               | (109        | )     |       |   | 8,478   |        
|                                                       
|                                                       
|                                                       
|                                                       
|Purchase of shares through
employee stock purchase
plan |                                               |  | 8,156     |   |  |        |   |   |         |   | 11     |             |  |   |        |         |   |               |            |       |       |   | 11      |        
|                                                       
|                                                       
|                                                       
|                                                       
|Comprehensive income:                                  
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Net earnings for the
first six months of 2001 |  |           |  |  |        |    |  |         |   |        |            |  |   |         | 4,489   |   |               |             |      |       |   |         | 4,489   |  
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Foreign currency items                        |  |           |  |  |        |    |  |         |   |        |            |  |   |         |        |   |               |             | (613  | )     |   |         | (613    | )
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Unrealized gain of
equity investment          |  |           |  |  |        |    |  |         |   |        |            |  |   |         |        |   |               |             | 2,702 |       |   |         | 2,702   |  
|                                                        |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   |        
|Total comprehensive income                              |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   | 6,578   |        
|                                                        |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |               |             |       |       |   |        
|Preferred dividends                                     |                                               |  |          |   |  |        |   |   |         |   |       |             |  |   | (1,284  | )       |   |               |            |       |       |   | (1,284  | )      
|                                                        |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |              
|Balances, June 30, 2001                                 |                                               |  | 8,376,500 |   |  | $      | 84 |   |         | $ | 79,645 |             |  | $ | (67,926 | )       |   | $             | 1,980       |       |       | $ | 13,783  |        
|                                                        |                                               |  |           |   |  |        |    |   |         |   |        |             |  |   |         |         |   |              

See accompanying notes to consolidated financial statements

4



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##### Table of Contents



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES




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

|                                                     |                                                                                        |                                                                                   |                                            |         |                  |        |        |         |         |         |  
|---------------------------------------------------- | -------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ---------------- | ------ | ------ | ------- | ------- | ------- | -
|                                                     |                                                                                        |                                                                                   |                                            |         | Six Months Ended |       
|                                                     |                                                                                        |                                                                                   |                                            |         | June 30,         |       
|                                                     |                                                                                        |                                                                                   |                                            |         |                  |       
|                                                     |                                                                                        |                                                                                   |                                            |         | 2001             |        |        | 2000    |        
|                                                     |                                                                                        |                                                                                   |                                            |         |                  |        |        |         |        
|Cash flows from operating activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net earnings (loss)                                                                    |                                                                                   | $                                          | 4,489   |                  |        | $      | (19,107 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Loss from discontinued operations                                                 |                                            |         | 1,000            |        |        |         | 5,000   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Proceeds from resolution of Portfolio Assets                                      |                                            |         | 3,210            |        |        |         | 6,827   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Gain on resolution of Portfolio Assets                                            |                                            |         | (432             | )      |        |         | (1,770  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Purchase of Portfolio Assets and loans receivable, net                            |                                            |         | (6,019           | )      |        |         | (6,605  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Origination of automobile receivables, net of purchase
discount                   |                                            |         |                 |        |        |         | (94,373 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Provision for loan and impairment losses                                          |                                            |         | 2,128            |        |        |         | 3,835   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Equity in earnings of investments                                                 |                                            |         | (12,486          | )      |        |         | (3,870  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Proceeds from performing Portfolio Assets and loans
receivable, net               |                                            |         | 3,897            |        |        |         | 46,058  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Decrease in net deferred tax asset                                                |                                            |         |                 |        |        |         | 7,000   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Depreciation and amortization                                                     |                                            |         | 445              |        |        |         | 1,247   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Increase in other assets                                                          |                                            |         | (2,918           | )      |        |         | (4,130  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Gain on sale of interest in equity investment                                     |                                            |         | (3,134           | )      |        |         |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Increase in other liabilities                                                     |                                            |         | 4,114            |        |        |         | 3,054   |        
|                                                     |                                                                                        |                                                                                   |                                            |         |                  |       
|                                                     |                                                                                        |                                                                                   | Net cash used in operating activities      |         |                  | (5,706 | )      |         |         | (56,834 | )
|                                                     |                                                                                        |                                                                                   |                                            |         |                  |       
|Cash flows from investing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from sale of interest in equity investment                                    |                                                                                   |                                            | 7,000   |                  |        |        |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Property and equipment, net                                                            |                                                                                   |                                            | (150    | )                |        |        | 495     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Contributions to Acquisition Partnerships and Servicing
Entities                       |                                                                                   |                                            | (8,035  | )                |        |        | (1,660  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Distributions from Acquisition Partnerships and Servicing
Entities                     |                                                                                   |                                            | 4,956   |                  |        |        | 4,936   |        
|                                                     |                                                                                        |                                                                                   |                                            |         |                  |       
|                                                     |                                                                                        |                                                                                   | Net cash provided by investing activities  |         |                  | 3,771  |        |         |         | 3,771   |  
|                                                     |                                                                                        |                                                                                   |                                            |         |                  |       
|Cash flows from financing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Borrowings under notes payable                                                         |                                                                                   |                                            | 20,547  |                  |        |        | 115,617 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payments of notes payable                                                              |                                                                                   |                                            | (18,546 | )                |        |        | (53,691 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from issuance of common stock                                                 |                                                                                   |                                            | 11      |                  |        |        | 51      |        
|                                                     |                                                                                        |                                                                                   |                                            |         |                  |       
|                                                     |                                                                                        |                                                                                   | Net cash provided by financing activities  |         |                  | 2,012  |        |         |         | 61,977  |  
|                                                     |                                                                                        |                                                                                   |                                            |         |                  |       
|                                                     |                                                                                        |                                                                                   | Net cash provided by continuing operations |         |                  | 77     |        |         |         | 8,914   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        |                                                                                   | Net cash used by discontinued operations   |         |                  | (509   | )      |         |         | (3,017  | )
|                                                     |                                                                                        |                                                                                   |                                            |         |                  |       
|Net increase (decrease) in cash and cash equivalents |                                                                                        | $                                                                                 | (432                                       | )       |                  | $      | 5,897  |        
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of period       |                                                                                        |                                                                                   | 8,043                                      |         |                  |        | 11,263 |        
|                                                     |                                                                                        |                                                                                   |                                            |         |                  |       
|Cash and cash equivalents, end of period             |                                                                                        | $                                                                                 | 7,611                                      |         |                  | $      | 17,160 |        
|                                                     |                                                                                        |                                                                                   |                                            |         |                  |       
|Supplemental disclosure of cash flow information:   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash paid (received) during the period for:                                           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Interest                                                                          |                                            | $       | 4,350            |        |        | $       | 11,773  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Income taxes                                                                      |                                            |         | (27              | )      |        |         | 19      |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Non-cash investing activities:                                                        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Residual interests received as a result of sales of
loans through securitizations |                                            |         |                 |        |        |         | 5,713   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Non-cash financing activities:                                                        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                        | Dividends accumulated and not paid on preferred stock                             |                                            |         | 1,284            |        |        |         | 1,284   |        

See accompanying notes to consolidated financial statements.

5



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##### Table of Contents



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES




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

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

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

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

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

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

(2) Liquidity and Capital Resources

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

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

6



---



##### Table of Contents



IFA Parent also has a warrant to purchase 425,000 shares of the Companys
voting Common Stock at $2.3125 per share. In the event that Term Loan B is
terminated prior to December 31, 2001 through a transaction involving the
issuance of warrants, IFA Parent 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. IFA
Parent and the Company have amended the warrant to extend the date from August
31, 2001 to December 31, 2001 to correspond to the extension of the initial
exercise date of the option described in the preceding paragraph.

In the third quarter of 1999, dividends on the Companys adjusting rate
preferred stock were suspended. At June 30, 2001, accumulated dividends in
arrears on such preferred stock totaled $5.1 million, or $4.20 per share. Since
the Company failed to pay quarterly dividends for six consecutive quarters, the
holders of adjusting rate preferred stock are entitled to elect two directors
to the Companys Board until cumulative dividends have been paid in full.
Dividends on outstanding preferred stock of FirstCity will be restricted until
Term Loan B is paid in full. Given the continued high debt levels of the
Company, and managements priority of assuring adequate levels of liquidity,
the Company does not anticipate that preferred dividends will be paid in 2001.
Management continues to evaluate various alternatives, including an overall
corporate restructure to maximize long term stockholder value.

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

On July 3, 2001, IFA Parent provided a $3.7 million loan to the Company to
allow an affiliate of Commercial Corp. to invest in an investor in an
Acquisition Partnership, which was acquiring Portfolio Assets in Mexico. The
term loan provides for an interest rate of prime plus 7% and matures on
December 31, 2001. The $3.7 million term loan is secured by the ownership
interest in the investor in the Acquisition Partnership. The $3.7 million term
loan provides for a $.2 million fee to be paid to IFA Parent.

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

(3) New Accounting Pronouncements

Statements of Financial Accounting Standards (SFAS) 133 and 138,
Accounting for Derivative Instruments and Hedging Activities,requires
companies to recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. SFAS 133 and 138
require that changes in fair value of a derivative be recognized currently in
earnings unless specific hedge accounting criteria are met. The Company adopted
SFAS 133 and 138 on January 1, 2001, and there was no impact on the
consolidated financial statements as the Company had no derivatives.

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

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

In July 2001, the FASB issued SFAS 141, Business Combinations, and SFAS
142, Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS 142
7Table of Contentsrequires that goodwill and intangible assets with indefinite useful lives
no longer be amortized but instead tested for impairment at least annually.The Company is required to adopt the provisions of SFAS 141 immediately
and SFAS 142 effective January 1, 2002. Management has determined the impact
of adopting SFAS 141 and 142 will not have a material impact on the
consolidated financial statements.(4) Discontinued OperationsA provision of $1.0 million was recorded in the second quarter of 2001
resulting from increases in the loss assumptions for the estimated future gross
cash receipts on residual interests in securitizations ($5.0 million was
recorded in the second quarter of 2000). The net assets from discontinued
operations consist of the following:

|                                                                              |                                       |  |          |         |  |              |        |        | 
|----------------------------------------------------------------------------- | ------------------------------------- |  | -------- | ------- |  | ------------ | ------ | ------ | 
|                                                                              |                                       |  | June 30, |         |  | December 31, |       
|                                                                              |                                       |  | 2001     |         |  | 2000         |       
|                                                                              |                                       |  |          |         |  |              |       
|Estimated future gross cash receipts on
residual interests in securitizations |                                       |  | $21,891  |         |  | $            | 24,652 |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Accrual for loss on operations and disposal
of discontinued operations, net   |                                       |  | (1,938)  |         |  |              | (4,208 | )     
|                                                                              |                                       |  |          |         |  |              |        |        | 
|                                                                              | Net assets of discontinued operations |  |          | $19,953 |  |              | $      | 20,444 | 
|                                                                              |                                       |  |          |         |  |              |        |        | 

The only assets remaining from discontinued operations are the investment
securities resulting from the retention of residual interests in securitization
transactions. The Company has considered the estimated future gross cash
receipts for such investment securities in the computation of the loss from
discontinued operations. The cash flows are collected over a period of time
and are valued using prepayment assumptions of 25% for fixed rate loans and 35%
to 50% for variable rate loans. Loss rates are estimated at 2%.

