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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


Form 10-Q

| |             |  |  |                                                                                                
| | ----------- |  |  | -----------------------------------------------------------------------------------------------
| | (Mark One)x |  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
       THE SECURITIES EXCHANGE ACT OF 1934 
|
| |             |  |  | For the Quarterly Period Ended June 30, 2002 or                                                
| |             |  |  |                                                                                                
| | o           |  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
       THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 033-19694

FirstCity Financial Corporation

(Exact name of Registrant as Specified in Its Charter)


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

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

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

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



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TABLE OF CONTENTS



|                             |                                                                                                |  |  |  |  |  |  | 
|---------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | ITEM 1. 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 6. Exhibits and Reports on Form 8-K                                                      
|SIGNATURES                  
|EXHIBIT INDEX               



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PART I

FINANCIAL INFORMATION




ITEM 1. Financial Statements

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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

|                                                                   |                                                                                                                                                                                                                                         |                                                                        |        |         |          |   |              |         |         |  | 
|------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ------ | ------- | -------- | - | ------------ | ------- | ------- |  | 
|                                                                   |                                                                                                                                                                                                                                         |                                                                        |        |         | June 30, |   | December 31,
|                                                                   |                                                                                                                                                                                                                                         |                                                                        |        |         | 2002     |   | 2001        
|                                                                   |                                                                                                                                                                                                                                         |                                                                        |        |         |          |   |             
|                                                                   |                                                                                                                                                                                                                                         |                                                                        | ASSETS |         |          |   |              |         |         |  | 
|Cash and cash equivalents                                          |                                                                                                                                                                                                                                         | $                                                                      | 6,838  |         |          | $ | 5,583        |        
|Portfolio Assets, net                                              |                                                                                                                                                                                                                                         |                                                                        | 11,591 |         |          |   | 14,218       |        
|Loans
receivable from Acquisition Partnerships held for investment |                                                                                                                                                                                                                                         |                                                                        | 21,845 |         |          |   | 19,765       |        
|Equity investments                                                 |                                                                                                                                                                                                                                         |                                                                        | 51,504 |         |          |   | 54,655       |        
|Deferred tax benefit, net                                          |                                                                                                                                                                                                                                         |                                                                        | 20,101 |         |          |   | 20,101       |        
|Service fees receivable from affiliates                            |                                                                                                                                                                                                                                         |                                                                        | 2,035  |         |          |   | 1,546        |        
|Other assets, net                                                  |                                                                                                                                                                                                                                         |                                                                        | 12,508 |         |          |   | 6,368        |        
|Net assets of discontinued operations                              |                                                                                                                                                                                                                                         |                                                                        | 15,175 |         |          |   | 16,657       |        
|                                                                   |                                                                                                                                                                                                                                         |                                                                        |        |         |          |   |              |        
|                                                                   |                                                                                                                                                                                                                                         | Total Assets                                                           |        | $       | 141,597  |   |              | $       | 138,893 | 
|                                                                   |                                                                                                                                                                                                                                         |                                                                        |        |         |          |   |              |        
|                                                                   | LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS EQUITY                                                                                                                                                                        |                                                                        |        |         |          |   |              |         |        
|Liabilities:                                                       |                                                                                                                                                                                                                                         |                                                                        |        |         |          |   |              |        
|                                                                   | Notes payable to affiliates                                                                                                                                                                                                             |                                                                        | $      | 86,951  |          |   | $            | 83,957  |        
|                                                                   | Notes payable  other                                                                                                                                                                                                                   |                                                                        |        | 2,484   |          |   |              | 7,252   |        
|                                                                   | Accrued interest payable to affiliates                                                                                                                                                                                                  |                                                                        |        | 56      |          |   |              | 47      |        
|                                                                   | Deferred gain from sale of interest in subsidiary                                                                                                                                                                                       |                                                                        |        | 4,000   |          |   |              | 4,000   |        
|                                                                   | Minority interest                                                                                                                                                                                                                       |                                                                        |        | 6,204   |          |   |              | 5,158   |        
|                                                                   | Other liabilities                                                                                                                                                                                                                       |                                                                        |        | 3,503   |          |   |              | 2,501   |        
|                                                                   |                                                                                                                                                                                                                                         |                                                                        |        |         |          |   |              |        
|                                                                   |                                                                                                                                                                                                                                         | Total Liabilities                                                      |        |         | 103,198  |   |              |         | 102,915 | 
|Commitments and contingencies                                      |                                                                                                                                                                                                                                         |                                                                        |       |         |          |   |             |        
|Redeemable preferred stock:                                        |                                                                                                                                                                                                                                         |                                                                        |        |         |          |   |              |        
|                                                                   | Adjusting rate preferred stock, including accumulated
dividends in arrears of $7,704 and $6,420, respectively (par
value $.01; redemption value of $21 per share; 2,000,000
shares authorized; 1,222,901 shares issued and outstanding) |                                                                        |        | 33,385  |          |   |              | 32,101  |        
|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 shares                                                                                                                         |                                                                        |        | 84      |          |   |              | 84      |        
|                                                                   | Paid in capital                                                                                                                                                                                                                         |                                                                        |        | 79,645  |          |   |              | 79,645  |        
|                                                                   | Accumulated deficit                                                                                                                                                                                                                     |                                                                        |        | (76,644 | )        |   |              | (76,728 | )      
|                                                                   | Accumulated other comprehensive income                                                                                                                                                                                                  |                                                                        |        | 1,929   |          |   |              | 876     |        
|                                                                   |                                                                                                                                                                                                                                         |                                                                        |        |         |          |   |              |        
|                                                                   |                                                                                                                                                                                                                                         | Total Shareholders Equity                                             |        |         | 5,014    |   |              |         | 3,877   | 
|                                                                   |                                                                                                                                                                                                                                         |                                                                        |        |         |          |   |              |        
|                                                                   |                                                                                                                                                                                                                                         | Total Liabilities, Redeemable Preferred Stock and
Shareholders Equity |        | $       | 141,597  |   |              | $       | 138,893 | 
|                                                                   |                                                                                                                                                                                                                                         |                                                                        |        |         |          |   |              |        

See accompanying notes to consolidated financial statements.



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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,        
|                                                                                                 |                                                     |                |        |                    |        |                 
|                                                                                                 |                                                     |                |        | 2002               |        | 2001             |        | 2002   |        | 2001
|                                                                                                 |                                                     |                |        |                    |        |                  |        |        |        |     
|Revenues:                                                                                        |                                                     |                |        |                    |        |                  |        |        |        |      |        |       |        |   |        |       
|                                                                                                 | Servicing fees from affiliates                      |                | $      | 4,170              |        |                  | $      | 3,204  |        |      | $      | 6,392 |        |   | $      | 5,669  |       
|                                                                                                 | Gain on resolution of Portfolio Assets              |                |        | 456                |        |                  |        | 214    |        |      |        | 700   |        |   |        | 432    |       
|                                                                                                 | Equity in earnings of investments                   |                |        | 3,939              |        |                  |        | 10,426 |        |      |        | 5,414 |        |   |        | 12,486 |       
|                                                                                                 | Interest income from affiliates                     |                |        | 1,077              |        |                  |        | 896    |        |      |        | 2,101 |        |   |        | 1,587  |       
|                                                                                                 | Interest income  other                             |                |        | 280                |        |                  |        | 517    |        |      |        | 561   |        |   |        | 1,066  |       
|                                                                                                 | Gain on sale of interest in equity investment       |                |        | 1,779              |        |                  |        |       |        |      |        | 1,779 |        |   |        | 3,134  |       
|                                                                                                 | Other income                                        |                |        | 936                |        |                  |        | 428    |        |      |        | 1,176 |        |   |        | 548    |       
|                                                                                                 |                                                     |                |        |                    |        |                  |        |        |        |      |        |       |        |   |        |       
|                                                                                                 |                                                     | Total revenues |        |                    | 12,637 |                  |        |        | 15,685 |      |        |       | 18,123 |   |        |        | 24,922 | 
|Expenses:                                                                                        |                                                     |                |        |                    |        |                  |        |        |        |      |        |       |        |   |        |       
|                                                                                                 | Interest and fees on notes payable to affiliates    |                |        | 1,531              |        |                  |        | 2,283  |        |      |        | 2,936 |        |   |        | 4,668  |       
|                                                                                                 | Interest and fees on notes payable  other          |                |        | 94                 |        |                  |        | 29     |        |      |        | 237   |        |   |        | 86     |       
|                                                                                                 | Salaries and benefits                               |                |        | 3,425              |        |                  |        | 2,769  |        |      |        | 6,160 |        |   |        | 4,992  |       
|                                                                                                 | Provision for loan and impairment losses            |                |        | 22                 |        |                  |        | 1,543  |        |      |        | 121   |        |   |        | 2,128  |       
|                                                                                                 | Occupancy, data processing, communication and other |                |        | 2,460              |        |                  |        | 2,889  |        |      |        | 4,370 |        |   |        | 5,467  |       
|                                                                                                 |                                                     |                |        |                    |        |                  |        |        |        |      |        |       |        |   |        |       
|                                                                                                 |                                                     | Total expenses |        |                    | 7,532  |                  |        |        | 9,513  |      |        |       | 13,824 |   |        |        | 17,341 | 
|Earnings from continuing operations before income
taxes, minority interest and accounting change |                                                     |                | 5,105  |                    |        |                  | 6,172  |        |        |      | 4,299  |       |        |   | 7,581  |       
|Benefit (provision) for income taxes                                                             |                                                     |                | 6      |                    |        |                  | (7     | )      |        |      | (7     | )     |        |   | 8      |       
|                                                                                                 |                                                     |                |        |                    |        |                  |        |        |        |      |        |       |        |   |        |       
|Earnings from continuing operations before minority
interest and accounting change               |                                                     |                | 5,111  |                    |        |                  | 6,165  |        |        |      | 4,292  |       |        |   | 7,589  |       
|Minority interest                                                                                |                                                     |                | (909   | )                  |        |                  | (1,997 | )      |        |      | (924   | )     |        |   | (1,796 | )     
|Cumulative effect of accounting change                                                           |                                                     |                |       |                    |        |                  | (304   | )      |        |      |       |       |        |   | (304   | )     
|                                                                                                 |                                                     |                |        |                    |        |                  |        |        |        |      |        |       |        |   |        |       
|Earnings from continuing operations                                                              |                                                     |                | 4,202  |                    |        |                  | 3,864  |        |        |      | 3,368  |       |        |   | 5,489  |       
|Loss from discontinued operations                                                                |                                                     |                | (1,500 | )                  |        |                  | (1,000 | )      |        |      | (2,000 | )     |        |   | (1,000 | )     
|                                                                                                 |                                                     |                |        |                    |        |                  |        |        |        |      |        |       |        |   |        |       
|Net earnings                                                                                     |                                                     |                | 2,702  |                    |        |                  | 2,864  |        |        |      | 1,368  |       |        |   | 4,489  |       
|Accumulated preferred dividends in arrears                                                       |                                                     |                | (642   | )                  |        |                  | (642   | )      |        |      | (1,284 | )     |        |   | (1,284 | )     
|                                                                                                 |                                                     |                |        |                    |        |                  |        |        |        |      |        |       |        |   |        |       
|Net earnings to common shareholders                                                              |                                                     | $              | 2,060  |                    |        | $                | 2,222  |        |        | $    | 84     |       |        | $ | 3,205  |       
|                                                                                                 |                                                     |                |        |                    |        |                  |        |        |        |      |        |       |        |   |        |       
|Basic and diluted earnings per common share are
as follows:                                      |                                                     |                |        |                    |        |                  |        |        |        |      |        |       |        |   |        |       
|                                                                                                 | Earnings from continuing operations                 |                | $      | 0.43               |        |                  | $      | 0.43   |        |      | $      | 0.25  |        |   | $      | 0.54   |       
|                                                                                                 | Cumulative effect of accounting change              |                |        |                   |        |                  |        | (0.04  | )      |      |        |      |        |   |        | (0.04  | )     
|                                                                                                 | Discontinued operations                             |                |        | (0.18              | )      |                  |        | (0.12  | )      |      |        | (0.24 | )      |   |        | (0.12  | )     
|                                                                                                 | Net earnings                                        |                | $      | 0.25               |        |                  | $      | 0.27   |        |      | $      | 0.01  |        |   | $      | 0.38   |       
|                                                                                                 | Weighted average common shares outstanding          |                |        | 8,376              |        |                  |        | 8,376  |        |      |        | 8,376 |        |   |        | 8,372  |       

See accompanying notes to consolidated financial statements.



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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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

|                                                        |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   |             |       |   |   |        |        |  
|------------------------------------------------------- | --------------------------------------------- |  | --------- | - | ------ | - | ------- | - | ----------- | - | ------ | - | ------------- | - | ------- | ------ | ------------- | - | ----------- | ----- | - | - | ------ | ------ | -
|                                                        |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   | Accumulated |       |   |   |       
|                                                        |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   | Other       |       |   |   |       
|                                                        |                                               |  | Number of |   |        |   |         |   |             |   |        |   |               |   |         |        | Comprehensive |   | Total      
|                                                        |                                               |  | Common    |   | Common |   | Paid in |   | Accumulated |   | Income |   | Shareholders'
|                                                        |                                               |  | Shares    |   | Stock  |   | Capital |   | Deficit     |   | (Loss) |   | Equity       
|                                                        |                                               |  |           |   |        |   |         |   |             |   |        |   |              
|Balances, December 31, 2000                             |                                               |  | 8,368,344 |   |        | $ | 84      |   |             | $ | 79,634 |   |               | $ | (71,131 | )      |               | $ | (109        | )     |   | $ | 8,478  |       
|Purchase of shares through
employee stock purchase
plan |                                               |  | 8,156     |   |        |   |        |   |             |   | 11     |   |               |   |        |        |               |   |            |       |   |   | 11     |       
|Comprehensive loss:                                     |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   |             |       |   |   |        |       
|                                                        | Net loss for 2001                             |  |           |  |        |   |         |  |             |   |        |  |               |   |         | (3,029 | )             |   |             |      |   |   |        | (3,029 | )
|                                                        | Foreign currency items                        |  |           |  |        |   |         |  |             |   |        |  |               |   |         |       |               |   |             | (218  | ) |   |        | (218   | )
|                                                        | Unrealized net gain on
securitization         |  |           |  |        |   |         |  |             |   |        |  |               |   |         |       |               |   |             | 1,203 |   |   |        | 1,203  |  
|                                                        |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   |             |       |   |   |        |       
|Total comprehensive loss                                |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   |             |       |   |   | (2,044 | )     
|                                                        |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   |             |       |   |   |        |       
|Preferred dividends                                     |                                               |  |          |   |        |   |        |   |             |   |       |   |               |   | (2,568  | )      |               |   |            |       |   |   | (2,568 | )     
|                                                        |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   |             |       |   |   |        |       
|Balances, December 31, 2001                             |                                               |  | 8,376,500 |   |        |   | 84      |   |             |   | 79,645 |   |               |   | (76,728 | )      |               |   | 876         |       |   |   | 3,877  |       
|Comprehensive income:                                   |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   |             |       |   |   |        |       
|                                                        | Net earnings for the
first six months of 2002 |  |           |  |        |   |         |  |             |   |        |  |               |   |         | 1,368  |               |   |             |      |   |   |        | 1,368  |  
|                                                        | Foreign currency items                        |  |           |  |        |   |         |  |             |   |        |  |               |   |         |       |               |   |             | 1,013 |   |   |        | 1,013  |  
|                                                        | Unrealized net gain on
securitization         |  |           |  |        |   |         |  |             |   |        |  |               |   |         |       |               |   |             | 40    |   |   |        | 40     |  
|                                                        |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   |             |       |   |   |        |       
|Total comprehensive income                              |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   |             |       |   |   | 2,421  |       
|                                                        |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   |             |       |   |   |        |       
|Preferred dividends                                     |                                               |  |          |   |        |   |        |   |             |   |       |   |               |   | (1,284  | )      |               |   |            |       |   |   | (1,284 | )     
|                                                        |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   |             |       |   |   |        |       
|Balances, June 30, 2002                                 |                                               |  | 8,376,500 |   |        | $ | 84      |   |             | $ | 79,645 |   |               | $ | (76,644 | )      |               | $ | 1,929       |       |   | $ | 5,014  |       
|                                                        |                                               |  |           |   |        |   |         |   |             |   |        |   |               |   |         |        |               |   |             |       |   |   |        |       

See accompanying notes to consolidated financial statements.



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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

|                                                     |                                                                                 |                                                                     |                                                     |         |                  |        |       |         |         |        |  
|---------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------------------------------- | --------------------------------------------------- | ------- | ---------------- | ------ | ----- | ------- | ------- | ------ | -
|                                                     |                                                                                 |                                                                     |                                                     |         | Six Months Ended
|                                                     |                                                                                 |                                                                     |                                                     |         | June 30,        
|                                                     |                                                                                 |                                                                     |                                                     |         |                 
|                                                     |                                                                                 |                                                                     |                                                     |         | 2002             |        | 2001 
|                                                     |                                                                                 |                                                                     |                                                     |         |                  |        |      
|Cash flows from operating activities:                |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|                                                     | Net earnings                                                                    |                                                                     | $                                                   | 1,368   |                  |        | $     | 4,489   |        
|                                                     | Adjustments to reconcile net earnings to net cash used in
operating activities: |                                                                     |                                                     |         |                  |        |       |         |        
|                                                     |                                                                                 | Loss from discontinued operations                                   |                                                     |         | 2,000            |        |       |         | 1,000   |       
|                                                     |                                                                                 | Proceeds from resolution of Portfolio Assets                        |                                                     |         | 2,390            |        |       |         | 3,210   |       
|                                                     |                                                                                 | Gain on resolution of Portfolio Assets                              |                                                     |         | (700             | )      |       |         | (432    | )     
|                                                     |                                                                                 | Purchase of Portfolio Assets and advances on loans
receivable, net  |                                                     |         | (4,013           | )      |       |         | (5,639  | )     
|                                                     |                                                                                 | Provision for loan and impairment losses                            |                                                     |         | 121              |        |       |         | 2,128   |       
|                                                     |                                                                                 | Equity in earnings of investments                                   |                                                     |         | (5,414           | )      |       |         | (12,486 | )     
|                                                     |                                                                                 | Proceeds from performing Portfolio Assets and loans
receivable, net |                                                     |         | 2,890            |        |       |         | 3,897   |       
|                                                     |                                                                                 | Depreciation and amortization                                       |                                                     |         | 354              |        |       |         | 445     |       
|                                                     |                                                                                 | Increase in other assets                                            |                                                     |         | (7,635           | )      |       |         | (3,298  | )     
|                                                     |                                                                                 | Gain on sale of interest in equity investment                       |                                                     |         | (1,779           | )      |       |         | (3,134  | )     
|                                                     |                                                                                 | Gain on early extinguishment of debt                                |                                                     |         | (691             | )      |       |         |        |       
|                                                     |                                                                                 | Increase in other liabilities                                       |                                                     |         | 3,232            |        |       |         | 4,114   |       
|                                                     |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|                                                     |                                                                                 |                                                                     | Net cash used in operating activities               |         |                  | (7,877 | )     |         |         | (5,706 | )
|                                                     |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|Cash flows from investing activities:                |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|                                                     | Proceeds from sale of interest in equity investment                             |                                                                     |                                                     | 3,373   |                  |        |       | 7,000   |        
|                                                     | Property and equipment, net                                                     |                                                                     |                                                     | (274    | )                |        |       | (150    | )      
|                                                     | Contributions to Acquisition Partnerships and Servicing
Entities                |                                                                     |                                                     | (5,143  | )                |        |       | (8,035  | )      
|                                                     | Distributions from Acquisition Partnerships and Servicing
Entities              |                                                                     |                                                     | 12,887  |                  |        |       | 4,956   |        
|                                                     |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|                                                     |                                                                                 |                                                                     | Net cash provided by investing activities           |         |                  | 10,843 |       |         |         | 3,771  |  
|                                                     |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|Cash flows from financing activities:                |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|                                                     | Borrowings under notes payable to affiliates                                    |                                                                     |                                                     | 14,720  |                  |        |       | 20,547  |        
|                                                     | Payments of notes payable to affiliates                                         |                                                                     |                                                     | (11,835 | )                |        |       | (16,758 | )      
|                                                     | Payments of notes payable  other                                               |                                                                     |                                                     | (1,316  | )                |        |       | (1,788  | )      
|                                                     | Payment to repurchase debt at discount                                          |                                                                     |                                                     | (2,762  | )                |        |       |        |        
|                                                     | Proceeds from issuance of common stock                                          |                                                                     |                                                     |        |                  |        |       | 11      |        
|                                                     |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|                                                     |                                                                                 |                                                                     | Net cash provided by (used in) financing activities |         |                  | (1,193 | )     |         |         | 2,012  |  
|                                                     |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|                                                     |                                                                                 |                                                                     | Net cash provided by continuing operations          |         |                  | 1,773  |       |         |         | 77     |  
|                                                     |                                                                                 |                                                                     | Net cash used in discontinued operations            |         |                  | (518   | )     |         |         | (509   | )
|                                                     |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|Net increase (decrease) in cash and cash equivalents |                                                                                 | $                                                                   | 1,255                                               |         |                  | $      | (432  | )      
|Cash and cash equivalents, beginning of period       |                                                                                 |                                                                     | 5,583                                               |         |                  |        | 8,043 |        
|                                                     |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|Cash and cash equivalents, end of period             |                                                                                 | $                                                                   | 6,838                                               |         |                  | $      | 7,611 |        
|                                                     |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|Supplemental disclosure of cash flow information:    |                                                                                 |                                                                     |                                                     |         |                  |        |       |        
|                                                     | Cash paid (received) during the period for:                                     |                                                                     |                                                     |         |                  |        |       |         |        
|                                                     |                                                                                 | Interest                                                            |                                                     | $       | 2,787            |        |       | $       | 4,350   |       
|                                                     |                                                                                 | Income taxes                                                        |                                                     |         | 28               |        |       |         | (27     | )     
|                                                     | Non-cash financing activities:                                                  |                                                                     |                                                     |         |                  |        |       |         |        
|                                                     |                                                                                 | Dividends accumulated and not paid on preferred
stock               |                                                     |         | 1,284            |        |       |         | 1,284   |       

See accompanying notes to consolidated financial statements.



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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Dollars in thousands, except per share data)

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

The unaudited consolidated financial statements of FirstCity Financial
Corporation (FirstCity or the Company) reflect, in the opinion of
management, all adjustments, consisting only of normal and recurring
adjustments, necessary to present fairly FirstCitys consolidated financial
position at June 30, 2002, the results of operations for the three-month and
six-month periods ended June 30, 2002 and 2001, and the cash flows for the
six-month periods ended June 30, 2002 and 2001.

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

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

(2) Liquidity and Capital Resources

Proposed Recapitalization

In conjunction with a proposed recapitalization of FirstCity, the Company
filed a registration statement in June 2002 with the Securities and Exchange
Commission for a proposed exchange offer of its outstanding shares of New
Preferred Stock, par value $0.01 per share (New Preferred Stock).

Upon the commencement of the exchange offer, FirstCity will offer to
exchange each share of its New Preferred Stock for, at the holders election,
either:



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

FirstCity anticipates commencing the exchange offer promptly after its
registration statement is declared effective by the Securities and Exchange
Commission.

The exchange offer is a part of a comprehensive recapitalization of
FirstCity. Upon its successful completion, the recapitalization will consist
of the following:



| |  | the sale of a 20% interest in Drive Financial Services LP (Drive), to BoS(USA), Inc. (BoS(USA)), a wholly-owned
subsidiary of Bank of Scotland, for $16 million. This sale will provide the cash portion of the consideration of the
exchange offer and will leave FirstCity with an 11% interest in Drive after the sale,
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the exchange offer,                                                                                                                                                                                                                                                                                                           
| 
| |  | the use of the remainder of the cash proceeds from the sale of the 20% interest in Drive to reduce FirstCitys debt owed to
Bank of Scotland,                                                                                                                                                                                 



5



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

The successful completion of the exchange offer is a condition to all of
the items listed above.