(5) Portfolio Assets

Portfolio Assets are summarized as follows:

|                                                         |                          |                        |        |          |        |   |              |         |        | 
|-------------------------------------------------------- | ------------------------ | ---------------------- | ------ | -------- | ------ | - | ------------ | ------- | ------ | 
|                                                         |                          |                        |        | June 30, |        |   | December 31, |        
|                                                         |                          |                        |        | 2001     |        |   | 2000         |        
|                                                         |                          |                        |        |          |        |   |              |        
|Non-performing Portfolio Assets                          |                          | $                      | 53,530 |          |        | $ | 55,807       |        
|                                                        
|                                                        
|                                                        
|                                                        
|Performing Portfolio Assets                              |                          |                        | 13,493 |          |        |   | 15,162       |        
|                                                        
|                                                        
|                                                        
|                                                        
|Real estate Portfolios                                   |                          |                        | 2,487  |          |        |   | 3,075        |        
|                                                         |                          |                        |        |          |        |  
|                                                         |                          | Total Portfolio Assets |        |          | 69,510 |   |              |         | 74,044 | 
|                                                        
|                                                        
|                                                        
|                                                        
|Adjusted purchase discount required to reflect Portfolio
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Assets at carrying value |                        |        | (46,498  | )      |   |              | (44,026 | )     
|                                                         |                          |                        |        |          |        |  
|                                                         |                          | Portfolio Assets, net  |        | $        | 23,012 |   |              | $       | 30,018 | 
|                                                         |                          |                        |        |          |        |  

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

(6) Loans Receivable

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

|                                |                       |   |          |        |  |              |        |        | 
|------------------------------- | --------------------- | - | -------- | ------ |  | ------------ | ------ | ------ | 
|                                |                       |   | June 30, |        |  | December 31, |       
|                                |                       |   | 2001     |        |  | 2000         |       
|                                |                       |   |          |        |  |              |       
|Consumer finance receivables    |                       | $ | 198      |        |  | $            | 332    |       
|                               
|                               
|                               
|                               
|Other loans held for investment |                       |   | 18,589   |        |  |              | 14,207 |       
|                                |                       |   |          |        |  |             
|                                | Loans receivable, net |   | $        | 18,787 |  |              | $      | 14,539 | 
|                                |                       |   |          |        |  |             

(7) Equity Investments

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

8



---



##### Table of Contents



CONDENSED COMBINED BALANCE SHEETS

|                                              |  |          |         |  |              |   |         | 
|--------------------------------------------- |  | -------- | ------- |  | ------------ | - | ------- | 
|                                              |  | June 30, |         |  | December 31, |  
|                                              |  | 2001     |         |  | 2000         |  
|                                              |  |          |         |  |              |  
|Assets                                        |  | $        | 642,002 |  |              | $ | 603,353 | 
|                                              |  |          |         |  |              |  
|Liabilities                                   |  | $        | 494,513 |  |              | $ | 471,336 | 
|                                             
|                                             
|                                             
|                                             
|Net equity                                    |  |          | 147,489 |  |              |   | 132,017 | 
|                                              |  |          |         |  |              |  
|                                              |  | $        | 642,002 |  |              | $ | 603,353 | 
|                                              |  |          |         |  |              |  
|Equity investment in Acquisition Partnerships |  | $        | 39,128  |  |              | $ | 33,862  | 
|                                             
|                                             
|                                             
|                                             
|Equity investment in Servicing Entities       |  |          | 1,998   |  |              |   | 1,422   | 
|                                              |  |          |         |  |              |  
|                                              |  | $        | 41,126  |  |              | $ | 35,284  | 
|                                              |  |          |         |  |              |  

CONDENSED COMBINED SUMMARY OF OPERATIONS

|                                               |  |                    |        |  |                  |   |        |      |  |   |         |  |  |   |        | 
|---------------------------------------------- |  | ------------------ | ------ |  | ---------------- | - | ------ | ---- |  | - | ------- |  |  | - | ------ | 
|                                               |  | Three Months Ended |        |  | Six Months Ended |  
|                                               |  | June 30,           |        |  | June 30,         |  
|                                               |  |                    |        |  |                  |  
|                                               |  | 2001               |        |  | 2000             |   |        | 2001 |  |   | 2000    | 
|                                               |  |                    |        |  |                  |   |        |      |  |   |         | 
|Proceeds from resolution of Portfolio Assets   |  | $                  | 57,862 |  |                  | $ | 39,039 |      |  | $ | 119,647 |  |  | $ | 68,321 | 
|                                              
|                                              
|                                              
|                                              
|Gain on resolution of Portfolio Assets         |  |                    | 25,029 |  |                  |   | 23,074 |      |  |   | 55,287  |  |  |   | 36,812 | 
|                                              
|                                              
|                                              
|                                              
|Interest income on performing Portfolio Assets |  |                    | 7,665  |  |                  |   | 3,983  |      |  |   | 12,692  |  |  |   | 9,205  | 
|                                              
|                                              
|                                              
|                                              
|Net earnings                                   |  |                    | 16,612 |  |                  |   | 12,780 |      |  |   | 11,510  |  |  |   | 22,831 | 
|                                               |  |                    |        |  |                  |   |        |      |  |   |         | 
|Equity in earnings of Acquisition Partnerships |  | $                  | 3,542  |  |                  | $ | 1,228  |      |  | $ | 6,667   |  |  | $ | 3,820  | 
|                                              
|                                              
|                                              
|                                              
|Equity in earnings of Servicing Entities       |  |                    | 157    |  |                  |   | 29     |      |  |   | 986     |  |  |   | 50     | 
|                                               |  |                    |        |  |                  |   |        |      |  |   |         | 
|                                               |  | $                  | 3,699  |  |                  | $ | 1,257  |      |  | $ | 7,653   |  |  | $ | 3,870  | 
|                                               |  |                    |        |  |                  |   |        |      |  |   |         | 

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

CONDENSED CONSOLIDATED BALANCE SHEETS

|                           |                   |                         |         |          |       |   |              |      |       | 
|-------------------------- | ----------------- | ----------------------- | ------- | -------- | ----- | - | ------------ | ---- | ----- | 
|                           |                   |                         |         | June 30, |       |   | December 31, |     
|                           |                   |                         |         | 2001     |       |   | 2000         |     
|                           |                   |                         |         |          |       |   |              |     
|Assets                     |                   | $                       | 147,593 |          |       | $ | 164,208      |     
|                           |                   |                         |         |          |       |  
|Liabilities                |                   | $                       | 117,541 |          |       | $ | 154,561      |     
|                          
|                          
|                          
|                          
|Net equity                 |                   |                         | 30,052  |          |       |   | 9,647        |     
|                           |                   |                         |         |          |       |  
|                           |                   | $                       | 147,593 |          |       | $ | 164,208      |     
|                           |                   |                         |         |          |       |  
|Equity investment in Drive |                   | $                       | 11,642  |          |       | $ | 3,738        |     
|                          
|                          
|                          
|                          
|                           | Minority interest |                         |         | (2,326   | )     |   |              | (748 | )    
|                           |                   |                         |         |          |       |  
|                           |                   | Net investment in Drive |         | $        | 9,316 |   |              | $    | 2,990 | 
|                           |                   |                         |         |          |       |  

CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS

|                            |                   |                                 |        |                    |       |   |                  |       |       | 
|--------------------------- | ----------------- | ------------------------------- | ------ | ------------------ | ----- | - | ---------------- | ----- | ----- | 
|                            |                   |                                 |        | Three Months Ended |       |   | Six Months Ended |      
|                            |                   |                                 |        | June 30, 2001      |       |   | June 30, 2001    |      
|                            |                   |                                 |        |                    |       |   |                  |      
|Revenues                    |                   | $                               | 32,409 |                    |       | $ | 38,911           |      
|                           
|                           
|                           
|                           
|Expenses                    |                   |                                 | 15,831 |                    |       |   | 27,222           |      
|                            |                   |                                 |        |                    |       |  
|Net earnings                |                   | $                               | 16,578 |                    |       | $ | 11,689           |      
|                            |                   |                                 |        |                    |       |  
|Equity in earnings of Drive |                   | $                               | 6,727  |                    |       | $ | 4,833            |      
|                           
|                           
|                           
|                           
|                            | Minority interest |                                 |        | 1,587              |       |   |                  | 1,209 |      
|                            |                   |                                 |        |                    |       |  
|                            |                   | Net equity in earnings of Drive |        | $                  | 5,140 |   |                  | $     | 3,624 | 
|                            |                   |                                 |        |                    |       |  

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

(8) Segment Reporting

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

9



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##### Table of Contents



|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |       |       |        |   |         |        |        | 
|------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------- | -------------------------------------------------------- | ----- | ------------------ | ----- | - | ---------------- | ----- | ------ | ---- | ----- | ----- | ------ | - | ------- | ------ | ------ | 
|                                            |                                                                                   |                                               |                                                          |       | Three Months Ended |       |   | Six Months Ended |      
|                                            |                                                                                   |                                               |                                                          |       | June 30,           |       |   | June 30,         |      
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |      
|                                            |                                                                                   |                                               |                                                          |       | 2001               |       |   | 2000             |       |        | 2001 |       |       | 2000   |  
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |       |       |        |  
|Portfolio Asset Acquisition and Resolution:
|                                           
|                                           
|                                           
|                                           
|                                            | Revenues:                                                                        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Servicing fees                                |                                                          | $     | 3,204              |       |   | $                | 2,304 |        |      | $     | 5,669 |        |   | $       | 3,927  |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Gain on resolution of Portfolio Assets        |                                                          |       | 214                |       |   |                  | 689   |        |      |       | 432   |        |   |         | 1,770  |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Equity in earnings of investments             |                                                          |       | 3,699              |       |   |                  | 1,257 |        |      |       | 7,653 |        |   |         | 3,870  |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Interest income                               |                                                          |       | 1,401              |       |   |                  | 358   |        |      |       | 2,624 |        |   |         | 752    |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Gain on sale of interest in equity investment |                                                          |       |                   |       |   |                  |      |        |      |       | 3,134 |        |   |         |       |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Other                                         |                                                          |       | 426                |       |   |                  | 253   |        |      |       | 546   |        |   |         | 886    |       
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |      
|                                            |                                                                                   |                                               | Total                                                    |       |                    | 8,944 |   |                  |       | 4,861  |      |       |       | 20,058 |   |         |        | 11,205 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Expenses:                                                                        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Interest and fees on notes payable            |                                                          |       | 1,076              |       |   |                  | 771   |        |      |       | 2,111 |        |   |         | 1,391  |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Salaries and benefits                         |                                                          |       | 2,014              |       |   |                  | 1,309 |        |      |       | 3,534 |        |   |         | 2,723  |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Provision for loan and impairment losses      |                                                          |       | 1,543              |       |   |                  | 1,604 |        |      |       | 2,128 |        |   |         | 1,604  |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Occupancy, data processing, and other         |                                                          |       | 2,926              |       |   |                  | 2,002 |        |      |       | 5,217 |        |   |         | 3,456  |       
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |      
|                                            |                                                                                   |                                               | Total                                                    |       |                    | 7,559 |   |                  |       | 5,686  |      |       |       | 12,990 |   |         |        | 9,174  | 
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |      
|                                            | Operating contribution (loss) before direct taxes                                 |                                               | $                                                        | 1,385 |                    |       | $ | (825             | )     |        | $    | 7,068 |       |        | $ | 2,031   |       
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |      
|                                            | Operating contribution (loss), net of direct taxes                                |                                               | $                                                        | 1,378 |                    |       | $ | (827             | )     |        | $    | 7,077 |       |        | $ | 2,013   |       
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |      
|Consumer Lending:                          
|                                           
|                                           
|                                           
|                                           
|                                            | Revenues:                                                                        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Servicing fees                                |                                                          | $     |                   |       |   | $                | 1,636 |        |      | $     |      |        |   | $       | 3,309  |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Equity in earnings of investment              |                                                          |       | 6,727              |       |   |                  |      |        |      |       | 4,833 |        |   |         |       |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Interest income                               |                                                          |       | 2                  |       |   |                  | 5,693 |        |      |       | 4     |        |   |         | 10,276 |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Gain on sale of automobile loans              |                                                          |       |                   |       |   |                  |      |        |      |       |      |        |   |         | 2,836  |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Other                                         |                                                          |       | 2                  |       |   |                  | 27    |        |      |       | 2     |        |   |         | 77     |       
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |      
|                                            |                                                                                   |                                               | Total                                                    |       |                    | 6,731 |   |                  |       | 7,356  |      |       |       | 4,839  |   |         |        | 16,498 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Expenses:                                                                        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Interest and fees on notes payable            |                                                          |       |                   |       |   |                  | 1,460 |        |      |       |      |        |   |         | 2,568  |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Salaries and benefits                         |                                                          |       |                   |       |   |                  | 2,768 |        |      |       |      |        |   |         | 5,194  |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Provision for loan and impairment losses      |                                                          |       |                   |       |   |                  | 1,126 |        |      |       |      |        |   |         | 2,231  |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                   | Occupancy, data processing and other          |                                                          |       | 1,613              |       |   |                  | 2,257 |        |      |       | 1,244 |        |   |         | 4,561  |       
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |      
|                                            |                                                                                   |                                               | Total                                                    |       |                    | 1,613 |   |                  |       | 7,611  |      |       |       | 1,244  |   |         |        | 14,554 | 
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |      
|                                            | Operating contribution (loss) before direct taxes                                 |                                               | $                                                        | 5,118 |                    |       | $ | (255             | )     |        | $    | 3,595 |       |        | $ | 1,944   |       
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |      
|                                            | Operating contribution (loss), net of direct taxes                                |                                               | $                                                        | 5,118 |                    |       | $ | (255             | )     |        | $    | 3,595 |       |        | $ | 1,936   |       
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |      
|                                            |                                                                                   |                                               | Total operating contribution (loss), net of direct
taxes |       | $                  | 6,496 |   |                  | $     | (1,082 | )    |       | $     | 10,672 |   |         | $      | 3,949  | 
|                                           
|                                           
|                                           
|                                           
|Corporate Overhead:                        
|                                           
|                                           
|                                           
|                                           
|                                            | Corporate interest expense                                                        |                                               |                                                          | 1,236 |                    |       |   | 3,963            |       |        |      | 2,643 |       |        |   | 7,744   |       
|                                           
|                                           
|                                           
|                                           
|                                            | Salaries and benefits, occupancy, professional and
other income and expenses, net |                                               |                                                          | 1,396 |                    |       |   | 1,933            |       |        |      | 2,540 |       |        |   | 3,312   |       
|                                           
|                                           
|                                           
|                                           
|                                            | Deferred tax provision from NOLs                                                  |                                               |                                                          |      |                    |       |   | 7,000            |       |        |      |      |       |        |   | 7,000   |       
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |      
|                                            | Earnings (loss) from continuing operations                                        |                                               | $                                                        | 3,864 |                    |       | $ | (13,978          | )     |        | $    | 5,489 |       |        | $ | (14,107 | )     
|                                            |                                                                                   |                                               |                                                          |       |                    |       |   |                  |       |        |      |      