The exchange offer is subject to several conditions. The most significant
conditions include:



| | (1) |  | the closing of the sale of a 20% interest in Drive to BoS(USA) (which
currently owns a 49% interest in Drive) for $16 million by FirstCity,
which will provide the cash proceeds of the exchange offer, and the
other transactions contemplated by the recapitalization,                                                                                           
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | the tender of at least 80% of the outstanding shares of New Preferred
Stock,                                                                                                                                                                                                                                                                                       
|
| | (3) |  | the effectiveness of the registration statement relating to the
shares of common stock of FirstCity to be issued in connection with the
exchange offer, and                                                                                                                                                                                                        
|
| | (4) |  | the lack of any change or development involving a prospective change
in or affecting FirstCitys business or financial affairs that, in the
reasonable judgment of FirstCitys board of directors, would or might
prohibit, restrict or delay consummation of the exchange offer or
materially impair the contemplated benefits to FirstCity of the exchange
offer.

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

A registration statement relating to the shares of common stock of
FirstCity to be issued in connection with the exchange offer has been filed
with the Securities and Exchange Commission but has not yet become effective.
Once the registration statement is declared effective the exchange offer will
commence and appropriate documents will be mailed to holders of the New
Preferred Stock.

Other Issues

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

BoS(USA) has an option to acquire a warrant for 1,975,000 shares of the
Companys non-voting Common Stock; the option can be exercised after October
31, 2002 if the Companys $12 million Term Loan B owed to BoS(USA) and Bank of
Scotland remains outstanding, but not prior to that date. The strike price is
$2.3125 per share. In the event that prior to October 31, 2002 the Company



6



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either (a) refinances the $12 million Term Loan B with subordinated debt,
or (b) pays off the balance of Term Loan B from proceeds of an equity offering,
then the option to acquire a warrant for 1,975,000 shares of non-voting Common
Stock will terminate. BoS(USA) and the Company have entered into several
amendments to this option to acquire a warrant
for 1,975,000 shares extending the exercise date from its initial
exercise date of August 31, 2001. The most recent amendment extended the date from June 30, 2002 to
October 31, 2002 to allow the Company additional time to pursue the proposed
recapitalization described above. Under the terms of the proposed
recapitalization, the option would be cancelled.

BoS(USA) also has a warrant to purchase 425,000 shares of the Companys
voting Common Stock at $2.3125 per share. In the event that Term Loan B is
terminated prior to October 31, 2002 through a transaction involving the
issuance of warrants, BoS(USA) is entitled to additional warrants in connection
with this existing warrant for 425,000 shares to retain its ability to acquire
approximately 4.86% of the Companys voting Common Stock. BoS(USA) and the
Company have also amended the warrant to extend the exercise date
from its initial exercise date of August 31, 2001 to correspond to the extension of the initial exercise date of the
option described in the preceding paragraph. The most recent amendment
extended the date from June 30, 2002 to October 31, 2002, consistent with
the amendment exercise date of the option as discussed above.

In the third quarter of 1999, dividends on the Companys redeemable
preferred stock (New Preferred Stock) were suspended. At June 30, 2002,
accumulated dividends in arrears on New Preferred Stock totaled $7.7 million,
or $6.30 per share. Since the Company failed to pay quarterly dividends for six
consecutive quarters, the holders of New Preferred Stock are entitled to elect
two directors to the Companys Board until cumulative dividends have been paid
in full. Dividends on outstanding shares of New Preferred Stock of FirstCity
will be restricted until Term Loan B is paid in full. Given the continued high
debt levels of the Company, and managements priority of assuring adequate
levels of liquidity, the Company does not anticipate that dividends on New
Preferred Stock will be paid in the foreseeable future. The Company believes
that the proposed recapitalization plan described above will, if implemented,
substantially reduce the number of outstanding shares of New Preferred Stock
and the corresponding accrued dividends on the New Preferred Stock, along with
eliminating the option of BoS(USA) to acquire a warrant to purchase 1,975,000
shares.

The Portfolio Asset acquisition and resolution group of FirstCity has a
$35 million loan facility (increased from $30 million in August 2002) with CFSC
Capital Corp. XXX, a subsidiary of Cargill. This facility is being used
exclusively to provide equity in new Portfolio acquisitions in partnerships
with Cargill and its affiliates. At June 30, 2002, approximately $25 million
was outstanding under this facility.

On April 29, 2002, BoS(USA) provided a commitment to fund up to $5 million
on a Term Loan E to the Company to allow the Company to purchase existing debt
under a term credit facility at a purchase price not to exceed 85% of the
unpaid principal balance. Term Loan E, secured by assets of the Company,
provides for an interest rate of LIBOR plus 6% and matures on March 31, 2004.
At June 30, 2002, advances of $2.8 million have been made on this loan and used
to purchase existing debt with a balance of $3.5 million, resulting in a gain
of $.7 million on early extinguishment of debt included in other
income in the
consolidated statements of operations. Bosque Asset Corp., a wholly-owned
subsidiary of FirstCity (Bosque), issued the original notes pursuant to a
Note Agreement dated June 6, 1997 in connection with its acquisition of
approximately 1,500 loans. A security interest in the acquired loans was
granted by Bosque to Bankers Trust Company of California, N.A., as trustee for
the noteholders. The notes issued by Bosque matured according to the original
terms on June 5, 2002. FirstCity has not guaranteed payment or performance of
Bosque under the notes or the Note Agreement. As of June 30, 2002, FirstCity
has acquired notes issued under the Note Agreement that represent 57.94% or
$3.4 million of the aggregate outstanding principal balances of the notes under
the Note Agreement. The notes acquired by FirstCity were purchased at eighty
percent (80%) of the outstanding principal balance of the notes. As of June
30, 2002, the aggregate balance of the outstanding notes held by persons
unrelated to FirstCity was $2.5 million. The current trustee under the Note
Agreement has not taken any action related to the maturity of the notes. The
collections from the notes continue to be distributed to the noteholders,
including FirstCity, under the terms of the matured loan facility. Collections
for the month of June 2002 resulted in a principal payment of $1.0 million on
July 5, 2002, of which $.6 million was paid to FirstCity and $.4 million was
paid to noteholders unrelated to FirstCity. As of August 5, 2002, the
aggregate outstanding principal balance of the notes under the Note Agreement
was $4.9 million, of which $2.8 million was held by
FirstCity and $2.1 million
was held by persons unrelated to FirstCity FirstCity intends to purchase the
notes held by unrelated persons or to obtain their consent to the extension of
maturity date for the notes under the Note Agreement.

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



7



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

(3) New Accounting Pronouncements

On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) 142, Goodwill and Other Intangible Assets(SFAS 142) and
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS 144). SFAS 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized but instead be tested for
impairment at least annually in accordance with the provisions of SFAS 142.
SFAS 142 requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with the SFAS 121,
Accounting for the Impairment of Long-Lived Assets to Be Disposed Of(SFAS
121).SFAS 144 supersedes SFAS 121. The adoption of SFAS 142 did not have a
material impact on the Companys consolidated financial statements, as
unamortized goodwill at December 31, 2001 was $.1 million.

SFAS 144 addresses the accounting model for long-lived assets to be
disposed of by sale and resulting implementation issues. This statement
requires that those long-lived assets be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. It also broadens the reporting of
discontinued operations to include all components of an entity with operations
that can be distinguished from the rest of the entity and that will be
eliminated from the ongoing operations of the entity in a disposal transaction.
Additionally, discontinued operations that are not disposed of within one year
must be reclassified as assets held and used unless the discontinued segment
will be (1) abandoned through the liquidation or run-off of operations because
the entity is obligated by regulation or contract to provide services after it
ceases accepting all new business and (2) is being reported as a discontinued
operation when SFAS 144 is initially applied. The only assets remaining from
discontinued operations are the investment securities resulting from the
retention of residual interests in securitization transactions. Since the
Company is contractually obligated to service the securitized assets, the
adoption of SFAS 144 had no impact on the Companys consolidated financial
statements.

On April 1, 2002, the Company elected early adoption of SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections(SFAS 145). SFAS 145 updates, clarifies
and simplifies existing accounting pronouncements. As it relates to FirstCity,
the statement eliminates the extraordinary gain classification on early debt
extinguishments. Instead, the gains associated with the early extinguishment
of debt have been recorded in other income in the consolidated statements of
operations. The Company also reclassified the extraordinary gain incurred in
2000 as other income. The result of this adoption did not modify or adjust net
earnings (loss) for any period and does not impact the Companys compliance
with various debt covenants.

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

(4) Discontinued Operations

The Company recorded a provision of $2.0 million in the first six months
of 2002 and $1.0 million in 2001 for additional losses from discontinued
operations. The additional provisions primarily relate to a decrease in the
estimated future gross cash receipts on residual interests in securitizations.
The net assets from discontinued operations consist of the following:

|                                                                              |  |          |  |              |  |   |  |        
|----------------------------------------------------------------------------- |  | -------- |  | ------------ |  | - |  | -------
|                                                                              |  | June 30, |  | December 31,
|                                                                              |  | 2002     |  | 2001        
|                                                                              |  |          |  |             
|Estimated future gross cash receipts on
residual interests in securitizations |  | $        |  | 15,845       |  | $ |  | 18,775 
|Accrual for loss on operations and disposal
of discontinued operations, net   |  |          |  | (670)        |  |   |  | (2,118)
|                                                                              |  |          | 
|Net assets of discontinued operations                                         |  | $        |  | 15,175       |  | $ |  | 16,657 
|                                                                              |  |          | 

The only assets remaining from discontinued operations are the investment
securities resulting from the retention of residual interests in securitization
transactions. Although the liquidation or run-off of these investment
securities will last longer than one year, the Company is contractually
obligated to service the securitized assets. The Company has considered the
estimated future gross cash receipts for such investment securities in the
computation of the loss from discontinued operations. The cash flows are
collected over a



8



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period of time and are valued using prepayment assumptions of 25% for
fixed rate loans and 40% for variable rate loans. Overall loss rates are
estimated from 1.0% to 1.7% of collateral.

(5) Portfolio Assets

Portfolio Assets are summarized as follows:

|                                                                                  |                        |   |          |        |              |   |         |        | 
|--------------------------------------------------------------------------------- | ---------------------- | - | -------- | ------ | ------------ | - | ------- | ------ | 
|                                                                                  |                        |   | June 30, |        | December 31,
|                                                                                  |                        |   | 2002     |        | 2001        
|                                                                                  |                        |   |          |        |             
|Non-performing Portfolio Assets                                                   |                        | $ | 41,372   |        |              | $ | 45,123  |       
|Performing Portfolio Assets                                                       |                        |   | 9,008    |        |              |   | 10,227  |       
|Real estate Portfolios                                                            |                        |   | 1,624    |        |              |   | 1,766   |       
|                                                                                  |                        |   |          |        |              |   |         |       
|                                                                                  | Total Portfolio Assets |   |          | 52,004 |              |   |         | 57,116 | 
|Adjusted purchase discount required to reflect Portfolio
Assets at carrying value |                        |   | (40,413  | )      |              |   | (42,898 | )     
|                                                                                  |                        |   |          |        |              |   |         |       
|                                                                                  | Portfolio Assets, net  |   | $        | 11,591 |              |   | $       | 14,218 | 
|                                                                                  |                        |   |          |        |              |   |         |       

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

(6) Loans Receivable from Acquisition Partnerships Held for Investment

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

|         |  |          |        |              |  |   |        | 
|-------- |  | -------- | ------ | ------------ |  | - | ------ | 
|         |  | June 30, |        | December 31,
|         |  | 2002     |        | 2001        
|         |  |          |        |             
|Mexico   |  | $        | 20,518 |              |  | $ | 18,609 | 
|Domestic |  |          | 1,327  |              |  |   | 1,156  | 
|         |  |          |        |              |  |   |        | 
|         |  | $        | 21,845 |              |  | $ | 19,765 | 
|         |  |          |        |              |  |   |        | 