Revenues from the Portfolio Asset acquisition and resolution business by
geographic region for the three months ended June 30, 2001 and 2000, and six
months ended June 30, 2001 and 2000 are summarized as follows:

|         |       |   |                    |       |  |                  |       |       |      |   |        |        |  |   |       |        | 
|-------- | ----- | - | ------------------ | ----- |  | ---------------- | ----- | ----- | ---- | - | ------ | ------ |  | - | ----- | ------ | 
|         |       |   | Three Months Ended |       |  | Six Months Ended |      
|         |       |   | June 30,           |       |  | June 30,         |      
|         |       |   |                    |       |  |                  |      
|         |       |   | 2001               |       |  | 2000             |       |       | 2001 |   |        | 2000   | 
|         |       |   |                    |       |  |                  |       |       |      |   |        |        | 
|Domestic |       | $ | 4,580              |       |  | $                | 2,935 |       |      | $ | 12,595 |        |  | $ | 8,041 |       
|        
|        
|        
|        
|Mexico   |       |   | 3,238              |       |  |                  | 1,612 |       |      |   | 4,993  |        |  |   | 1,977 |       
|        
|        
|        
|        
|France   |       |   | 1,126              |       |  |                  | 314   |       |      |   | 2,450  |        |  |   | 1,187 |       
|        
|        
|        
|        
|Other    |       |   |                   |       |  |                  |      |       |      |   | 20     |        |  |   |      |       
|         |       |   |                    |       |  |                  |       |       |      |   |        |       
|         | Total |   | $                  | 8,944 |  |                  | $     | 4,861 |      |   | $      | 20,058 |  |   | $     | 11,205 | 
|         |       |   |                    |       |  |                  |       |       |      |   |        |       

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

|                                                     |        |              |        |          |         |   |              |        |         | 
|---------------------------------------------------- | ------ | ------------ | ------ | -------- | ------- | - | ------------ | ------ | ------- | 
|                                                     |        |              |        | June 30, |         |   | December 31, |       
|                                                     |        |              |        | 2001     |         |   | 2000         |       
|                                                     |        |              |        |          |         |   |              |       
|Portfolio acquisition and resolution assets
Domestic |        | $            | 55,096 |          |         | $ | 55,218       |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Mexico |              |        | 18,728   |         |   |              | 15,521 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | France |              |        | 8,918    |         |   |              | 8,828  |        
|                                                    
|                                                    
|                                                    
|                                                    
|Consumer assets                                      |        |              | 11,840 |          |         |   | 4,069        |       
|                                                    
|                                                    
|                                                    
|                                                    
|Deferred tax benefit, net                            |        |              | 20,101 |          |         |   | 20,101       |       
|                                                    
|                                                    
|                                                    
|                                                    
|Other assets, net                                    |        |              | 16,970 |          |         |   | 16,810       |       
|                                                    
|                                                    
|                                                    
|                                                    
|Net assets of discontinued operations                |        |              | 19,953 |          |         |   | 20,444       |       
|                                                     |        |              |        |          |         |  
|                                                     |        | Total assets |        | $        | 151,606 |   |              | $      | 140,991 | 
|                                                     |        |              |        |          |         |  

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(9) Income Taxes

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

(10) Commitments and Contingencies

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

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

On October 14, 1999, Harbor Financial Group, Inc. (Harbor Parent),
Harbor Financial Mortgage Corporation (Harbor) and four subsidiaries of
Harbor filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code before the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division. On December 14, 1999, the bankruptcy
proceedings were converted to liquidations under Chapter 7 of the United States
Bankruptcy Code. John H. Litzler, the Chapter 7 Trustee in the bankruptcy
proceedings, 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; improper transfer of funds from
the Harbor related entities to FirstCity. The claims also include fraudulent
and preferential transfer of assets of the Harbor entities, fraud and
conspiracy. The Company believes that the claims are without merit and that it
also has valid defenses to these claims. The Company intends to vigorously
contest these claims.

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

11



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##### Table of Contents



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 June 30, 2001, advances of $2.3 million had been
made under the obligation.

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

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

The Company also provided a guaranty limited to a maximum of up to $4
million of a $60 million loan to Drive by IFA Parent. 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.




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

Overview

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

The Company reported earnings for the quarter ended June 30, 2001 of $3.9
million. After a $1.0 million provision for impairment in the discontinued
mortgage operations and accrued and unpaid dividends of $.6 million on the
Companys preferred stock, net earnings to common stockholders were $2.2
million or $0.27 per share on a diluted basis. Components of quarterly
earnings for the second quarter 2001, compared to the second quarter 2000 were
as follows:

12



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##### Table of Contents



|                                                               |                                            |   |                    |       |  |      |        |         |  
|-------------------------------------------------------------- | ------------------------------------------ | - | ------------------ | ----- |  | ---- | ------ | ------- | -
|                                                               |                                            |   | Three Months Ended |      
|                                                               |                                            |   | June 30,           |      
|                                                               |                                            |   |                    |      
|                                                               |                                            |   | 2001               |       |  | 2000 |       
|                                                               |                                            |   |                    |       |  |      |       
|Portfolio Asset Acquisition and Resolution                     |                                            | $ | 1,378              |       |  | $    | (827   | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Consumer                                                       |                                            |   | 5,422              |       |  |      | (255   | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Corporate interest                                             |                                            |   | (1,236             | )     |  |      | (3,963 | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Corporate overhead                                             |                                            |   | (1,396             | )     |  |      | (1,933 | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Accrued preferred dividends                                    |                                            |   | (642               | )     |  |      | (642   | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Cumulative effect of accounting change                         |                                            |   | (304               | )     |  |      |       |        
|                                                              
|                                                              
|                                                              
|                                                              
|Discontinued operations                                        |                                            |   | (1,000             | )     |  |      | (5,000 | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Increase in the valuation allowance for the deferred tax asset |                                            |   |                   |       |  |      | (7,000 | )      
|                                                               |                                            |   |                    |       |  |     
|                                                               | Net earnings (loss) to common shareholders |   | $                  | 2,222 |  |      | $      | (19,620 | )
|                                                               |                                            |   |                    |       |  |     

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

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

Analysis of Revenues and Expenses

The Company reported net earnings to common stockholders for the quarter
ended June 30, 2001 of $2.2 million. As a result of the sale of interest in the
automobile finance operation, the net operations of Drive have been recorded
(since August 1, 2000) as equity in earnings of investments.

Portfolio Asset Acquisition and Resolution

During the quarter, Commercial Corp.   realized earnings of $1.4 million,
which was comprised of $8.9 million in revenues, net of $6.0 million of
expenses and a provision for impairment of $1.5 million. The business
generated 51% of the revenues from domestic investments, 36% from investments
in Mexico and 13% from investments in France. Equity earnings in Acquisition
Partnerships comprised 41% of the revenues, while servicing fees and interest
income comprised $3.2 million and $1.4 million of revenues, respectively, or an
aggregate of 51% of total revenues. A provision for impairment of $1.5 million
on certain wholly owned real estate assets was made to adjust the inventory
down to the net realizable value.

Acquisitions for the quarter of $33 million were comprised of two domestic
portfolios totaling $23 million and portfolio in Mexico for $10 million. The
Company invested $2.9 million in the domestic portfolios and $2.0 million in
the portfolio in Mexico, for an aggregate investment of $4.9 million. This is
comparable to $4.9 million of investments for the same quarter last year and
brings the total amount invested for the first six months of 2001 to $13.3
million compared to $6.8 million invested for the first six months of 2000.
Aggregate acquisitions by the Company are as follows (dollars in thousands):

|                      |  |          |         |  |            |   |        | 
|--------------------- |  | -------- | ------- |  | ---------- | - | ------ | 
|                      |  | Purchase |         |  | FirstCity  |  
|                      |  | Price    |         |  | Investment |  
|                      |  |          |         |  |            |  
|First Six Months 2001 |  | $        | 120,420 |  |            | $ | 13,304 | 
|                     
|                     
|                     
|                     
|Total 2000            |  |          | 394,927 |  |            |   | 22,140 | 
|                     
|                     
|                     
|                     
|Total 1999            |  |          | 210,799 |  |            |   | 11,203 | 
|                     
|                     
|                     
|                     
|Total 1998            |  |          | 139,691 |  |            |   | 28,478 | 
|                     
|                     
|                     
|                     
|Total 1997            |  |          | 183,229 |  |            |   | 37,109 | 

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

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

13



---



##### Table of Contents



Analysis of Selected Revenues and Expenses
Portfolio Asset Acquisition and Resolution

|                                                                          |                                          |       |        |                    |     |   |                  |        |     |      |        |        |      |   |        |        |       | 
|------------------------------------------------------------------------- | ---------------------------------------- | ----- | ------ | ------------------ | --- | - | ---------------- | ------ | --- | ---- | ------ | ------ | ---- | - | ------ | ------ | ----- | 
|                                                                          |                                          |       |        | Three Months Ended |     |   | Six Months Ended |       
|                                                                          |                                          |       |        | June 30,           |     |   | June 30,         |       
|                                                                          |                                          |       |        |                    |     |   |                  |       
|                                                                          |                                          |       |        | 2001               |     |   | 2000             |        |     | 2001 |        |        | 2000 |  
|                                                                          |                                          |       |        |                    |     |   |                  |        |     |      |        |        |      |  
|Gain on resolution of Portfolio Assets:                                  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Average investment:                                                      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Nonperforming Portfolios                 |       | $      | 12,609             |     |   | $                | 19,887 |     |      | $      | 13,609 |      |   | $      | 20,664 |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Performing Portfolios                    |       |        | 9,777              |     |   |                  | 7,809  |     |      |        | 10,465 |      |   |        | 8,246  |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Real estate Portfolios                   |       |        | 2,822              |     |   |                  | 6,077  |     |      |        | 2,930  |      |   |        | 6,643  |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Loans receivable                         |       |        | 18,181             |     |   |                  | 3,781  |     |      |        | 16,362 |      |   |        | 2,479  |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Gain on resolution of Portfolio Assets:                                  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Nonperforming Portfolios                 |       |        | 201                |     |   |                  | 618    |     |      |        | 414    |      |   |        | 1,340  |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Real estate Portfolios                   |       |        | 13                 |     |   |                  | 71     |     |      |        | 18     |      |   |        | 430    |      
|                                                                          |                                          |       |        |                    |     |   |                  |        |     |      |        |       
|                                                                          |                                          | Total |        | $                  | 214 |   |                  | $      | 689 |      |        | $      | 432  |   |        | $      | 1,770 | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Interest income on performing Portfolios
and loans receivable             |                                          | $     | 1,350  |                    |     | $ | 299              |        |     | $    | 2,518  |        |      | $ | 637    |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Gross profit percentage on resolution of
Portfolio Assets:               
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Nonperforming Portfolios                 |       |        | 16.12              | %   |   |                  | 27.63  | %   |      |        | 13.48  | %    |   |        | 26.29  | %    
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Real estate Portfolios                   |       |        | 10.96              | %   |   |                  | 23.35  | %   |      |        | 13.27  | %    |   |        | 24.88  | %    
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Weighted average gross profit percentage |       |        | 15.63              | %   |   |                  | 27.12  | %   |      |        | 13.46  | %    |   |        | 25.93  | %    
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Interest yield on performing Portfolios
and loans receivable (annualized) |                                          |       | 19.31  | %                  |     |   | 12.39            | %      |     |      | 18.77  | %      |      |   | 14.03  | %     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Gain on sale of equity investment                                         |                                          | $     |       |                    |     | $ |                 |        |     | $    | 3,134  |        |      | $ |       |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Servicing fee revenues                                                    |                                          | $     | 3,204  |                    |     | $ | 2,304            |        |     | $    | 5,669  |        |      | $ | 3,927  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Personnel:                                                               
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Personnel expenses                                                        |                                          | $     | 2,014  |                    |     | $ | 1,309            |        |     | $    | 3,534  |        |      | $ | 2,723  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Number of personnel (at period end):                                     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Production                               |       |        | 27                 |     |   |                  | 17     |    
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Servicing                                |       |        | 87                 |     |   |                  | 60     |    
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Interest expense:                                                        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Average debt                                                              |                                          | $     | 45,985 |                    |     | $ | 32,042           |        |     | $    | 43,484 |        |      | $ | 31,420 |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Interest expense                                                          |                                          |       | 1,076  |                    |     |   | 771              |        |     |      | 2,111  |        |      |   | 1,391  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Average cost (annualized)                                                 |                                          |       | 9.36   | %                  |     |   | 9.62             | %      |     |      | 9.71   | %      |      |   | 8.85   | %     

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 |        |   | Six Months Ended |       
|                                               |                                                           |                      |       | June 30,           |        |   | June 30,         |       
|                                               |                                                           |                      |       |                    |        |   |                  |       
|                                               |                                                           |                      |       | 2001               |        |   | 2000             |        |        | 2001 |       |        | 2000   |  
|                                               |                                                           |                      |       |                    |        |   |                  |        |        |      |       |        |        |  
|Revenues:                                     
|                                              
|                                              
|                                              
|                                              
|                                               | Gain on resolution of Portfolio Assets                    |                      | $     | 25,029             |        |   | $                | 23,074 |        |      | $     | 55,287 |        |   | $     | 36,812 |       
|                                              
|                                              
|                                              
|                                              
|                                               | Gross profit percentage on resolution of Portfolio
Assets |                      |       | 43.26              | %      |   |                  | 59.10  | %      |      |       | 46.21  | %      |   |       | 53.88  | %     
|                                              
|                                              
|                                              
|                                              
|                                               | Interest income                                           |                      | $     | 7,665              |        |   | $                | 3,983  |        |      | $     | 12,692 |        |   | $     | 9,205  |       
|                                              
|                                              
|                                              
|                                              
|                                               | Other income                                              |                      |       | 939                |        |   |                  | 711    |        |      |       | 1,718  |        |   |       | 1,139  |       
|                                              
|                                              
|                                              
|                                              
|Interest expense (1):                         
|                                              
|                                              
|                                              
|                                              
|                                               | Interest expense                                          |                      | $     | 16,774             |        |   | $                | 11,447 |        |      | $     | 35,224 |        |   | $     | 15,412 |       
|                                              
|                                              
|                                              
|                                              
|                                               | Average cost (annualized)                                 |                      |       | 14.17              | %      |   |                  | 16.51  | %      |      |       | 15.02  | %      |   |       | 13.03  | %     
|                                              
|                                              
|                                              
|                                              
|Other expenses:                               
|                                              
|                                              
|                                              
|                                              
|                                               | Service fees                                              |                      |       | 3,401              |        |   |                  | 1,589  |        |      |       | 6,319  |        |   |       | 3,446  |       
|                                              
|                                              
|                                              
|                                              
|                                               | Other operating costs                                     |                      |       | 4,461              |        |   |                  | 1,808  |        |      |       | 9,550  |        |   |       | 5,278  |       
|                                              
|                                              
|                                              
|                                              
|                                               | Income taxes                                              |                      |       | 6,847              |        |   |                  | (22    | )      |      |       | 14,492 |        |   |       | (15    | )     
|                                              
|                                              
|                                              
|                                              
|                                               | Foreign currency transaction loss (gain)                  |                      |       | (14,462            | )      |   |                  | 166    |        |      |       | (7,398 | )      |   |       | 204    |       
|                                               |                                                           |                      |       |                    |        |   |                  |        |        |      |       |       
|                                               |                                                           | Total other expenses |       |                    | 247    |   |                  |        | 3,541  |      |       |        | 22,963 |   |       |        | 8,913  | 
|                                               |                                                           |                      |       |                    |        |   |                  |        |        |      |       |       
|                                               |                                                           | Net earnings         |       | $                  | 16,612 |   |                  | $      | 12,780 |      |       | $      | 11,510 |   |       | $      | 22,831 | 
|                                               |                                                           |                      |       |                    |        |   |                  |        |        |      |       |       
|Equity in earnings of Acquisition Partnerships |                                                           | $                    | 3,542 |                    |        | $ | 1,228            |        |        | $    | 6,667 |        |        | $ | 3,820 |       
|                                              
|                                              
|                                              
|                                              
|Equity in earnings of Servicing Entities       |                                                           |                      | 157   |                    |        |   | 29               |        |        |      | 986   |        |        |   | 50    |       
|                                               |                                                           |                      |       |                    |        |   |                  |        |        |      |       |       
|                                               |                                                           | $                    | 3,699 |                    |        | $ | 1,257            |        |        | $    | 7,653 |        |        | $ | 3,870 |       
|                                               |                                                           |                      |       |                    |        |   |                  |        |        |      |       |       



---

|(1) |  | Interest expense includes interest on loans to the Acquisition
Partnerships located in Mexico from affiliates of the investor groups. The
rates on these loans range between 19% and 20%. The average cost on debt
excluding the Mexican Acquisition Partnerships
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14



---



##### Table of Contents



| |  | was 8.67% and 10.25% for the three months ended June 30, 2001 and 2000,
respectively, and 8.37% and 9.48% for the six months ended June 30, 2001 and
2000, respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Consumer Lending

During the quarter, Consumer Corp.   realized earnings of $5.4 million
through its 31% direct and indirect ownership in Drive, primarily as a result
of a $26 million securitization gain on the sale of $256 million of face value
of automobile receivables. Earnings from Drive may correlate closely with the
timing, size and execution of securitizations and depend primarily on the
structure of such transactions.

Provision for Income Taxes

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

Results of Operations

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

Second Quarter 2001 Compared to Second Quarter 2000

The Company reported earnings from continuing operations of $3.9 million
in the second quarter of 2001. Net earnings to common stockholders were $2.2
million in the second quarter of 2001 compared to a loss of $19.6 million in
the second quarter of 2000. On a per share basis, basic and diluted net
earnings attributable to common stockholders were $.27 in the second quarter of
2001 compared to a loss of $2.35 in the second quarter of 2000.

Portfolio Asset Acquisition and Resolution

The operating contribution of $1.4 million in the second quarter of 2001
increased by $2.2 million compared with the second quarter of 2000. Commercial
Corp. purchased $33 million of Portfolio Assets during the second quarter of
2001 through the Acquisition Partnerships compared to $154 million in
acquisitions in the second quarter of 2000. Commercial Corp. invested $4.9
million in equity in Acquisition Partnerships in the second quarter of 2001 and
2000. There were no purchases of Portfolio Assets by wholly owned subsidiaries
during the second quarter of 2001 and 2000. Commercial Corp.s quarter end
investment in Portfolio Assets decreased to $23.0 million in the second quarter
of 2001 from $30.9 million in the second quarter of 2000 as a result of regular
pay-downs on the assets and provisions for loan losses of certain assets.

Servicing fee revenues.Servicing fees increased by 39% to $3.2 million
in the second quarter of 2001 from $2.3 million in the second quarter of 2000
primarily as a result of increased operations from Acquisition Partnerships in
Mexico formed during 2000 and 1999. The service fees for the Mexico Acquisition
Partnerships are based on operating expenses, unlike the Acquisition
Partnerships in the United States and France, which are primarily based on
collections.

Gain on resolution of Portfolio Assets.The net gain on resolution of
Portfolio Assets decreased 69% or $.5 million, primarily as a result of the
decreased proceeds and lower gross profit. Proceeds from the resolution of
Portfolio Assets decreased by 44% to $1.4 million in the second quarter of 2001
from $2.5 million in the second quarter of 2000. The weighted average gross
profit percentage on the resolution of Portfolio Assets in the second quarter
of 2001 was 15.6% as compared to 27.1% in the second quarter of 2000.

15



---



##### Table of Contents



Equity in earnings of investments.Commercial Corp.s equity in earnings
of Acquisition Partnerships increased 188% to $3.5 million in the second
quarter of 2001 compared to $1.2 million in the second quarter of 2000. The
Acquisition Partnerships reflected net earnings of $16.6 million in the second
quarter of 2001 compared to $12.8 million in the second quarter of 2000.
Equity in earnings of Servicing Entities was not significant.

Interest income.Interest income increased $1.0 million or 291% as a
result of increased balances of investment loans receivable from the Mexico
Acquisition Partnerships.

Other revenues.Other revenues increased $.2 million or 68% primarily due
to certain consulting fees received during the second quarter of 2001. These
fees will vary from period to period.

Operating expenses.Operating expenses increased $1.9 million or 33%
primarily as a result of increased payroll and other operating costs in Mexico.

Interest and fees on notes payable increased $.3 million or 40% due to
average debt for the quarter increasing to $46.0 million in the second quarter
of 2001 from $32.0 million in the second quarter of 2000.

Salaries and benefits rose $.7 million or 54% primarily due to increased
servicing personnel in Mexico. Total personnel increased from 77 in 2000 to
114 in 2001.

The provision for loan and impairment losses was flat year to year, and
primarily related to declines in the value of certain real estate assets held
in a wholly owned portfolio.

Occupancy, data processing and other expenses increased $.9 million or 46%
due to increased servicing operations in Mexico.

Consumer Lending

The operating contribution for the second quarter of 2001 was $5.1 million
(including a $.3 million cumulative effect of accounting change) compared to an
operating loss of $.3 million during the second quarter of 2000. In the second
quarter of 2001, the contribution resulted primarily from equity in earnings of
$6.7 million from Drive, which completed a securitization of $286 million in
automobile receivables. In the second quarter of 2000, the automobile finance
operations were consolidated with the Company and there was no securitization.
During the second quarter of 2000, the Company recorded a $.3 million charge
for the cumulative effect of a change in accounting principle relating to the
Companys equity investment in Drive.