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

(7) Equity Investments

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

CONDENSED COMBINED BALANCE SHEETS

|                                              |  |          |         |              |  |   |         | 
|--------------------------------------------- |  | -------- | ------- | ------------ |  | - | ------- | 
|                                              |  | June 30, |         | December 31,
|                                              |  | 2002     |         | 2001        
|                                              |  |          |         |             
|Assets                                        |  | $        | 589,968 |              |  | $ | 654,883 | 
|                                              |  |          |         |              |  |   |         | 
|Liabilities                                   |  | $        | 463,580 |              |  | $ | 498,361 | 
|Net equity                                    |  |          | 126,388 |              |  |   | 156,522 | 
|                                              |  |          |         |              |  |   |         | 
|                                              |  | $        | 589,968 |              |  | $ | 654,883 | 
|                                              |  |          |         |              |  |   |         | 
|Equity investment in Acquisition Partnerships |  | $        | 39,816  |              |  | $ | 42,660  | 
|Equity investment in servicing entities       |  |          | 2,935   |              |  |   | 2,118   | 
|                                              |  |          |         |              |  |   |         | 
|                                              |  | $        | 42,751  |              |  | $ | 44,778  | 
|                                              |  |          |         |              |  |   |         | 



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CONDENSED COMBINED SUMMARY OF OPERATIONS

|                                               |  |                    |         |                  |  |      |        |      |  |   |         |   |  |   |         | 
|---------------------------------------------- |  | ------------------ | ------- | ---------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | 
|                                               |  | Three Months Ended |         | Six Months Ended
|                                               |  | June 30,           |         | June 30,        
|                                               |  |                    |         |                 
|                                               |  | 2002               |         | 2001             |  | 2002 |        | 2001
|                                               |  |                    |         |                  |  |      |        |     
|Proceeds from resolution of Portfolio Assets   |  | $                  | 132,272 |                  |  | $    | 57,862 |      |  | $ | 174,633 |   |  | $ | 119,647 | 
|Gain on resolution of Portfolio Assets         |  |                    | 33,906  |                  |  |      | 25,029 |      |  |   | 52,683  |   |  |   | 55,287  | 
|Interest income on performing Portfolio Assets |  |                    | 4,185   |                  |  |      | 7,665  |      |  |   | 9,262   |   |  |   | 12,692  | 
|Net earnings (loss)                            |  |                    | (10,205 | )                |  |      | 16,612 |      |  |   | (1,885  | ) |  |   | 11,510  | 
|                                               |  |                    |         |                  |  |      |        |      |  |   |         |   |  |   |         | 
|Equity in earnings of Acquisition Partnerships |  | $                  | 3,181   |                  |  | $    | 3,542  |      |  | $ | 5,582   |   |  | $ | 6,667   | 
|Equity in earnings of servicing entities       |  |                    | 261     |                  |  |      | 157    |      |  |   | 680     |   |  |   | 986     | 
|                                               |  |                    |         |                  |  |      |        |      |  |   |         |   |  |   |         | 
|                                               |  | $                  | 3,442   |                  |  | $    | 3,699  |      |  | $ | 6,262   |   |  | $ | 7,653   | 
|                                               |  |                    |         |                  |  |      |        |      |  |   |         |   |  |   |         | 

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

|                                               |                  |                    |         |          |         |              |         |         |         | 
|---------------------------------------------- | ---------------- | ------------------ | ------- | -------- | ------- | ------------ | ------- | ------- | ------- | 
|                                               |                  |                    |         | June 30, |         | December 31,
|                                               |                  |                    |         | 2002     |         | 2001        
|                                               |                  |                    |         |          |         |             
|Assets:                                        |                  |                    |         |          |         |              |         |        
|                                               | Domestic:        |                    |         |          |         |              |         |         |        
|                                               |                  | WAMCO Partnerships |         | $        | 173,843 |              |         | $       | 259,617 | 
|                                               |                  | Other              |         |          | 25,816  |              |         |         | 15,607  | 
|                                               | Mexico           |                    |         | 296,739  |         |              |         | 305,324 |        
|                                               | France and Italy |                    |         | 93,570   |         |              |         | 74,335  |        
|                                               |                  |                    |         |          |         |              |         |        
|                                               |                  | $                  | 589,968 |          |         | $            | 654,883 |        
|                                               |                  |                    |         |          |         |              |         |        
|Equity:                                        |                  |                    |         |          |         |              |         |        
|                                               | Domestic:        |                    |         |          |         |              |         |         |        
|                                               |                  | WAMCO Partnerships |         | $        | 75,625  |              |         | $       | 90,249  | 
|                                               |                  | Other              |         |          | 8,453   |              |         |         | 3,207   | 
|                                               | Mexico           |                    |         | (27,430  | )       |              |         | 2,546   |        
|                                               | France and Italy |                    |         | 69,740   |         |              |         | 60,520  |        
|                                               |                  |                    |         |          |         |              |         |        
|                                               |                  | $                  | 126,388 |          |         | $            | 156,522 |        
|                                               |                  |                    |         |          |         |              |         |        
|Equity investment in Acquisition
Partnerships: |                  |                    |         |          |         |              |         |        
|                                               | Domestic:        |                    |         |          |         |              |         |         |        
|                                               |                  | WAMCO Partnerships |         | $        | 27,103  |              |         | $       | 30,806  | 
|                                               |                  | Other              |         |          | 3,949   |              |         |         | 2,313   | 
|                                               | Mexico           |                    |         | (1,395   | )       |              |         | 292     |        
|                                               | France and Italy |                    |         | 10,159   |         |              |         | 9,249   |        
|                                               |                  |                    |         |          |         |              |         |        
|                                               |                  | $                  | 39,816  |          |         | $            | 42,660  |        
|                                               |                  |                    |         |          |         |              |         |        

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

|                                                       |                  |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |        |        | 
|------------------------------------------------------ | ---------------- | ------------------ | ------- | ------------------ | ------ | ---------------- | ------ | ------ | ------ | ---- | ------ | ------- | ------ | - | ------ | ------ | ------ | 
|                                                       |                  |                    |         | Three Months Ended |        | Six Months Ended
|                                                       |                  |                    |         | June 30,           |        | June 30,        
|                                                       |                  |                    |         |                    |        |                 
|                                                       |                  |                    |         | 2002               |        | 2001             |        | 2002   |        | 2001
|                                                       |                  |                    |         |                    |        |                  |        |        |        |     
|Revenues:                                              |                  |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |       
|                                                       | Domestic:        |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |        |       
|                                                       |                  | WAMCO Partnerships |         | $                  | 20,062 |                  |        | $      | 11,949 |      |        | $       | 31,382 |   |        | $      | 26,088 | 
|                                                       |                  | Other              |         |                    | 2,171  |                  |        |        | 1,446  |      |        |         | 2,407  |   |        |        | 1,460  | 
|                                                       | Mexico           |                    |         | 11,214             |        |                  |        | 13,101 |        |      |        | 20,747  |        |   |        | 31,244 |       
|                                                       | France and Italy |                    |         | 5,264              |        |                  |        | 7,137  |        |      |        | 8,639   |        |   |        | 10,905 |       
|                                                       |                  |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |       
|                                                       |                  | $                  | 38,711  |                    |        | $                | 33,633 |        |        | $    | 63,175 |         |        | $ | 69,697 |       
|                                                       |                  |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |        |        | 
|Net earnings (loss):                                   |                  |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |       
|                                                       | Domestic:        |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |        |       
|                                                       |                  | WAMCO Partnerships |         | $                  | 14,262 |                  |        | $      | 5,247  |      |        | $       | 21,726 |   |        | $      | 12,740 | 
|                                                       |                  | Other              |         |                    | 1,268  |                  |        |        | 1,121  |      |        |         | 1,378  |   |        |        | 1,026  | 
|                                                       | Mexico           |                    |         | (28,974            | )      |                  |        | 5,465  |        |      |        | (30,411 | )      |   |        | (9,528 | )     
|                                                       | France and Italy |                    |         | 3,239              |        |                  |        | 4,779  |        |      |        | 5,422   |        |   |        | 7,272  |       
|                                                       |                  |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |       
|                                                       |                  | $                  | (10,205 | )                  |        | $                | 16,612 |        |        | $    | (1,885 | )       |        | $ | 11,510 |       
|                                                       |                  |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |        |        | 
|Equity in earnings (loss)
of Acquisition
Partnerships: |                  |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |       
|                                                       | Domestic:        |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |        |       
|                                                       |                  | WAMCO Partnerships |         | $                  | 4,026  |                  |        | $      | 1,803  |      |        | $       | 5,874  |   |        | $      | 4,888  | 
|                                                       |                  | Other              |         |                    | 518    |                  |        |        | 564    |      |        |         | 628    |   |        |        | 607    | 
|                                                       | Mexico           |                    |         | (1,897             | )      |                  |        | 129    |        |      |        | (1,914  | )      |   |        | (342   | )     
|                                                       | France and Italy |                    |         | 534                |        |                  |        | 1,046  |        |      |        | 994     |        |   |        | 1,514  |       
|                                                       |                  |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |       
|                                                       |                  | $                  | 3,181   |                    |        | $                | 3,542  |        |        | $    | 5,582  |         |        | $ | 6,667  |       
|                                                       |                  |                    |         |                    |        |                  |        |        |        |      |        |         |        |   |        |        |        | 

The Company recorded a $.2 million addition to equity in the first six
months of 2002 as a result of unrealized gains on residual interests in
securitization transactions held by one Acquisition Partnership. Also, the
Company recorded $1.0 million in foreign currency translation adjustments in
the first six months of 2002 relating to equity investments in foreign
Acquisition Partnerships and servicing entities.



10



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##### Table of Contents



The condensed consolidated financial position and results of operations of
Drive are summarized below:

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                      |                   |                         |         |          |       |              |         |         |       | 
|------------------------------------- | ----------------- | ----------------------- | ------- | -------- | ----- | ------------ | ------- | ------- | ----- | 
|                                      |                   |                         |         | June 30, |       | December 31,
|                                      |                   |                         |         | 2002     |       | 2001        
|                                      |                   |                         |         |          |       |             
|Cash                                  |                   | $                       | 22,130  |          |       | $            | 7,303   |        
|Loans held for sale                   |                   |                         | 238,096 |          |       |              | 70,447  |        
|Residual interests in securitizations |                   |                         | 71,036  |          |       |              | 77,407  |        
|Other assets                          |                   |                         | 10,620  |          |       |              | 10,321  |        
|                                      |                   |                         |         |          |       |              |         |        
|                                      | Total assets      |                         | $       | 341,882  |       |              | $       | 165,478 |      
|                                      |                   |                         |         |          |       |              |         |        
|Notes payable                         |                   | $                       | 302,357 |          |       | $            | 126,665 |        
|Other liabilities                     |                   |                         | 16,930  |          |       |              | 13,323  |        
|                                      |                   |                         |         |          |       |              |         |        
|                                      | Total liabilities |                         |         | 319,287  |       |              |         | 139,988 |      
|Net equity                            |                   |                         | 22,595  |          |       |              | 25,490  |        
|                                      |                   |                         |         |          |       |              |         |        
|                                      |                   | $                       | 341,882 |          |       | $            | 165,478 |        
|                                      |                   |                         |         |          |       |              |         |        
|Equity investment in Drive            |                   | $                       | 8,753   |          |       | $            | 9,877   |        
|                                      | Minority interest |                         |         | (1,749   | )     |              |         | (1,975  | )    
|                                      |                   |                         |         |          |       |              |         |        
|                                      |                   | Net investment in Drive |         | $        | 7,004 |              |         | $       | 7,902 | 
|                                      |                   |                         |         |          |       |              |         |        

CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS

|                                         |                                        |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |        | 
|---------------------------------------- | -------------------------------------- | - | --------------------------- | ------ | ------------------------- | - | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | 
|                                         |                                        |   | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                         |                                        |   |                             |        |                          
|                                         |                                        |   | 2002                        |        | 2001                      |   | 2002   |        | 2001
|                                         |                                        |   |                             |        |                           |   |        |        |     
|Interest income                          |                                        | $ | 15,724                      |        |                           | $ | 8,299  |        |      | $ | 25,731 |        |   | $ | 18,197 |       
|Gain on sale of loans                    |                                        |   |                            |        |                           |   | 26,149 |        |      |   |       |        |   |   | 26,149 |       
|Service fees and other                   |                                        |   | 5,043                       |        |                           |   | 6,204  |        |      |   | 9,649  |        |   |   | 8,440  |       
|                                         |                                        |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |       
|                                         | Revenues                               |   |                             | 20,767 |                           |   |        | 40,652 |      |   |        | 35,380 |   |   |        | 52,786 | 
|                                         |                                        |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |       
|Interest expense                         |                                        |   | 3,375                       |        |                           |   | 3,268  |        |      |   | 5,743  |        |   |   | 7,207  |       
|Salaries and benefits                    |                                        |   | 10,189                      |        |                           |   | 8,000  |        |      |   | 20,447 |        |   |   | 14,852 |       
|Provision for loan and
impairment losses |                                        |   |                            |        |                           |   | 4,312  |        |      |   | 20     |        |   |   | 7,746  |       
|Other expenses                           |                                        |   | 5,922                       |        |                           |   | 8,494  |        |      |   | 11,359 |        |   |   | 11,292 |       
|                                         |                                        |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |       
|                                         | Expenses                               |   |                             | 19,486 |                           |   |        | 24,074 |      |   |        | 37,569 |   |   |        | 41,097 | 
|                                         |                                        |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |       
|Net income (loss)                        |                                        | $ | 1,281                       |        |                           | $ | 16,578 |        |      | $ | (2,189 | )      |   | $ | 11,689 |       
|                                         |                                        |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |       
|Equity in earnings
(loss) of Drive       |                                        | $ | 497                         |        |                           | $ | 6,727  |        |      | $ | (848   | )      |   | $ | 4,833  |       
|Cumulative
effect of accounting change   |                                        |   |                            |        |                           |   | (304   | )      |      |   |       |        |   |   | (304   | )     
|Minority interest                        |                                        |   | (99                         | )      |                           |   | (1,283 | )      |      |   | 170    |        |   |   | (905   | )     
|                                         |                                        |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |       
|                                         | Net equity in
earnings (loss) of
Drive |   | $                           | 398    |                           |   | $      | 5,140  |      |   | $      | (678   | ) |   | $      | 3,624  | 
|                                         |                                        |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |       

The Company recorded a $.2 million reduction to equity in the first six
months of 2002 as a result of unrealized losses 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. The following is a summary
of results of operations for each of the segments and reconciliation to
earnings (loss) from continuing operations for the three months and six months
ended June 30, 2002 and 2001.



11



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##### Table of Contents



|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |       |       |        | 
|------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------------- | ----- | ------------------ | ------ | ---------------- | ----- | ----- | ----- | ---- | ----- | ----- | ------ | - | ----- | ----- | ------ | 
|                                            |                                                                                   |                                                                 |                                                   |       | Three Months Ended |        | Six Months Ended
|                                            |                                                                                   |                                                                 |                                                   |       | June 30,           |        | June 30,        
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                 
|                                            |                                                                                   |                                                                 |                                                   |       | 2002               |        | 2001             |       | 2002  |       | 2001
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |     
|Portfolio Asset Acquisition and Resolution: |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |      
|                                            | Revenues:                                                                         |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |       |      
|                                            |                                                                                   | Servicing fees                                                  |                                                   | $     | 4,170              |        |                  | $     | 3,204 |       |      | $     | 6,392 |        |   | $     | 5,669 |       
|                                            |                                                                                   | Gain on resolution of Portfolio Assets                          |                                                   |       | 456                |        |                  |       | 214   |       |      |       | 700   |        |   |       | 432   |       
|                                            |                                                                                   | Equity in earnings of investments                               |                                                   |       | 3,442              |        |                  |       | 3,699 |       |      |       | 6,262 |        |   |       | 7,653 |       
|                                            |                                                                                   | Interest income                                                 |                                                   |       | 1,356              |        |                  |       | 1,401 |       |      |       | 2,659 |        |   |       | 2,624 |       
|                                            |                                                                                   | Gain on sale of interest in equity investments                  |                                                   |       | 1,779              |        |                  |       |      |       |      |       | 1,779 |        |   |       | 3,134 |       
|                                            |                                                                                   | Other                                                           |                                                   |       | 895                |        |                  |       | 426   |       |      |       | 1,097 |        |   |       | 546   |       
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |      
|                                            |                                                                                   |                                                                 | Total                                             |       |                    | 12,098 |                  |       |       | 8,944 |      |       |       | 18,889 |   |       |       | 20,058 | 
|                                            | Expenses:                                                                         |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |       |      
|                                            |                                                                                   | Interest and fees on notes payable                              |                                                   |       | 778                |        |                  |       | 1,076 |       |      |       | 1,504 |        |   |       | 2,111 |       
|                                            |                                                                                   | Salaries and benefits                                           |                                                   |       | 2,676              |        |                  |       | 2,014 |       |      |       | 4,677 |        |   |       | 3,534 |       
|                                            |                                                                                   | Provision for loan and impairment losses                        |                                                   |       | 22                 |        |                  |       | 1,543 |       |      |       | 121   |        |   |       | 2,128 |       
|                                            |                                                                                   | Occupancy, data processing and other                            |                                                   |       | 2,646              |        |                  |       | 2,926 |       |      |       | 4,267 |        |   |       | 5,217 |       
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |      
|                                            |                                                                                   |                                                                 | Total                                             |       |                    | 6,122  |                  |       |       | 7,559 |      |       |       | 10,569 |   |       |       | 12,990 | 
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |      
|                                            | Operating contribution before direct taxes                                        |                                                                 | $                                                 | 5,976 |                    |        | $                | 1,385 |       |       | $    | 8,320 |       |        | $ | 7,068 |      
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |       |       |       
|                                            | Operating contribution , net of direct taxes                                      |                                                                 | $                                                 | 5,982 |                    |        | $                | 1,378 |       |       | $    | 8,313 |       |        | $ | 7,077 |      
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |      
|Consumer Lending:                           |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |      
|                                            | Revenues:                                                                         |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |       |      
|                                            |                                                                                   | Equity in earnings (loss) of investment                         |                                                   | $     | 497                |        |                  | $     | 6,727 |       |      | $     | (848  | )      |   | $     | 4,833 |       
|                                            |                                                                                   | Interest income                                                 |                                                   |       |                   |        |                  |       | 4     |       |      |       |      |        |   |       | 6     |       
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |      
|                                            |                                                                                   |                                                                 | Total                                             |       |                    | 497    |                  |       |       | 6,731 |      |       |       | (848   | ) |       |       | 4,839  | 
|                                            | Expenses:                                                                         |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |       |      
|                                            |                                                                                   | Occupancy, data processing and other (net of minority interest) |                                                   |       | 102                |        |                  |       | 1,613 |       |      |       | (162  | )      |   |       | 1,244 |       
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |      
|                                            |                                                                                   |                                                                 | Total                                             |       |                    | 102    |                  |       |       | 1,613 |      |       |       | (162   | ) |       |       | 1,244  | 
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |      
|                                            | Operating contribution (loss) before direct taxes                                 |                                                                 | $                                                 | 395   |                    |        | $                | 5,118 |       |       | $    | (686  | )     |        | $ | 3,595 |      
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |       |       |       
|                                            | Operating contribution (loss), net of direct taxes                                |                                                                 | $                                                 | 395   |                    |        | $                | 5,118 |       |       | $    | (686  | )     |        | $ | 3,595 |      
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |       |       |       
|                                            |                                                                                   |                                                                 | Total operating contribution, net of direct
Taxes |       | $                  | 6,377  |                  |       | $     | 6,496 |      |       | $     | 7,627  |   |       | $     | 10,672 | 
|Corporate Overhead:                         |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |      
|                                            | Corporate interest expense                                                        |                                                                 |                                                   | 847   |                    |        |                  | 1,236 |       |       |      | 1,669 |       |        |   | 2,643 |      
|                                            | Salaries and benefits, occupancy, professional and other
income and expenses, net |                                                                 |                                                   | 1,328 |                    |        |                  | 1,396 |       |       |      | 2,590 |       |        |   | 2,540 |      
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |      
|                                            | Earnings from continuing operations                                               |                                                                 | $                                                 | 4,202 |                    |        | $                | 3,864 |       |       | $    | 3,368 |       |        | $ | 5,489 |      
|                                            |                                                                                   |                                                                 |                                                   |       |                    |        |                  |       |       |       |      |       |       |        |   |       |       |       

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

|                 |       |   |                    |        |                  |   |       |       |      |   |        |        |  |   |        |        | 
|---------------- | ----- | - | ------------------ | ------ | ---------------- | - | ----- | ----- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                 |       |   | Three Months Ended |        | Six Months Ended
|                 |       |   | June 30,           |        | June 30,        
|                 |       |   |                    |        |                 
|                 |       |   | 2002               |        | 2001             |   | 2002  |       | 2001
|                 |       |   |                    |        |                  |   |       |       |     
|Domestic         |       | $ | 8,515              |        |                  | $ | 4,580 |       |      | $ | 11,961 |        |  | $ | 12,595 |       
|Mexico           |       |   | 931                |        |                  |   | 3,238 |       |      |   | 3,367  |        |  |   | 4,993  |       
|France and Italy |       |   | 2,648              |        |                  |   | 1,126 |       |      |   | 3,556  |        |  |   | 2,450  |       
|Other foreign    |       |   | 4                  |        |                  |   |      |       |      |   | 5      |        |  |   | 20     |       
|                 |       |   |                    |        |                  |   |       |       |      |   |        |        |  |   |        |       
|                 | Total |   | $                  | 12,098 |                  |   | $     | 8,944 |      |   | $      | 18,889 |  |   | $      | 20,058 | 
|                 |       |   |                    |        |                  |   |       |       |      |   |        |        |  |   |        |       

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

|                                                     |                  |              |        |          |         |              |        |        |         | 
|---------------------------------------------------- | ---------------- | ------------ | ------ | -------- | ------- | ------------ | ------ | ------ | ------- | 
|                                                     |                  |              |        | June 30, |         | December 31,
|                                                     |                  |              |        | 2002     |         | 2001        
|                                                     |                  |              |        |          |         |             
|Portfolio acquisition and resolution assets
Domestic |                  | $            | 44,023 |          |         | $            | 48,202 |       
|                                                     | Mexico           |              |        | 20,054   |         |              |        | 19,766 |        
|                                                     | France and Italy |              |        | 13,095   |         |              |        | 11,367 |        
|Consumer assets                                      |                  |              | 8,842  |          |         |              | 10,205 |       
|Deferred tax benefit, net                            |                  |              | 20,101 |          |         |              | 20,101 |       
|Other assets, net                                    |                  |              | 20,307 |          |         |              | 12,595 |       
|Net assets of discontinued operations                |                  |              | 15,175 |          |         |              | 16,657 |       
|                                                     |                  |              |        |          |         |              |        |       
|                                                     |                  | Total assets |        | $        | 141,597 |              |        | $      | 138,893 | 
|                                                     |                  |              |        |          |         |              |        |       

(9) Income Taxes

Federal income taxes are provided at a 35% rate. The Company has
substantial NOLs, which can be used to offset the tax liability associated with
the Companys pre-tax earnings until the earlier of the expiration or
utilization of such NOLs. The Company accounts for the benefit of the NOLs by
recording the benefit as an asset and then establishing a valuation allowance
to value the net deferred tax asset at a level, which more likely than not,
will be realized. Realization is determined based on managements expectation
of generating sufficient taxable income in a look forward period over the next
four years. The ultimate realization of the resulting net deferred tax asset
is dependent upon generating sufficient taxable income from its continuing
operations prior to expiration of the NOLs. Although realization is not
assured, management believes it is more likely than not that all of the
recorded deferred tax asset, net of the allowance, will be realized. The amount
of the deferred tax asset considered realizable, however, could be adjusted in
the future if estimates of future taxable income during the carryforward period
change. The ability of the Company to realize the deferred tax asset is
periodically reviewed and the valuation allowance is adjusted accordingly.