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

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

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

Other Items Affecting Operations

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

Corporate overhead.Company level interest expense decreased by 69% to
$1.2 million in the second quarter of 2001 from $4.0 million in the second
quarter of 2000 as a result of lower levels of debt. Other corporate overhead
expenses declined $.5 million.

Income taxes.Federal income taxes are provided at a 35% rate applied to
taxable income or loss and are offset by NOLs that the Company believes are
available. The tax benefit of the NOLs is recorded in the period during which
the benefit is realized. The Company recorded no deferred tax provision in 2001
and a $7.0 million deferred tax provision in 2000.

16



---



##### Table of Contents



First Six Months of 2001 Compared to First Six Months of 2000

The Company reported earnings from continuing operations of $5.5 million
in the first six months of 2001. Net earnings to common stockholders were $3.2
million in the first six months of 2001 compared to a loss of $20.4 million in
the first six months of 2000. On a per share basis, basic and diluted net
earnings attributable to common stockholders were $.38 in 2001 compared to a
loss of $2.44 in 2000. Components of earnings for the six months ended June
30, 2001 and 2000, respectively, were as follows:

|                                                               |                                            |   |                  |       |  |      |        |         |  
|-------------------------------------------------------------- | ------------------------------------------ | - | ---------------- | ----- |  | ---- | ------ | ------- | -
|                                                               |                                            |   | Six Months Ended |      
|                                                               |                                            |   | June 30,         |      
|                                                               |                                            |   |                  |      
|                                                               |                                            |   | 2001             |       |  | 2000 |       
|                                                               |                                            |   |                  |       |  |      |       
|Portfolio Asset Acquisition and Resolution                     |                                            | $ | 7,077            |       |  | $    | 2,013  |        
|                                                              
|                                                              
|                                                              
|                                                              
|Consumer                                                       |                                            |   | 3,899            |       |  |      | 1,936  |        
|                                                              
|                                                              
|                                                              
|                                                              
|Corporate interest                                             |                                            |   | (2,643           | )     |  |      | (7,744 | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Corporate overhead                                             |                                            |   | (2,540           | )     |  |      | (3,312 | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Accrued preferred dividends                                    |                                            |   | (1,284           | )     |  |      | (1,284 | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Cumulative effect of accounting change                         |                                            |   | (304             | )     |  |      |       |        
|                                                              
|                                                              
|                                                              
|                                                              
|Discontinued operations                                        |                                            |   | (1,000           | )     |  |      | (5,000 | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Increase in the valuation allowance for the deferred tax asset |                                            |   |                 |       |  |      | (7,000 | )      
|                                                               |                                            |   |                  |       |  |     
|                                                               | Net earnings (loss) to common shareholders |   | $                | 3,205 |  |      | $      | (20,391 | )
|                                                               |                                            |   |                  |       |  |     

Portfolio Asset Acquisition and Resolution

The operating contribution of $7.1 million in 2001 increased by $5.1
million, or 252%, compared with 2000. Commercial Corp. purchased $120 million
of Portfolio Assets during 2001 through the Acquisition Partnerships compared
to $168 million in acquisitions in 2000. Commercial Corp.s investment in
Portfolio Assets decreased to $23.0 million in 2001 from $30.9 million in 2000.
Commercial Corp. invested $13.3 million in equity in Portfolio Assets in 2001
compared to $6.8 million in 2000.

Servicing fee revenues.Servicing fees increased by 44% to $5.7 million
in 2001 from $3.9 million in 2000 primarily as a result of increased operations
from Acquisition Partnerships in Mexico formed during 2000 and 1999. The
service fees for the Mexico Acquisition Partnerships are based on operating
expenses, unlike the Acquisition Partnerships in the United States and France,
which are primarily based on collections.

Gain on resolution of Portfolio Assets.Proceeds from the resolution of
Portfolio Assets decreased by 53% to $3.2 million in 2001 from $6.8 million in
2000. The net gain on resolution of Portfolio Assets decreased 76% or $1.3
million, primarily as a result of the decreased proceeds and lower gross
profit. The weighted average gross profit percentage on the resolution of
Portfolio Assets in 2001 was 13.5% as compared to 25.9% in 2000.

Equity in earnings of investments.Commercial Corp.s equity in earnings
of Acquisition Partnerships increased 75% to $6.7 million in 2001 compared to
$3.8 million in 2000. The Acquisition Partnerships reflected net earnings of
$11.5 million in 2001 compared to $22.8 million in 2000. Equity in earnings of
Servicing Entities were $1.0 million in 2001 due to significant earnings
recorded by one French entity in which the Company has a 33% ownership.

Interest income.Interest income increased $1.9 million or 249% as a
result of increased balances of investment loans receivable from the Mexico
Acquisition Partnerships.

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

Other revenues.Other revenues declined $.3 million or 38% primarily due
to certain consulting fees received in 2000. These fees will vary from period
to period.

Operating expenses.Operating expenses increased $3.8 million or 42%
primarily as a result of increased debt costs, the write-down of a Portfolio
Asset, and increased operating costs in Mexico.

Interest and fees on notes payable increased $.7 million or 52% due to
average debt for 2001 increasing to $43.5 million from $31.4 million in 2000.
Also, the average cost of borrowing increased from 8.85% in 2000 to 9.71% in
2001.

17



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##### Table of Contents



Salaries and benefits increased $.8 million or 30% primarily due to
increased servicing personnel in Mexico. Total personnel increased from 77 in
2000 to 114 in 2001.

The provision for loan and impairment losses totaled $2.1 million and can
be attributed to the write-down in estimated future collections of certain
Portfolio Asset pools.

Occupancy, data processing and other expenses increased $1.8 million or
51% due to increased operations in Mexico.

Consumer Lending

The operating contribution for 2001 was $3.6 million (including a $.3
million cumulative effect of accounting change) compared to $1.9 million during
2000. In 2001, the contribution resulted primarily from equity in earnings of
$4.8 million from Drive. In 2000, the automobile finance operations were
consolidated with the Company, which recognized a securitization gain of $2.8
million. During the second quarter of 2000, the Company recorded a $.3 million
charge for the cumulative effect of a change in accounting principle relating
to the Companys equity investment in Drive.

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

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

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

Other Items Affecting Operations

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

Corporate overhead.Company level interest expense decreased by 66% to
$2.6 million in 2001 from $7.7 million in 2000 as a result of lower levels of
debt. Other corporate overhead expenses declined $.8 million.

Income taxes.Federal income taxes are provided at a 35% rate applied to
taxable income or loss and are offset by NOLs that the Company believes are
available. The tax benefit of the NOLs is recorded in the period during which
the benefit is realized. The Company recorded no deferred tax provision in 2001
and a $7.0 million deferred tax provision in 2000.

Liquidity and Capital Resources

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

IFA Parent has an option to acquire a warrant for 1,975,000 shares of the
Companys non-voting Common Stock; the option can be exercised after December
31, 2001 if the Companys $12 million Term Loan B owed to IFA Parent and The
Bank of Scotland remains outstanding, but not prior to that date. The strike
price is $2.3125 per share. In the event that prior to December 31, 2001 the
Company either (a) refinances the $12 million Term Loan B with subordinated
debt, or (b) pays off the balance of Term Loan B from proceeds of an equity
offering, then the option to acquire a warrant for 1,975,000 shares of
non-voting Common Stock will terminate. IFA Parent and the Company have
extended the initial exercise date for this option to acquire a warrant for
1,975,000 shares from August 31, 2001 to December 31, 2001. IFA Parent and the
Company extended the exercise date to allow the Company additional time to
18Table of Contentspursue possible restructure alternatives which would otherwise be limited
due to change of control issues related to its substantial NOLs.IFA Parent also has a warrant to purchase 425,000 shares of the Companys
voting Common Stock at $2.3125 per share. In the event that Term Loan B is
terminated prior to December 31, 2001 through a transaction involving the
issuance of warrants, IFA Parent 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. IFA
Parent and the Company have amended the warrant to extend the date from August
31, 2001 to December 31, 2001 to correspond to the extension of the initial
exercise date of the option described in the preceding paragraph.Currently, the Company has approximately 1.2 million preferred shares
outstanding with accrued and unpaid dividends of approximately $5.1 million.
Term Loan B, which resulted from the corporate debt restructure completed in
August 2000, restricts the payment of dividends on these shares until it is
repaid in full. Given the continued high debt levels of the Company, and
managements priority of assuring adequate levels of liquidity, the Company
does not anticipate that preferred dividends will be paid in 2001. Management
continues to evaluate various alternatives, including an overall corporate
restructure to maximize long term stockholder value.During the second quarter of 2000, the Portfolio Asset acquisition and
resolution group of the Company entered into a $17 million loan facility with
Cargill. This facility is being used exclusively to provide equity in new
portfolio acquisitions in partnerships with Cargill. In January 2001, the
maximum principal balance under the revolving facility was increased to $30
million.On July 3, 2001, IFA Parent provided a $3.7 million loan to the Company to
allow an affiliate of Commercial Corp. to invest in an investor in an
Acquisition Partnership, which was acquiring Portfolio Assets in Mexico. The
term loan provides for an interest rate of prime plus 7% and matures on
December 31, 2001. The $3.7 million term loan is secured by the ownership
interest in the investor in the Acquisition Partnership. The $3.7 million term
loan provides for a $200,000 fee to be paid to IFA Parent.The Company and each of its major operating subsidiaries have entered into
one or more credit facilities to finance their respective operations. Each of
the operating subsidiary credit facilities is nonrecourse to the Company,
except as described below. The Company and Funding LP are parties to an
Insurance Agreement and Letter Agreement related to the FCAR LLC Retail
Automobile Installment Loan Agreement Financing Facility provided by Enterprise
Funding Corporation (the Enterprise Facility). These agreements require the
Company and Funding LP, as servicer and seller, to (i) purchase nonconforming
contracts in the event that the seller, the servicer, or the related originator
fails to repurchase any contract which is required to be repurchased, (ii) pay
certain premiums and other expenses, and (iii) indemnify Enterprise Funding
Corporation, the collateral agent, and the insurance provider. Additionally,
the Company, pursuant to the terms of the Letter Agreement, has agreed to make
certain secondary servicer advances. The Enterprise Facility was terminated on
April 6, 2001 in connection with a $100 million warehouse facility provided by
Enterprise Funding Corporation. The Company has agreed to indemnify IFA Parent
for 31% of losses which might arise as a result of agreements IFA Parent
executed as a sponsor in connection with the $100 million warehouse facility
and the securitizations completed by Drive. The Company has also provided a
guaranty limited to a maximum amount of up to $4 million of a $60 million term
loan from IFA Parent to Drive.Excluding the term acquisition facilities of the unconsolidated
Acquisition Partnerships and the term and warehouse facilities of Drive, as of
June 30, 2001, the Company and its subsidiaries had credit facilities providing
for borrowings in an aggregate principal amount of $109 million and outstanding
borrowings of $96 million.Management believes that the IFA Parent loan facilities, along with the
liquidity from the Cargill line, the related fees generated from the servicing
of assets and equity distributions from existing Acquisition Partnerships and
wholly-owned portfolios will allow the Company to meet its obligations as they
come due during the next twelve months.The following table summarizes the material terms of the credit facilities
to which the Company, its major operating subsidiaries and the Acquisition
Partnerships were parties to as of August 14, 2001 and the outstanding
borrowings under such facilities as of June 30, 2001.19Table of ContentsCredit Facilities