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(10) Commitments and Contingencies

On October 14, 1999, Harbor Financial Group, Inc. (Harbor Parent),
Harbor Financial Mortgage Corporation (Harbor) and four subsidiaries of
Harbor filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code before the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division. On December 14, 1999, the bankruptcy
proceedings were converted to liquidation proceedings under Chapter 7 of the
United States Bankruptcy Code. John H. Litzler, the Chapter 7 Trustee in the
bankruptcy proceedings (the Trustee), initiated adversary proceedings on May
25, 2001 against FirstCity and various current and former directors and
officers of FirstCity and Harbor alleging breach of fiduciary duties,
mismanagement, and self-dealing by FirstCity and Harbor directors and officers,
and improper transfer of funds from the Harbor related entities to FirstCity.
The claims also included fraudulent and preferential transfer of assets of the
Harbor entities, fraud and conspiracy. The Trustee, FirstCity, the other
defendants and the insurers providing Directors and Officers Insurance
coverage for FirstCity and its subsidiaries (the Insurers) have executed a
settlement agreement setting forth the terms of the compromise of the claims
brought in the adversary proceedings, subject to obtaining the approval of the
Bankruptcy Court. Under the terms of the settlement agreement, if approved by
the Bankruptcy Court, the Trustee will release the defendants, their affiliates
and subsidiaries from any and all claims which were brought or could have been
brought by the Trustee against any of the defendants, any past and present
officers and directors of FirstCity or any affiliates or subsidiaries of
FirstCity in consideration of (i) the payment of the sum of $3,575,000 by the
Insurers to the Trustee, (ii) a payment by FirstCity to the Trustee in the sum
of $225,000, of which $162,500 is contingent upon FirstCitys receiving that
sum in connection with finalizing a settlement with Chase Securities, Inc. and
JP Morgan Chase Bank (collectively, the Chase Entities) in the matter styled
Chase Securities, Inc. v. FirstCity Financial Corporation,Index No. 604538/99
(N.Y. Sup. Ct.) discussed below, and (iii) the release of any and all claims of
FirstCity and its affiliates and subsidiaries and of the individual defendants
in the bankruptcy proceedings against the Trustee, including administrative and
expense claims, with the exception of a portion of the administrative claim of
FirstCity as noted below. The payment by the Insurers is conditioned upon
FirstCitys administrative claim in the Bankruptcy Case being allowed in the
amount of $300,000, which claim FirstCity will assign to the Insurers and which
shall be paid by the Trustee directly to the Insurers. FirstCity has received
the $162,500 payment from the Chase entities as described above. The motions
of the Trustee for approval of the settlement agreement, mutual releases and a
bar order precluding certain claims by third parties against FirstCity have
been filed in the bankruptcy proceedings and have been set for hearing on
August 26, 2002. The approval of the Bankruptcy Court of the proposed terms of
settlement has not been obtained, and there can be no assurance that such
consent and approval will be secured. In the event that Bankruptcy Court
approval is not obtained, FirstCity intends to vigorously contest the claims of
the Trustee, as FirstCity believes that the claims are without merit and that
it has valid defenses to these claims.

FirstCity and Harbor Parent filed suit in the Federal District Court for
the Western District of Texas, Waco Division, against Chase Bank of Texas, N.A.
and Chase Securities, Inc. in September 1999 seeking injunctive relief and
damages resulting from alleged violations by the defendants of the Bank Holding
Company Act and from civil conspiracy engaged in by the defendants, arising
from an engagement letter entered into between FirstCity and Chase Securities,
Inc. relating to the sale of assets or securities of Harbor Parent, Harbor and
their subsidiaries (collectively HFMC). FirstCity and Harbor Parent alleged
that Chase Bank Texas, N.A. conditioned the extension of credit to Harbor on
the retention of Chase Securities, Inc. by FirstCity and Harbor in violation of
the Bank Holding Company Act. FirstCity additionally sought a judicial
declaration that the plaintiffs were not obligated to pay any commission to
Chase Securities, Inc. under the engagement letter. FirstCity and Harbor Parent
also sought recovery of treble damages pursuant to the Bank Holding Company Act
and recovery of 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. FirstCity was granted leave by the Supreme
Court for the State of New York to amend its answer in that proceeding to
include the claims asserted in the Texas suit as a counterclaim to the suit
brought by Chase Securities, Inc. and to assert certain affirmative defenses.

On October 4, 1999, Chase Securities, Inc. filed suit against FirstCity
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
discussed above and other relief. FirstCity denied that it had any liability to
Chase Securities, Inc. FirstCity asserted as a defense to this action the
violations of the Bank Holding Company Act and other claims asserted in the
litigation filed in the Federal District Court for the Western District of
Texas. FirstCity was granted leave to amend its answer in the suit to include a
counterclaim against Chase Securities, Inc. asserting breach of contract based
upon the matters that were asserted in the Texas suit.

The Trustee filed an action in the United States District Court for the
Southern District of New York against Chase Manhattan Bank, formerly Chase Bank
of Texas, N.A. and Chase Securities, Inc. seeking recovery of damages arising
from or relating to various agreements by and between Harbor Parent and Harbor
and Chase Manhattan Bank (Chase Bank) and Chase Securities, Inc. (CSI),
including the alleged violations of the Anti-Tying provision of the Bank
Holding Company Act as had been asserted by FirstCity and Harbor Parent in the
Texas suit.



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The Trustee, FirstCity and Chase Bank and CSI have completed a settlement
of the claims in the suits described above and related to the fees alleged to
be due to CSI under the engagement letter. Pursuant to the terms of the
settlement between Chase Bank, CSI and FirstCity, FirstCity received a payment
of $162,500 and FirstCity, Chase and CSI mutually released each other from all
facts alleged and claims and counterclaims made in pleadings, proposed
pleadings, submissions to the New York State Supreme Court, and/or answers to
interrogatories served in the suits pending in the New York courts described
above or related to the September 30, 1998 Engagement Letter executed by
FirstCity and CSI, the February 17, 1998 Securitization Agreement executed by
Harbor Parent and CSI, the February 25, 1998 Securitization Commitment Letter
executed by Harbor and Chase Bank, the February 1, 1999 Syndication Commitment
Letter executed by Harbor, CSI and Chase Bank, and/or the February 1, 1999
Syndication Fee Letter executed by Harbor, CSI and Chase Bank. Chase, CSI and
HFMC also completed a settlement of the claims asserted in the suit filed by
the Trustee and under the fee agreements with HFMC receiving a payment of
$1,087,500 and the parties mutually releasing each other from all claims in the
suit filed by the Trustee and under the agreements referred to above.

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

The Company is a 50% owner in an entity that is obligated to advance up to
$2.5 million toward the acquisition of Portfolio Assets from financial
institutions in California. At June 30, 2002, advances of $2.4 million had been
made under the obligation.

In connection with the transactions contemplated by the Securities
Purchase Agreement pursuant to which the Company sold its 49% equity interest
in Drive, effective August 1, 2000, FirstCity Consumer Lending Corporation
(Consumer Corp.) and FirstCity Funding LP (Funding LP) contributed all of
the assets utilized in the operations of the automobile finance operation to
Drive pursuant to the terms of a Contribution and Assumption Agreement by and
between Consumer Corp. and Drive, and a Contribution and Assumption Agreement
by and between Funding LP and Drive (collectively, the Contribution
Agreements). Drive assumed substantially all of the liabilities of the
automobile finance operation as set forth in the Contribution Agreements.

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

The Company also provided a guaranty limited to a maximum of up to $4
million of a $60 million loan ($21 million outstanding as of June 30, 2002) to
Drive by BoS(USA). The Company, Consumer Corp. and Funding L.P. secured the
guaranty with security interests in their respective ownership interest in
Consumer Corp., Funding L.P. and Drive. To date, no payments have been made by
the Company pursuant to this guaranty.



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

Overview

The Company is a financial services company engaged in Portfolio Asset
acquisition and resolution, conducted through its subsidiary, FirstCity
Commercial Corporation, and other subsidiaries and affiliates of FirstCity
Commercial Corporation (collectively Commercial Corp.), and in consumer
lending, through its investment in Drive. The Portfolio Asset acquisition and
resolution business involves acquiring Portfolio Assets at a discount to face
value and servicing and resolving such portfolios in an effort to maximize the
present value of the ultimate cash recoveries.

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

As a result of the significant period to period fluctuations in the
revenues and earnings of the Companys Portfolio Asset acquisition and
resolution business, and the timing of securitization transactions of Drive,
period to period comparisons of the Companys results of continuing operations
may not be meaningful.

The Company reported earnings from continuing operations for the quarter
ended June 30, 2002 of $4.2 million. After recording a loss from discontinued
operations and accrued and unpaid dividends on the New Preferred Stock, net
earnings to common stockholders was $2.1 million or $.25 per share on a basic
and diluted basis.

|                                           |                                     |   |                    |       |                  |   |        |       |      |   |        |       |  |   |        |       | 
|------------------------------------------ | ----------------------------------- | - | ------------------ | ----- | ---------------- | - | ------ | ----- | ---- | - | ------ | ----- |  | - | ------ | ----- | 
|                                           |                                     |   | Three Months Ended |       | Six Months Ended
|                                           |                                     |   | June 30,           |       | June 30,        
|                                           |                                     |   |                    |       |                 
|                                           |                                     |   | 2002               |       | 2001             |   | 2002   |       | 2001
|                                           |                                     |   |                    |       |                  |   |        |       |     
|Portfolio Asset Acquisition and Resolution |                                     | $ | 5,982              |       |                  | $ | 1,378  |       |      | $ | 8,313  |       |  | $ | 7,077  |      
|Consumer                                   |                                     |   | 395                |       |                  |   | 5,422  |       |      |   | (686   | )     |  |   | 3,899  |      
|Corporate interest                         |                                     |   | (847               | )     |                  |   | (1,236 | )     |      |   | (1,669 | )     |  |   | (2,643 | )    
|Corporate overhead                         |                                     |   | (1,328             | )     |                  |   | (1,396 | )     |      |   | (2,590 | )     |  |   | (2,540 | )    
|Cumulative effect of accounting change     |                                     |   |                   |       |                  |   | (304   | )     |      |   |       |       |  |   | (304   | )    
|                                           |                                     |   |                    |       |                  |   |        |       |      |   |        |       |  |   |        |      
|                                           | Earnings from continuing operations |   |                    | 4,202 |                  |   |        | 3,864 |      |   |        | 3,368 |  |   |        | 5,489 | 
|Accrued preferred dividends                |                                     |   | (642               | )     |                  |   | (642   | )     |      |   | (1,284 | )     |  |   | (1,284 | )    
|Loss from discontinued operations          |                                     |   | (1,500             | )     |                  |   | (1,000 | )     |      |   | (2,000 | )     |  |   | (1,000 | )    
|                                           |                                     |   |                    |       |                  |   |        |       |      |   |        |       |  |   |        |      
|                                           | Net earnings to common shareholders |   | $                  | 2,060 |                  |   | $      | 2,222 |      |   | $      | 84    |  |   | $      | 3,205 | 
|                                           |                                     |   |                    |       |                  |   |        |       |      |   |        |       |  |   |        |      

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 2002 Compared to Second Quarter 2001

The Company reported earnings from continuing operations of $4.2 million
in the second quarter of 2002. Net earnings to common stockholders were $2.1
million in the second quarter of 2002 compared to $2.2 million in the second
quarter of 2001. On a per share basis, basic and diluted net earnings
attributable to common stockholders were $.25 in the second quarter of 2002
compared to $.27 in the second quarter of 2001.