|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               |                           |  |  |  | 
|-------------------------- | ------------------------ | ----- | --- | --------------------- | --- | - | ----------- | ------------- | -- | -------------------------- | ------------ | ------------------------------ | ----------------------------- | ------------------------- |  |  |  | 
|                           |                          |       |     | Funded and            |    
|                           |                          |       |     | Unfunded              |     |   | Outstanding |              
|                           |                          |       |     | Commitment            |     |   | Borrowings  |              
|                           |                          |       |     | Amount as of          |     |   | as of       |              
|                           |                          |       |     | August 14,            |     |   | June 30,    |              
|                           |                          |       |     | 2001                  |     |   | 2001        |               |    | Interest Rate              |              |                                | Other Terms and Conditions    |                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               |                          
|                           |                          |       |     | (Dollars in millions) |    
|                           |                          |       |     |                       |    
|FirstCity                 
|                          
|                          
|                          
|                          
|Company Senior Facility:  
|                          
|                          
|                          
|                          
|                           | Revolving Line of Credit |       | $   | 10                    |     |   | $           | 2             |    |                            | 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 D              |       |     | 4                     |     |   |             |              |    |                            | Prime + 7%   |                                | Secured by ownership interest
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | in certain Acquisition   
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | Partnerships, matures    
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | December 2001            
|                          
|                          
|                          
|                          
|Term credit facility       |                          |       | 4   |                       |     |   | 4           |               |    | LIBOR + 5.0%               |              | Secured by ownership          
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | interests in certain     
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | Acquisition partnerships 
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | matures February 2002    
|                          
|                          
|                          
|                          
|Commercial Corp.          
|                          
|                          
|                          
|                          
|Acquisition facility       |                          |       | 5   |                       |     |   | 5           |               |    | LIBOR + 4.0%               |              | Secured by existing           
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | Portfolio Assets, matures
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | September 2002           
|                          
|                          
|                          
|                          
|Term facilities            |                          |       | 13  |                       |     |   | 13          |               |    | Fixed at                   |              | Secured by Portfolio          
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    | 7.00% to                   |              | Assets, matures June,         
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    | 7.66%                      |              | 2002 and November 2002        
|                          
|                          
|                          
|                          
|Equity investment facility |                          |       | 30  |                       |     |   | 29          |               |    | LIBOR + 4.5%               |              | Acquisition facility for      
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              | the investment in future      
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | Acquisition partnerships,
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | matures March 2002       
|                          
|                          
|                          
|                          
|                           |                          | Total |     | $                     | 109 |   |             | $             | 96 |                           
|                           |                          |       |     |                       |     |  
|Unconsolidated            
|                          
|                          
|                          
|                          
|Acquisition Partnerships  
|                          
|                          
|                          
|                          
|term Facilities (1)        |                          | $     | 196 |                       |     | $ | 196         |               |    | Fixed at 10%,              |              | Secured by Portfolio          
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             | LIBOR + 2.25% |    | Assets, various Maturities
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    | to 5% and                 
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    | Prime + 1% to             
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    | 7%                        
|                          
|                          
|                          
|                          
|Unconsolidated Drive      
|                          
|                          
|                          
|                          
|Warehouse Facility         |                          | $     | 150 |                       |     | $ | 44          |               |    | LIBOR + 1                  |              | Secured by warehouse          
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | inventory, Commitment    
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | Termination Date is      
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | February 2002; Final     
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | Scheduled Payment Date   
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | matures 72 months after  
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | Commitment Termination   
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              |                                |                               | Date                     
|                          
|                          
|                          
|                          
|Warehouse Facility         |                          |       | 100 |                       |     |   |            |               |    | Rate based on              |              | Secured by warehouse          
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    | commercial                 |              | inventory, matures April      
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    | paper rates                |              | 2002                          
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    | combined with              |             
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    | certain                    |              |                               
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    | facility fees              |              |                               
|                          
|                          
|                          
|                          
|Term Facility              |                          |       | 38  |                       |     |   | 38          |               |    | LIBOR                      |              | Secured by residual           
|                          
|                          
|                          
|                          
|                           |                          |       |     |                       |     |   |             |               |    |                            |              | interests, matures August 2003
|                          
|                          
|                          
|                          
|                           |                          | $     | 288 |                       |     | $ | 82          |              
|                           |                          |       |     |                       |     |  

20



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##### Table of Contents





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|(1) |  | In addition to the term acquisition facilities of the unconsolidated
Acquisition Partnerships, the Mexican Acquisition Partnerships also have
term debt of approximately $257 million outstanding as of June 30, 2001
owed to affiliates of the investor groups. Of this amount, the Company has
recorded approximately $18 million as Loans Receivable on the Consolidated
Balance Sheets.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Forward-Looking Statements



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




ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

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

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

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

21



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##### Table of Contents



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

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

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

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

22



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##### Table of Contents






PART II




OTHER INFORMATION




ITEM 1. Legal Proceedings

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

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

On October 14, 1999, Harbor Financial Group, Inc. (Harbor Parent),
Harbor Financial Mortgage Corporation (Harbor) and four subsidiaries of
Harbor filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code before the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division. On December 14, 1999, the bankruptcy
proceedings were converted to liquidations under Chapter 7 of the United States
Bankruptcy Code. John H. Litzler, the Chapter 7 Trustee in the bankruptcy
proceedings, 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; improper transfer of funds from
the Harbor related entities to FirstCity. The claims also include fraudulent
and preferential transfer of assets of the Harbor entities, fraud and
conspiracy. The Company believes that these claims are without merit and that
it also has valid defenses to these claims. The Company intends to
vigorously contest these claims.

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




ITEM 3. Defaults Upon Senior Securities

In the third quarter of 1999, dividends on the Companys adjusting rate
preferred stock were suspended. At June 30, 2001, accumulated dividends in
arrears on such preferred stock totaled $5.1 million, or $4.20 per share.




ITEM 4. Submission of Matters to a Vote of Security Holders

The Company held its annual meeting of stockholders (the Annual Meeting)
on June 21, 2001. The following items of business were considered at the
Annual Meeting.

23



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##### Table of Contents



(a)   Election of Directors

The following were elected as directors to serve as members of the
Companys Board of Directors until the Companys 2002 annual meeting of
stockholders. The number of votes cast for each nominee was as follows:

|                      |  |       |           |  |         |  |        |           |  |  |   | 
|--------------------- |  | ----- | --------- |  | ------- |  | ------ | --------- |  |  | - | 
|                      |  | Votes |           |  | Votes   | 
|Nominee               |  | For   |           |  | Against |  |        | Abstained | 
|                      |  |       |           |  |         |  |        |           | 
|James R. Hawkins      |  |       | 7,116,953 |  |         |  | 29,676 |           |  |  | 0 | 
|                     
|                     
|                     
|                     
|C. Ivan Wilson        |  |       | 7,116,953 |  |         |  | 29,676 |           |  |  | 0 | 
|                     
|                     
|                     
|                     
|James T. Sartain      |  |       | 7,116,953 |  |         |  | 29,676 |           |  |  | 0 | 
|                     
|                     
|                     
|                     
|Richard E. Bean       |  |       | 7,116,953 |  |         |  | 29,676 |           |  |  | 0 | 
|                     
|                     
|                     
|                     
|Dane Fulmer           |  |       | 7,116,953 |  |         |  | 29,676 |           |  |  | 0 | 
|                     
|                     
|                     
|                     
|Robert E. Garrison II |  |       | 7,116,896 |  |         |  | 29,733 |           |  |  | 0 | 
|                     
|                     
|                     
|                     
|Jeffery D. Leu        |  |       | 7,116,896 |  |         |  | 29,733 |           |  |  | 0 | 
|                     
|                     
|                     
|                     
|David W. MacLennan    |  |       | 7,116,890 |  |         |  | 29,739 |           |  |  | 0 | 

(b)   Ratification of Appointment of Auditors

A proposal to ratify the Board of Directors appointment of KPMG LLP as
the Companys independent auditors for 2001 was approved by the stockholders.
The number of votes for the proposal: 7,109,815; votes withheld: 11,220;
abstentions: 25,594.

24



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##### Table of Contents






ITEM 6. Exhibits and Reports on Form 8-K

(a)   Exhibits

|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.1     |  |  |  | Joint Plan of Reorganization by First City
Bancorporation of Texas, Inc., Official Committee of Equity
Security Holders and J-Hawk Corporation, with the
Participation of Cargill Financial Services Corporation,
Under Chapter 11 of the United States Bankruptcy Code, Case
No. 392-39474-HCA-11 (incorporated herein by reference to
Exhibit 2.1 of the Companys Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
|       
|       
|       
|       
|2.2     |  |  |  | Agreement and Plan of Merger, dated as of July 3, 1995,
by and between First City Bancorporation of Texas, Inc. and
J-Hawk Corporation (incorporated herein by reference to
Exhibit 2.2 of the Companys Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).                                                                                                                                                            
|       
|       
|       
|       
|3.1     |  |  |  | Amended and Restated Certificate of Incorporation of
the Company (incorporated herein by reference to Exhibit
3.1 of the Companys Current Report on Form 8-K dated July
3, 1995 filed with the Commission on July 18, 1995).                                                                                                                                                                                                                                  
|       
|       
|       
|       
|3.2     |  |  |  | Bylaws of the Company (incorporated herein by reference
to Exhibit 3.2 of the Companys Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).                                                                                                                                                                                                                                                                             
|       
|       
|       
|       
|4.1     |  |  |  | Certificate of Designations of the New Preferred Stock
($0.01 par value) of the Company. (incorporated herein by
reference to Exhibit 4.1 to the Companys Current Report on
Form 10-K dated March 24, 1998 filed with the Commission on
March 26, 1998).                                                                                                                                                                                                      
|       
|       
|       
|       
|4.2     |  |  |  | Warrant Agreement, dated July 3, 1995, by and between
the Company and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to Exhibit
4.2 of the Companys Current Report on Form 8-K dated July
3, 1995 filed with the Commission on July 18, 1995).                                                                                                                                                                   
|       
|       
|       
|       
|4.3     |  |  |  | Registration Rights Agreement, dated July 1, 1997,
among the Company, Richard J. Gillen, Bernice J. Gillen,
Harbor Financial Mortgage Company Employees Pension Plan,
Lindsey Capital Corporation, Ed Smith and Thomas E. Smith.
(incorporated herein by reference to Exhibit 4.3 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).                                                                                
|       
|       
|       
|       
|4.4     |  |  |  | Stock Purchase Agreement, dated March 24, 1998, between
the Company and Texas Commerce Shareholders Company.
(incorporated herein by reference to Exhibit 4.4 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).                                                                                                                                                                                                    
|       
|       
|       
|       
|4.5     |  |  |  | Registration Rights Agreement, dated March 24, 1998,
between the Company and Texas Commerce Shareholders
Company. (incorporated herein by reference to Exhibit 4.5
of the Companys Form 10-K dated March 24, 1998 filed with
the Commission on March 24, 1998).                                                                                                                                                                                               
|       
|       
|       
|       
|10.1    |  |  |  | Trust Agreement of FirstCity Liquidating Trust, dated
July 3, 1995 (incorporated herein by reference to Exhibit
10.1 of the Companys Current Report on Form 8-K dated July
3, 1995 filed with the Commission on July 18, 1995).                                                                                                                                                                                                                               
|       
|       
|       
|       
|10.2    |  |  |  | Investment Management Agreement, dated July 3, 1995,
between the Company and FirstCity Liquidating Trust
(incorporated herein by reference to Exhibit 10.2 of the
Companys Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995).                                                                                                                                                                                         