Portfolio Asset Acquisition and Resolution

The operating contribution of $6.0 million in the second quarter of 2002
increased by $4.6 million, or 334%, compared with the second quarter of 2001
primarily a result of increased servicing fee revenues, a gain on sale of
equity investments and reduced provisions for loan and impairment losses.
Commercial Corp. purchased $52 million of Portfolio Assets during the second
quarter of 2002 through the Acquisition Partnerships, compared to $33 million
in acquisitions in the second quarter of 2001. Commercial Corp.s investment in
these acquisitions was $3.7 million and $4.9 million in the second quarter of
2002 and 2001, respectively. There were no purchases of wholly owned Portfolio
Assets during either period. Commercial Corp.s quarter end investment in
wholly owned Portfolio Assets decreased to $11.6 million from $23.0 million at
June 30, 2002 and 2001, respectively, with regular collections from
those Portfolios and provisions recorded in 2001.



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Servicing fee revenues.Servicing fee revenues increased by 30% to $4.2
million in the second quarter of 2002 from $3.2 million in the second quarter
of 2001 primarily as a result of increased collections in domestic Acquisition
Partnerships. In June 2002, three domestic Acquisition Partnerships completed
a bulk loan sale of performing and non-performing Portfolio Assets with a
carrying value of $59 million for proceeds of $71 million. As a result of the
sale, the Company recorded servicing fee revenues of $.9 million.

Gain on resolution of Portfolio Assets.Proceeds from the resolution of
Portfolio Assets increased by 22% to $1.7 million in the second quarter of 2002
from $1.4 million in the second quarter of 2001. The net gain on resolution of
Portfolio Assets increased from $.2 million in the second quarter of 2001 to
$.5 million in the second quarter of 2002. The weighted average gross profit
percentage on the resolution of Portfolio Assets in the second quarter of 2002
was 27% as compared to 16% in the second quarter of 2001.

Equity in earnings of investments.Commercial Corp.s equity in earnings
of Acquisition Partnerships decreased 10% to $3.2 million in the second quarter
of 2002 compared to $3.5 million in the second quarter of 2001. The Acquisition
Partnerships reflected a net loss of $10.2 million in the second quarter of
2002 compared to net earnings of $16.6 million in the second quarter of 2001.
The net loss in the second quarter of 2002 resulted from approximately $16
million of foreign currency losses recorded in certain Mexico Partnerships.
The exchange rate for the Peso increased from 9.0 at March 31, 2002 to 10.0 at
June 30, 2002. As a result of these losses, the Company recorded equity in
losses from the Mexico Acquisition Partnerships of $1.9 million for the second
quarter of 2002 of which $1.1 was attributable to the foreign currency losses.
Equity earnings in domestic Acquisition Partnerships increased $2.2 million or
92% due to the bulk loan sale completed by three domestic Acquisition
Partnerships. This sale generated a combined net gain on resolution of
Portfolio Assets of $12.0 million. See Note 7 of the Companys consolidated
financial statements for a comparison of earnings of the Acquisition
Partnerships and equity in earnings of the Acquisition Partnerships summarized
by geographic region. Equity in earnings of servicing entities was flat year
to year.

Interest income.Interest income was flat from the second quarter of 2001
to the second quarter of 2002.

Gain on sale of interest in equity investments.In May 2002, the
Company sold its investment in eight French Acquisition Partnerships for $3.4
million resulting in a gain of $1.8 million.

Operating expenses.Operating expenses decreased $1.4 million or 19%,
primarily as a result of decreased provisions for loan and impairment losses.

Interest and fees on notes payable decreased $.3 million or 28% due to
average debt for the quarter decreasing to $34.9 million in the second quarter
of 2002 from $46.0 million in the second quarter of 2001. Also, the average
cost of borrowing decreased from 9.36% in the second quarter of 2001 to 8.92%
in the second quarter of 2002.

Salaries and benefits increased to $2.7 million, or 33%, due to increased
servicing personnel in Mexico. Total personnel within the Portfolio Asset
acquisition and resolution segment increased from 114 to 160 at June 30, 2001
and 2002, respectively, with the personnel in Mexico increasing from 33 to 75.

The provision for loan and impairment losses totaled $1.5 million in the
second quarter of 2001 and is primarily attributed to write-downs of $1.1
million in estimated future collections of two non-performing Portfolios. Also,
the Company recorded permanent valuation impairments of $.4 million on one real
estate Portfolio.

In the second quarter of 2001, provisions of $1.1 million in two
non-performing Portfolios were recorded as estimated future collections were
reduced primarily due to the Company accepting discounted payoffs in lieu of
extended payouts. Minimal provisions were recorded in the second quarter of
2002 for performing or non-performing Portfolios as the economic conditions
during that period did not negatively impact the Companys expectation of
future cash flows. Impairment on both performing and non-performing Portfolio
Assets is measured based on the present value of the expected future cash flows
in the aggregate discounted at the loans risk adjusted rates, which
approximates the effective interest rates, or the fair value of the collateral,
less estimated selling costs, if any loans are collateral dependent and
foreclosure is probable. The expected future cash flows are reviewed monthly
and adjusted as deemed necessary. Changes in various factors including, but
not limited to, economic conditions, deterioration of collateral values,
deterioration in the borrowers financial condition and other conditions
described in the risk factors discussed later in this document, could have a
negative impact on the estimated future cash flows of the Portfolio.
Significant decreases in estimated future cash flows can reduce a Portfolios
present value to below the Companys carrying value of that Portfolio, causing
impairment.



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##### Table of Contents



The Company recorded permanent valuation impairments of $.4 million in the
second quarter of 2001 on one real estate Portfolio due to deterioration of
property values and market conditions, as well as additional expected disposal
costs. For real estate Portfolios, the evaluation of impairment is determined
quarterly based on the review of the estimated future cash receipts less
estimated costs to sell, which represents the net realizable value of the real
estate Portfolio. A valuation allowance is established for any impairment
identified through provisions charged to operations in the period the
impairment is identified.

Impairment on loans receivable from Acquisition Partnerships is measured
quarterly based on the present value of the expected future cash flows
discounted at the loans contractual rates. Principally all of the loans
receivable are from certain Acquisition Partnerships located in Mexico. The
cash flows used to pay down these loans come from collections received on
non-performing Portfolio Assets owned by the Acquisition Partnerships. The
estimated future cashflows of Portfolio Assets owned by Acquisition
Partnerships are reviewed in a similar manner to Portfolio Assets owned by the
Company. No impairment was required in the second quarter of 2002 or 2001 as
the estimated future cash flows from the underlying Portfolio Assets of the
Acquisition Partnerships supported the pay-down of the loans receivable from
Acquisition Partnerships.

Occupancy, data processing and other expenses decreased $.3 million or 10%
due primarily to certain subservice fees incurred on the Acquisition
Partnerships in Mexico, which were paid by the Company in the second quarter of
2001. In the second quarter of 2002, these subservice fees are paid directly
by the Acquisition Partnerships.

Consumer Lending

The operating contribution for the second quarter of 2002 was $.4 million
compared to $5.1 million during the second quarter of 2001 (including a $.3
million cumulative effect of accounting change). In the second quarter of
2001, the contribution resulted primarily from equity earnings of $6.7 million
from Drive, which completed a securitization of $286 million in retail
installment contracts for a net gain of $26.1 million. Drive did not complete
a securitization during the second quarter of 2002.

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 31% to
$.8 million in the second quarter of 2002 from $1.2 million in the second
quarter of 2001 as a result of reduced interest rates. Other corporate
overhead expenses were flat from year to year.

Income taxes.Federal income taxes are provided at a 35% rate applied to
taxable income or loss and are offset by NOLs that the Company believes are
available. The tax benefit of the NOLs is recorded in the period during which
the benefit is realized. The Company recorded no deferred tax provision in the
second quarters of 2002 and 2001.

Discontinued Operations.The Company recorded a provision of $1.5 million
in the second quarter of 2002 and $1.0 million in 2001 for additional losses
from discontinued operations. The additional provisions primarily relate to a
decrease in the estimated future gross cash receipts on residual interests in
securitizations. These securities are in run-off, and the Company is
contractually obligated to service these assets. The assumptions used in the
valuation model consider both industry as well as the Companys historical
experience. The decrease in the estimated future gross cash receipts is a
result of the actual losses exceeding the losses projected by the valuation
model. As the securities run off, assumptions are reviewed in light of
historical evidence in revising the prospective results of the model. These
revised assumptions could potentially result in either an increase or decrease
in the estimated cash receipts. An additional provision is booked based on the
output of the valuation model if deemed necessary.

First Six Months of 2002 Compared to First Six Months of 2001

The Company reported earnings from continuing operations of $3.4 million
in the first six months of 2002. Net earnings to common stockholders were $84
thousand in the first six months of 2002 compared to $3.2 million in the first
six months of 2001. On a per share basis, basic and diluted net earnings
attributable to common stockholders were $.01 in 2002 compared to $.38 for the
first six months of 2001.



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Portfolio Asset Acquisition and Resolution

The operating contribution of $8.3 million in the first six months of 2002
increased by $1.2 million, or 17%, compared with the first six months of 2001.
Commercial Corp. purchased $77 million of Portfolio Assets during 2002 through
the Acquisition Partnerships, compared to $120 million in acquisitions in the
first six months of 2001. Commercial Corp.s investment in these acquisitions
was $9.1 million and $13.3 million in the first six months of 2002 and 2001,
respectively. There were no purchases of wholly owned Portfolio Assets during
either period. Commercial Corp.s quarter end investment in wholly owned
Portfolio Assets decreased to $11.6 million in the second quarter of 2002 from
$23.0 million in the second quarter of 2001 with regular collections from those
Portfolios.

Servicing fee revenues.Servicing fee revenues increased by 13% to $6.4
million in 2002 from $5.7 million in 2001 primarily as a result of increased
collections in domestic Acquisition Partnerships. In June 2002, three domestic
Acquisition Partnerships completed a bulk loan sale of performing and
non-performing Portfolio Assets with a carrying value of $59 million for
proceeds of $71 million. As a result of the sale, the Company recorded
servicing fee revenues of $.9 million.

Gain on resolution of Portfolio Assets.The net gain on resolution of
Portfolio Assets increased by 62% to $.7 million in 2002 from $.4 million in
2001. Proceeds from the resolution of Portfolio Assets decreased by 26% to
$2.4 million in 2002 from $3.2 million in 2001. The weighted average gross
profit percentage on the resolution of Portfolio Assets in 2002 was 29% as
compared to 13% in 2001.

Equity in earnings of investments.Commercial Corp.s equity in earnings
of Acquisition Partnerships decreased 16% to $5.6 million in the first six
months of 2002 compared to $6.7 million in the first six months of 2001. The
Acquisition Partnerships reflected a net loss of $1.9 million in the first six
months of 2002 compared to net earnings of $11.5 million in the first six
months of 2001. The net loss in the first six months of 2002 resulted from
approximately $10 million of foreign currency losses recorded in certain Mexico
Partnerships. The exchange rate for the Peso increased from 9.1 at December
31, 2001 to 10.0 at June 30, 2002. As a result of these losses, the Company
recorded equity in losses from the Mexico Acquisition Partnerships of $1.9
million for the first six months of 2002 of which $1.1 million was attributable
to foreign currency losses. Equity earnings in domestic Acquisition
Partnerships increased $1.0 million or 18% primarily due to the bulk loan sale
completed by three domestic Acquisition Partnerships. This sale generated a
combined net gain on resolution of Portfolio Assets of $12.0 million. See Note
7 of the Companys consolidated financial statements for a comparison of
earnings of the Acquisition Partnerships and equity in earnings of the
Acquisition Partnerships summarized by geographic region. Equity in earnings
of servicing entities was $.7 million in 2002, as compared to $1.0 million in
the first six months of 2001.

Interest income.Interest income was flat from the first six months of
2001 to the first six months of 2002.

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

Operating expenses.Operating expenses decreased $2.4 million or 19%,
primarily as a result of provisions for impairment on Portfolio Assets recorded
in the first six months of 2001.

Interest and fees on notes payable decreased $.6 million or 29% due to
average debt decreasing to $36.1 million in the first six months of 2002 from
$43.5 million in the first six months of 2001. Also, the average cost of
borrowing decreased from 9.71% in the first six months of 2001 to 8.34% in the
first six months of 2002.