25



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##### Table of Contents



|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|10.3  |  |  |  | Lock-Box Agreement, dated July 11, 1995, among the
Company, NationsBank of Texas, N.A., as lock-box agent,
FirstCity Liquidating Trust, FCLT Loans, L.P., and the
other Trust-Owned Affiliates signatory thereto, and each of
NationsBank of Texas, N.A. and Fleet National Bank, as
co-lenders (incorporated herein by reference to Exhibit
10.3 of the Companys Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).               
|     
|     
|     
|     
|10.4  |  |  |  | Custodial Agreement, dated July 11, 1995, among Fleet
National Bank, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company (incorporated herein by reference to Exhibit 10.4
of the Companys Form 8-A/A dated August 25, 1995 filed
with the Commission on August 25, 1995).                                                                                                                              
|     
|     
|     
|     
|10.5  |  |  |  | Tier 3 Custodial Agreement, dated July 11, 1995, among
the Company, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company, as servicer (incorporated herein by reference to
Exhibit 10.5 of the Companys Form 8-A/A dated August 25,
1995 filed with the Commission on August 25, 1995).                                                                                                                  
|     
|     
|     
|     
|10.6  |  |  |  | 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other warehouse
lenders party thereto. (incorporated herein by reference to
Exhibit 10.6 of the Companys Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).                                                          
|     
|     
|     
|     
|10.7  |  |  |  | Modification Agreement, dated January 26, 1998, to the
Amended and Restated Facilities Agreement, dated as of
December 3, 1997, among Harbor Financial Mortgage
Corporation, New America Financial, Inc. and Chase Bank of
Texas, National Association (formerly known as Texas
Commerce Bank National Association). (incorporated herein
by reference to Exhibit 10.7 of the companys Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
|     
|     
|     
|     
|10.8  |  |  |  | $50,000,000 3/98 Chase Texas Temporary Additional
Warehouse Note, dated March 17, 1998, by Harbor Financial
Mortgage Corporation and New America Financial, Inc., in
favor of Chase Bank of Texas, National Association.
(incorporated herein by reference to Exhibit 10.8 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                            
|     
|     
|     
|     
|10.9  |  |  |  | Employment Agreement, dated as of July 1, 1997, by and
between Harbor Financial Mortgage Corporation and Richard
J. Gillen. (incorporated herein by reference to Exhibit
10.9 of the Companys 10-K dated March 24, 1998 filed with
the Commission March 26, 1998).                                                                                                                                                                                              
|     
|     
|     
|     
|10.10 |  |  |  | Employment Agreement, dated as of September 8, 1997, by
and between FirstCity Funding Corporation and Thomas R.
Brower, with similar agreements between FC Capital Corp.
and each of James H. Aronoff and Christopher J. Morrissey.
(incorporated herein by reference to Exhibit 10.10 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                
|     
|     
|     
|     
|10.11 |  |  |  | Shareholder Agreement, dated as of September 8, 1997,
among FirstCity Funding Corporation, FirstCity Consumer
Lending Corporation, Thomas R. Brower, Scot A. Foith,
Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves,
Stephen H. Trent and Blake P. Bozman. (incorporated herein
by reference to Exhibit 10.11 of the Companys Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).                                                     
|     
|     
|     
|     
|10.12 |  |  |  | Revolving Credit Loan Agreement, dated as of March 20,
1998, by and between FC Properties, Ltd. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.12 of the Companys Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).                                                                                                                                                                              
|     
|     
|     
|     
|10.13 |  |  |  | Revolving Credit Loan Agreement, dated as of February
27, 1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.13 of the Companys Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).                                                                                                                                                                             
|     
|     
|     
|     
|10.14 |  |  |  | Note Agreement, dated as of June 6, 1997, among Bosque
Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque                                                                                                                                                                                                                                                                                                                                                 

26



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##### Table of Contents



|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                      
|----- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|      |  |   |  | Investment Realty Partners, L.P. and Bankers Trust Company
of California, N.A. (incorporated herein by reference to
Exhibit 10.14 of the Companys Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).                                                                                                                                         
|     
|     
|     
|     
|10.15 |  |  |  | 60,000,000 French Franc Revolving Promissory Note,
dated September 25, 1997, by J-Hawk International
Corporation in favor of the Bank of Scotland. (incorporated
herein by reference to Exhibit 10.15 of the Companys Form
10-K dated March 24, 1998 filed with the Commission March
26, 1998).                                                                     
|     
|     
|     
|     
|10.16 |  |  |  | Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation. (incorporated herein reference to Exhibit
10.16 of the Companys Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).                                                                                                     
|     
|     
|     
|     
|10.17 |  |  |  | Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk (incorporated herein by reference to Exhibit 10.17
of the Companys Form 10-K dated March 24, 1998 filed with
the Commission March 26, 1998).                                                                                                                                                          
|     
|     
|     
|     
|10.18 |  |  |  | Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland. (incorporated herein by reference to Exhibit
10.18 of the Companys Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).                                                                                                   
|     
|     
|     
|     
|10.19 |  |  |  | Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation. (incorporated herein
by reference to Exhibit 10.19 of the Companys Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).                                                                  
|     
|     
|     
|     
|10.20 |  |  |  | Funding Commitment, dated as of May 17, 1996 by and
between ContiTrade Services L.L.C. and The Company.
(incorporated herein by reference to Exhibit 10.20 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                                                
|     
|     
|     
|     
|10.21 |  |  |  | Revolving Credit Agreement, dated as of December 29,
1995, by and between the Company and Cargill Financial
Services Corporation, as amended by the Eighth Amendment to
Revolving Credit Agreement dated February 1998.
(incorporated herein by reference to Exhibit 10.21 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
|     
|     
|     
|     
|10.22 |  |  |  | Master Repurchase Agreement Governing Purchased and
Sales of Mortgage Loans, dated as of July 1998, between
Lehman Commercial Paper Inc. and FHB Funding Corp.
(incorporated herein by reference to Exhibit 10.1 of the
Companys Form 10-Q dated August 14, 1998, filed with the
Commission August 18, 1998).                                                       
|     
|     
|     
|     
|10.23 |  |  |  | Warehouse Credit Agreement, dated as of April 30, 1998
among ContiTrade Services, L.L.C., FirstCity Consumer
Lending Corporation, FirstCity Auto Receivables L.L.C. and
FirstCity Financial Corporation. (incorporated herein by
reference to Exhibit 10.2 of the Companys Form 10-Q dated
August 14, 1998, filed with the Commission August 16,
1998).             
|     
|     
|     
|     
|10.24 |  |  |  | Servicing Agreement, dated as of April 30, 1998 among
FirstCity Auto Receivables L.L.C. , FirstCity Servicing
Corporation of California, FirstCity Consumer Lending
Corporation and ContiTrade Services L.L.C. (incorporated
herein by reference to Exhibit 10.3 of the Companys Form
10-Q dated August 14, 1998, filed with the Commission
August 16, 1998).       
|     
|     
|     
|     
|10.25 |  |  |  | Security and Collateral Agreement, dated as of April
30, 1998 among FirstCity Auto Receivables L.L.C.,
ContiTrade Services L.L.C. and Chase Bank of Texas,
National Association. (incorporated herein by reference to
Exhibit 10.4 of the Companys Form 10-Q dated August 14,
1998, filed with the Commission August 16, 1998).                                     
|     
|     
|     
|     
|10.26 |  |  |  | Loan Agreement, dated as of July 24, 1998, between
FirstCity Commercial Corporation and CFSC Capital Corp. XXX
(incorporated herein by reference Exhibit 10.5 of the
Companys Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).                                                                                                       
|     
|     
|     
|     
|10.27 |  |  |  | Loan Agreement, dated April 8, 1998 between Bank of
Scotland and the Company (incorporated herein by reference                                                                                                                                                                                                                                                       

27



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##### Table of Contents



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

28



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##### Table of Contents



|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|----- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|10.40 |  |  |  | Securities Purchase Agreement, dated as of August 18,
2000, by and among the Company, Consumer Corp., Funding LP,
Funding GP, IFA-GP and IFA-LP. (incorporated herein by
reference to Exhibit 10.40 of the Companys Form 8-K dated
August 25, 2000, filed with the commission on September 11,
2000).                                                                                               
|     
|     
|     
|     
|10.41 |  |  |  | Contribution and Assumption Agreement by and between
Consumer Corp. and Drive dated as of August 18, 2000.
(incorporated herein by reference to Exhibit 10.41 of the
Companys Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).                                                                                                                                     
|     
|     
|     
|     
|10.42 |  |  |  | Contribution and Assumption Agreement by and between
Funding LP and Drive dated as of August 18, 2000.
(incorporated herein by reference to Exhibit 10.42 of the
Companys Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).                                                                                                                                         
|     
|     
|     
|     
|10.43 |  |  |  | Second Amendment to Amended and Restated Loan
Agreement, dated December 20, 1999, by and among the
Company, as borrower, and the Lenders, as lenders, and Bank
of Scotland, as Agent. (incorporated herein by reference to
Exhibit 10.43 of the Companys Form 8-K dated August 25,
2000, filed with the commission on September 11, 2000).                                                          
|     
|     
|     
|     
|10.44 |  |  |  | Receivables Financing Agreement, dated August 18, 2000, among
Drive BOS LP, Drive Financial Services LP, each Lender, IPA
Inc. and Wells Fargo Bank Minnesota, N.A (incorporated herein by
reference to Exhibit 10.44 of the Companys Form 10-K dated April
13, 2001, filed with the Commission of April 13, 2001).                                                                                 
|     
|     
|     
|     
|10.45 |  |  |  | Amendment to Loan Agreement and extension of Promissory Note,
dated January 12, 2001, by and between FirstCity Holdings
Corporation and CSFC Capital Corp. XXX (incorporated herein by
reference to Exhibit 10.45 of the Companys Form 10-K dated April
13, 2001, filed with the Commission of April 13, 2001).                                                                                     
|     
|     
|     
|     
|10.46 |  |  |  | Second Amendment, dated as of February 16, 2001, to the
Receivables Financing Agreement, dated as of August 18, 2000,
among Drive BOS LP, Drive Financial Services LP the Lenders party
thereto, IPA Incorporated and Wells Fargo Bank Minnesota,
NA(incorporated herein by reference to Exhibit 10.46 of the
Companys Form 10-K dated April 13, 2001, filed with the
Commission of April 13, 2001).
|     
|     
|     
|     
|10.47 |  |  |  | Subordinate Capital Loan Agreement, dated as of February 16,
2001, among Drive Financial Services LP, DRIVE BOS LP, the
financial institutions from time to time party hereto and IPA
Incorporated (incorporated herein by reference to Exhibit 10.47 of
the Companys Form 10-K dated April 13, 2001, filed with the
Commission of April 13, 2001).                                                 

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

29



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##### Table of Contents






SIGNATURES

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



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



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



| |  | James T. SartainPresident and Chief Executive
Officer and Director
(Duly authorized officer of the
Registrant)
| |  | --------------------------------------------------------------------------------------------------------------



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



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

Dated: August 14, 2001

30



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##### Table of Contents



EXHIBIT INDEX

|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.1     |  |  |  | Joint Plan of Reorganization by First City
Bancorporation of Texas, Inc., Official Committee of Equity
Security Holders and J-Hawk Corporation, with the
Participation of Cargill Financial Services Corporation,
Under Chapter 11 of the United States Bankruptcy Code, Case
No. 392-39474-HCA-11 (incorporated herein by reference to
Exhibit 2.1 of the Companys Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
|       
|       
|       
|       
|2.2     |  |  |  | Agreement and Plan of Merger, dated as of July 3, 1995,
by and between First City Bancorporation of Texas, Inc. and
J-Hawk Corporation (incorporated herein by reference to
Exhibit 2.2 of the Companys Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).                                                                                                                                                            
|       
|       
|       
|       
|3.1     |  |  |  | Amended and Restated Certificate of Incorporation of
the Company (incorporated herein by reference to Exhibit
3.1 of the Companys Current Report on Form 8-K dated July
3, 1995 filed with the Commission on July 18, 1995).                                                                                                                                                                                                                                  
|       
|       
|       
|       
|3.2     |  |  |  | Bylaws of the Company (incorporated herein by reference
to Exhibit 3.2 of the Companys Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).                                                                                                                                                                                                                                                                             
|       
|       
|       
|       
|4.1     |  |  |  | Certificate of Designations of the New Preferred Stock
($0.01 par value) of the Company. (incorporated herein by
reference to Exhibit 4.1 to the Companys Current Report on
Form 10-K dated March 24, 1998 filed with the Commission on
March 26, 1998).                                                                                                                                                                                                      
|       
|       
|       
|       
|4.2     |  |  |  | Warrant Agreement, dated July 3, 1995, by and between
the Company and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to Exhibit
4.2 of the Companys Current Report on Form 8-K dated July
3, 1995 filed with the Commission on July 18, 1995).                                                                                                                                                                   
|       
|       
|       
|       
|4.3     |  |  |  | Registration Rights Agreement, dated July 1, 1997,
among the Company, Richard J. Gillen, Bernice J. Gillen,
Harbor Financial Mortgage Company Employees Pension Plan,
Lindsey Capital Corporation, Ed Smith and Thomas E. Smith.
(incorporated herein by reference to Exhibit 4.3 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).                                                                                
|       
|       
|       
|       
|4.4     |  |  |  | Stock Purchase Agreement, dated March 24, 1998, between
the Company and Texas Commerce Shareholders Company.
(incorporated herein by reference to Exhibit 4.4 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).                                                                                                                                                                                                    
|       
|       
|       
|       
|4.5     |  |  |  | Registration Rights Agreement, dated March 24, 1998,
between the Company and Texas Commerce Shareholders
Company. (incorporated herein by reference to Exhibit 4.5
of the Companys Form 10-K dated March 24, 1998 filed with
the Commission on March 24, 1998).                                                                                                                                                                                               
|       
|       
|       
|       
|10.1    |  |  |  | Trust Agreement of FirstCity Liquidating Trust, dated
July 3, 1995 (incorporated herein by reference to Exhibit
10.1 of the Companys Current Report on Form 8-K dated July
3, 1995 filed with the Commission on July 18, 1995).                                                                                                                                                                                                                               
|       
|       
|       
|       
|10.2    |  |  |  | Investment Management Agreement, dated July 3, 1995,
between the Company and FirstCity Liquidating Trust
(incorporated herein by reference to Exhibit 10.2 of the
Companys Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995).                                                                                                                                                                                         
|       
|       
|       
|       
|10.3    |  |  |  | Lock-Box Agreement, dated July 11, 1995, among the
Company, NationsBank of Texas, N.A., as lock-box agent,
FirstCity Liquidating Trust, FCLT Loans, L.P., and the
other Trust-Owned Affiliates signatory thereto, and each of
NationsBank of Texas, N.A. and Fleet National Bank, as
co-lenders (incorporated herein by reference to Exhibit
10.3 of the Companys Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).             
|       
|       
|       
|       
|10.4    |  |  |  | Custodial Agreement, dated July 11, 1995, among Fleet
National Bank, as custodian, Fleet National Bank, as agent,                                                                                                                                                                                                                                                                                                                                              

31



---



##### Table of Contents



|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|      |  |   |  | FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company (incorporated herein by reference to Exhibit 10.4
of the Companys Form 8-A/A dated August 25, 1995 filed
with the Commission on August 25, 1995).                                                                                                                                                                                                                                                
|     
|     
|     
|     
|10.5  |  |  |  | Tier 3 Custodial Agreement, dated July 11, 1995, among
the Company, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company, as servicer (incorporated herein by reference to
Exhibit 10.5 of the Companys Form 8-A/A dated August 25,
1995 filed with the Commission on August 25, 1995).                                                                                                                  
|     
|     
|     
|     
|10.6  |  |  |  | 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other warehouse
lenders party thereto. (incorporated herein by reference to
Exhibit 10.6 of the Companys Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).                                                          
|     
|     
|     
|     
|10.7  |  |  |  | Modification Agreement, dated January 26, 1998, to the
Amended and Restated Facilities Agreement, dated as of
December 3, 1997, among Harbor Financial Mortgage
Corporation, New America Financial, Inc. and Chase Bank of
Texas, National Association (formerly known as Texas
Commerce Bank National Association). (incorporated herein
by reference to Exhibit 10.7 of the companys Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
|     
|     
|     
|     
|10.8  |  |  |  | $50,000,000 3/98 Chase Texas Temporary Additional
Warehouse Note, dated March 17, 1998, by Harbor Financial
Mortgage Corporation and New America Financial, Inc., in
favor of Chase Bank of Texas, National Association.
(incorporated herein by reference to Exhibit 10.8 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                            
|     
|     
|     
|     
|10.9  |  |  |  | Employment Agreement, dated as of July 1, 1997, by and
between Harbor Financial Mortgage Corporation and Richard
J. Gillen. (incorporated herein by reference to Exhibit
10.9 of the Companys 10-K dated March 24, 1998 filed with
the Commission March 26, 1998).                                                                                                                                                                                              
|     
|     
|     
|     
|10.10 |  |  |  | Employment Agreement, dated as of September 8, 1997, by
and between FirstCity Funding Corporation and Thomas R.
Brower, with similar agreements between FC Capital Corp.
and each of James H. Aronoff and Christopher J. Morrissey.
(incorporated herein by reference to Exhibit 10.10 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                
|     
|     
|     
|     
|10.11 |  |  |  | Shareholder Agreement, dated as of September 8, 1997,
among FirstCity Funding Corporation, FirstCity Consumer
Lending Corporation, Thomas R. Brower, Scot A. Foith,
Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves,
Stephen H. Trent and Blake P. Bozman. (incorporated herein
by reference to Exhibit 10.11 of the Companys Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).                                                     
|     
|     
|     
|     
|10.12 |  |  |  | Revolving Credit Loan Agreement, dated as of March 20,
1998, by and between FC Properties, Ltd. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.12 of the Companys Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).                                                                                                                                                                              
|     
|     
|     
|     
|10.13 |  |  |  | Revolving Credit Loan Agreement, dated as of February
27, 1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.13 of the Companys Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).                                                                                                                                                                             
|     
|     
|     
|     
|10.14 |  |  |  | Note Agreement, dated as of June 6, 1997, among Bosque
Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque Investment Realty Partners, L.P. and Bankers Trust Company
of California, N.A. (incorporated herein by reference to
Exhibit 10.14 of the Companys Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).                                                                                                                    
|     
|     
|     
|     
|10.15 |  |  |  | 60,000,000 French Franc Revolving Promissory Note,
dated September 25, 1997, by J-Hawk International
Corporation in favor of the Bank of Scotland. (incorporated
herein by reference to Exhibit 10.15 of the Companys Form
10-K dated March 24, 1998 filed with the Commission March
26, 1998).                                                                                                                                                                 

32



---



##### Table of Contents



|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                      
|----- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |  |  |  | Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation. (incorporated herein reference to Exhibit
10.16 of the Companys Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).                                                                                                     
|     
|     
|     
|     
|10.17 |  |  |  | Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk (incorporated herein by reference to Exhibit 10.17
of the Companys Form 10-K dated March 24, 1998 filed with
the Commission March 26, 1998).                                                                                                                                                          
|     
|     
|     
|     
|10.18 |  |  |  | Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland. (incorporated herein by reference to Exhibit
10.18 of the Companys Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).                                                                                                   
|     
|     
|     
|     
|10.19 |  |  |  | Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation. (incorporated herein
by reference to Exhibit 10.19 of the Companys Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).                                                                  
|     
|     
|     
|     
|10.20 |  |  |  | Funding Commitment, dated as of May 17, 1996 by and
between ContiTrade Services L.L.C. and The Company.
(incorporated herein by reference to Exhibit 10.20 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                                                                                                                
|     
|     
|     
|     
|10.21 |  |  |  | Revolving Credit Agreement, dated as of December 29,
1995, by and between the Company and Cargill Financial
Services Corporation, as amended by the Eighth Amendment to
Revolving Credit Agreement dated February 1998.
(incorporated herein by reference to Exhibit 10.21 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
|     
|     
|     
|     
|10.22 |  |  |  | Master Repurchase Agreement Governing Purchased and
Sales of Mortgage Loans, dated as of July 1998, between
Lehman Commercial Paper Inc. and FHB Funding Corp.
(incorporated herein by reference to Exhibit 10.1 of the
Companys Form 10-Q dated August 14, 1998, filed with the
Commission August 18, 1998).                                                       
|     
|     
|     
|     
|10.23 |  |  |  | Warehouse Credit Agreement, dated as of April 30, 1998
among ContiTrade Services, L.L.C., FirstCity Consumer
Lending Corporation, FirstCity Auto Receivables L.L.C. and
FirstCity Financial Corporation. (incorporated herein by
reference to Exhibit 10.2 of the Companys Form 10-Q dated
August 14, 1998, filed with the Commission August 16,
1998).             
|     
|     
|     
|     
|10.24 |  |  |  | Servicing Agreement, dated as of April 30, 1998 among
FirstCity Auto Receivables L.L.C. , FirstCity Servicing
Corporation of California, FirstCity Consumer Lending
Corporation and ContiTrade Services L.L.C. (incorporated
herein by reference to Exhibit 10.3 of the Companys Form
10-Q dated August 14, 1998, filed with the Commission
August 16, 1998).       
|     
|     
|     
|     
|10.25 |  |  |  | Security and Collateral Agreement, dated as of April
30, 1998 among FirstCity Auto Receivables L.L.C.,
ContiTrade Services L.L.C. and Chase Bank of Texas,
National Association. (incorporated herein by reference to
Exhibit 10.4 of the Companys Form 10-Q dated August 14,
1998, filed with the Commission August 16, 1998).                                     
|     
|     
|     
|     
|10.26 |  |  |  | Loan Agreement, dated as of July 24, 1998, between
FirstCity Commercial Corporation and CFSC Capital Corp. XXX
(incorporated herein by reference Exhibit 10.5 of the
Companys Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).                                                                                                       
|     
|     
|     
|     
|10.27 |  |  |  | Loan Agreement, dated April 8, 1998 between Bank of
Scotland and the Company (incorporated herein by reference to Exhibit 10.6 of the Companys Form 10-Q dated August 14,
1998, filed with the Commission on August 18, 1998).                                                                                                                                      
|     
|     
|     
|     
|10.28 |  |  |  | First Amendment to Loan Agreement, dated July 20, 1998,
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.7 of the Companys Form
10-Q dated August 14, 1998, filed with the Commission on
August 18, 1998).                                                                                                                  
|     
|     
|     
|     
|10.29 |  |  |  | Employment Agreement, dated October 1, 1998, by and
between FirstCity. Financial Mortgage Corporation, and
Buddy L. Terrell (incorporated herein by reference to                                                                                                                                                                                                     

33



---



##### Table of Contents



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

34



---



##### Table of Contents



|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|----- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|      |  |   |  | Companys Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).                                                                                                                                                                                                                                                                                                          
|     
|     
|     
|     
|10.42 |  |  |  | Contribution and Assumption Agreement by and between
Funding LP and Drive dated as of August 18, 2000.
(incorporated herein by reference to Exhibit 10.42 of the
Companys Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).                                                                                                                                         
|     
|     
|     
|     
|10.43 |  |  |  | Second Amendment to Amended and Restated Loan
Agreement, dated December 20, 1999, by and among the
Company, as borrower, and the Lenders, as lenders, and Bank
of Scotland, as Agent. (incorporated herein by reference to
Exhibit 10.43 of the Companys Form 8-K dated August 25,
2000, filed with the commission on September 11, 2000).                                                          
|     
|     
|     
|     
|10.44 |  |  |  | Receivables Financing Agreement, dated August 18, 2000, among
Drive BOS LP, Drive Financial Services LP, each Lender, IPA
Inc. and Wells Fargo Bank Minnesota, N.A (incorporated herein by
reference to Exhibit 10.44 of the Companys Form 10-K dated April
13, 2001, filed with the Commission of April 13, 2001).                                                                                 
|     
|     
|     
|     
|10.45 |  |  |  | Amendment to Loan Agreement and extension of Promissory Note,
dated January 12, 2001, by and between FirstCity Holdings
Corporation and CSFC Capital Corp. XXX (incorporated herein by
reference to Exhibit 10.45 of the Companys Form 10-K dated April
13, 2001, filed with the Commission of April 13, 2001).                                                                                     
|     
|     
|     
|     
|10.46 |  |  |  | Second Amendment, dated as of February 16, 2001, to the
Receivables Financing Agreement, dated as of August 18, 2000,
among Drive BOS LP, Drive Financial Services LP the Lenders party
thereto, IPA Incorporated and Wells Fargo Bank Minnesota,
NA(incorporated herein by reference to Exhibit 10.46 of the
Companys Form 10-K dated April 13, 2001, filed with the
Commission of April 13, 2001).
|     
|     
|     
|     
|10.47 |  |  |  | Subordinate Capital Loan Agreement, dated as of February 16,
2001, among Drive Financial Services LP, DRIVE BOS LP, the
financial institutions from time to time party hereto and IPA
Incorporated (incorporated herein by reference to Exhibit 10.47 of
the Companys Form 10-K dated April 13, 2001, filed with the
Commission of April 13, 2001).                                                 

35