Salaries and benefits increased to $4.7 million, or 32%, due to increased
servicing personnel in Mexico. Total personnel within the Portfolio Asset
acquisition and resolution segment increased from 114 to 160 at June 30, 2001
and 2002, respectively, with the personnel in Mexico increasing from 33 to 75.

The provision for loan and impairment losses totaled $2.1 million in the
first six months of 2001 and is primarily attributed to write-downs of $1.1
million and $.5 million in estimated future collections of two non-performing
Portfolios and one performing Portfolio, respectively. Also, the Company
recorded permanent valuation impairments of $.4 million on one real estate
Portfolio.

In the first six months of 2001, provisions of $1.1 million in two
non-performing Portfolios and $.5 million in one performing Portfolio were
recorded as estimated future collections were reduced primarily due to the
Company accepting discounted payoffs in lieu of extended payouts. Minimal
provisions were recorded in the second quarter of 2002 for performing or
non-performing Portfolios as the economic conditions during that period did not
negatively impact the Companys expectation of future cash flows.



18



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The Company recorded permanent valuation impairments of $.4 million in the
first six months of 2001 on one real estate Portfolio due to deterioration of
property values and market conditions, as well as additional expected disposal
costs.

Occupancy, data processing and other expenses decreased $1.0 million or
18% due primarily to certain subservice fees incurred on the Acquisition
Partnerships in Mexico, which were paid by the Company in the first six months
of 2001. In the first six months of 2002, these subservice fees are paid
directly by the Acquisition Partnerships.

Consumer Lending

The operating loss for the first six months of 2002 was $.7 million
compared to earnings of $3.6 million during the first six months of 2001
(including a $.3 million cumulative effect of accounting change). In 2001, the
contribution resulted primarily from equity earnings of $4.8 million from
Drive, which completed a securitization of $286 million in retail installment
contracts for a net gain of $26.1 million. Drive did not complete a
securitization during 2002.

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 37% to
$1.7 million in the first six months of 2002 from $2.6 million in the first six
months of 2001 as a result of reduced interest rates. Other corporate overhead
expenses were flat from period to period.

Income taxes.Federal income taxes are provided at a 35% rate applied to
taxable income or loss and are offset by NOLs that the Company believes are
available. The tax benefit of the NOLs is recorded in the period during which
the benefit is realized. The Company recorded no deferred tax provision in the
first six months of 2002 and 2001.

Discontinued Operations.The Company recorded a provision of $2.0 million
in the first six months of 2002 and $1.0 million in 2001 for additional losses
from discontinued operations. The additional provisions primarily relate to a
decrease in the estimated future gross cash receipts on residual interests in
securitizations. These securities are in run-off, and the Company is
contractually obligated to service these assets. The assumptions used in the
valuation model consider both industry as well as the Companys historical
experience. The decrease in the estimated future gross cash receipts is a
result of the actual losses exceeding the losses projected by the valuation
model. As the securities run off, assumptions are reviewed in light of
historical evidence in revising the prospective results of the model. These
revised assumptions could potentially result in either an increase or decrease
in the estimated cash receipts. An additional provision is booked based on the
output of the valuation model if deemed necessary.

Proposed Recapitalization

In conjunction with a proposed recapitalization of FirstCity, the Company
filed a registration statement in June 2002 with the Securities and Exchange
Commission for a proposed exchange offer of its outstanding shares of New
Preferred Stock.

Upon the commencement of the exchange offer, FirstCity will offer to
exchange each share of its New Preferred Stock for, at the holders election,
either:



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

FirstCity anticipates commencing the exchange offer promptly after its
registration statement is declared effective by the Securities and Exchange
Commission.

The exchange offer is a part of a comprehensive recapitalization of
FirstCity. Upon its successful completion, the recapitalization will consist
of the following:



19



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| |  | the sale of a 20% interest in Drive Financial Services LP, to BoS(USA), a wholly-owned subsidiary of Bank of Scotland, for
$16 million. This sale will provide the cash portion of the consideration of the exchange offer and will leave FirstCity
with an 11% interest in Drive after the sale,                                                                                                          
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the exchange offer,                                                                                                                                                                                                                                                                                                                                                                                        
| 
| |  | the use of the remainder of the cash proceeds from the sale of the 20% interest in Drive to reduce FirstCitys debt owed to
Bank of Scotland,                                                                                                                                                                                                                                                              
| 
| |  | FirstCitys purchase of the 20% interest in FirstCitys indirect subsidiary, FirstCity Holdings Corporation, held by the
FCHC Group,                                                                                                                                                                                                                                                                       
| 
| |  | the refinancing of the remainder of FirstCitys debt facilities with Bank of Scotland and BoS(USA), with a total commitment
by Bank of Scotland and BoS(USA) of up to $47 million, consisting of (a) a cash flow note of up to $35 million and (b) a
$12 million subordinated note,                                                                                                                        
| 
| |  | Bank of Scotlands providing new financing to FirstCity, with a total commitment by Bank of Scotland of up to $60 million.
The new financing will consist of (a) a $5 million revolving credit loan and (b) an acquisition term loan in an amount up
to $55 million. The total commitment by Bank of Scotland and BoS(USA) for the refinancing combined with the new financing
will not exceed $77 million,
| 
| |  | the release of FirstCity from its guaranty of $4 million of Drives indebtedness to BoS(USA), and                                                                                                                                                                                                                                                                                                          
| 
| |  | the cancellation of BoS(USA)s existing option to acquire a warrant to purchase 1,975,000 shares of FirstCitys non-voting
common stock.                                                                                                                                                                                                                                                                   

The successful completion of the exchange offer is a condition to all of
the items listed above.

The exchange offer is subject to several conditions. The most significant
conditions include:



| | (1) |  | the closing of the sale of a 20% interest in Drive to BoS(USA) (which
currently owns a 49% interest in Drive) for $16 million by FirstCity,
which will provide the cash proceeds of the exchange offer, and the
other transactions contemplated by the recapitalization,                                                                                           
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | the tender of at least 80% of the outstanding shares of New Preferred
Stock,                                                                                                                                                                                                                                                                                       
|
| | (3) |  | the effectiveness of the registration statement relating to the
shares of common stock of FirstCity to be issued in connection with the
exchange offer, and                                                                                                                                                                                                        
|
| | (4) |  | the lack of any change or development involving a prospective change
in or affecting FirstCitys business or financial affairs that, in the
reasonable judgment of FirstCitys board of directors, would or might
prohibit, restrict or delay consummation of the exchange offer or
materially impair the contemplated benefits to FirstCity of the exchange
offer.

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

The board of directors of FirstCity believes that, if successfully
completed, the recapitalization will:



| |  | provide additional financing to FirstCity, enhance FirstCitys
liquidity and permit it to pursue the acquisition of additional
Portfolio Assets,                                                                                                               
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | enhance FirstCitys financial position through the refinancing of
FirstCitys debt facilities with Bank of Scotland and BoS(USA)                                                                                                                               
| 
| |  | increase the equity of FirstCity through the elimination (or
substantial reduction) of the New Preferred Stock, including accrued
dividends, from FirstCitys financial statements and the release of
FirstCitys guaranty of Drives indebtedness to BoS(USA),



20



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##### Table of Contents





| |  | substantially eliminate FirstCitys obligation to redeem the New
Preferred Stock at maturity and permit existing holders of the New
Preferred Stock the opportunity to participate in the future growth of
FirstCity through ownership of FirstCitys common stock,
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | align the FCHC Groups interests more closely with those of the
holders of FirstCitys common stock and permit FirstCity to retain all
of the returns associated with FirstCity Holdings, and                                                                      
| 
| |  | preserve FirstCitys NOLs.                                                                                                                                                                                                                                         

A registration statement relating to the shares of common stock of
FirstCity to be issued in connection with the exchange offer has been filed
with the Securities and Exchange Commission but has not yet become effective.
Once the registration statement is declared effective the exchange offer will
commence and appropriate documents will be mailed to holders of the New
Preferred Stock.

Portfolio Asset Acquisition and Resolution

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

|                      |  |          |         |            |  |   |        | 
|--------------------- |  | -------- | ------- | ---------- |  | - | ------ | 
|                      |  | Purchase |         | FirstCity 
|                      |  | Price    |         | Investment
|                      |  |          |         |           
|First Six Months 2002 |  | $        | 76,648  |            |  | $ | 9,113  | 
|Total 2001            |  |          | 224,927 |            |  |   | 24,319 | 
|Total 2000            |  |          | 394,927 |            |  |   | 22,140 | 
|Total 1999            |  |          | 210,799 |            |  |   | 11,203 | 
|Total 1998            |  |          | 139,691 |            |  |   | 28,478 | 

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

Analysis of Selected Revenues and Expenses
Portfolio Asset Acquisition and Resolution

|                                                   |                                                              |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |        |         |        |  
|-------------------------------------------------- | ------------------------------------------------------------ | ----------------------- | ----- | ------ | ------------------ | ------ | ---------------- | ------ | ------ | ------ | ----- | ------ | ------- | ------ | ----- | ------ | ------- | ------ | -
|                                                   |                                                              |                         |       |        | Three Months Ended |        | Six Months Ended
|                                                   |                                                              |                         |       |        | June 30,           |        | June 30,        
|                                                   |                                                              |                         |       |        |                    |        |                 
|                                                   |                                                              |                         |       |        | 2002               |        | 2001             |        | 2002   |        | 2001 
|                                                   |                                                              |                         |       |        |                    |        |                  |        |        |        |      
|Income from Portfolio Assets and Loans
Receivable: |                                                              |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |       
|                                                   | Average investment in Portfolio Assets and loans
receivable: |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |        |        
|                                                   |                                                              | Domestic                |       | $      | 13,662             |        |                  | $      | 26,643 |        |       | $      | 14,167  |        |       | $      | 28,474  |       
|                                                   |                                                              | Mexico                  |       |        | 21,178             |        |                  |        | 16,746 |        |       |        | 20,022  |        |       |        | 14,893  |       
|                                                   |                                                              |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |       
|                                                   |                                                              |                         | Total |        | $                  | 34,840 |                  |        | $      | 43,389 |       |        | $       | 34,189 |       |        | $       | 43,367 |  
|                                                   | Income from Portfolio Assets and loans receivable:           |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |        |        
|                                                   |                                                              | Domestic                |       | $      | 748                |        |                  | $      | 724    |        |       | $      | 1,284   |        |       | $      | 1,469   |       
|                                                   |                                                              | Mexico                  |       |        | 1,021              |        |                  |        | 840    |        |       |        | 2,006   |        |       |        | 1,481   |       
|                                                   |                                                              |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |       
|                                                   |                                                              |                         | Total |        | $                  | 1,769  |                  |        | $      | 1,564  |       |        | $       | 3,290  |       |        | $       | 2,950  |  
|                                                   |                                                              |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |        |         |       
|                                                   | Average return (annualized):                                 |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |        |        
|                                                   |                                                              | Domestic                |       |        | 21.90              | %      |                  |        | 10.87  | %      |       |        | 18.13   | %      |       |        | 10.32   | %     
|                                                   |                                                              | Mexico                  |       |        | 19.28              | %      |                  |        | 20.06  | %      |       |        | 20.04   | %      |       |        | 19.89   | %     
|                                                   |                                                              |                         | Total |        |                    | 20.31  | %                |        |        | 14.42  | %     |        |         | 19.25  | %     |        |         | 13.60  | %
|Servicing fee revenues:                            |                                                              |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |       
|                                                   | Domestic partnerships:                                       |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |        |        
|                                                   |                                                              | $ Collected             |       | $      | 104,388            |        |                  | $      | 31,999 |        |       | $      | 136,211 |        |       | $      | 65,942  |       
|                                                   |                                                              | Servicing fee revenue   |       |        | 2,333              |        |                  |        | 952    |        |       |        | 3,150   |        |       |        | 1,839   |       
|                                                   |                                                              | Average servicing fee % |       |        | 2.23               | %      |                  |        | 2.98   | %      |       |        | 2.31    | %      |       |        | 2.79    | %     
|                                                   | Mexico partnerships:                                         |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |        |        
|                                                   |                                                              | $ Collected             |       | $      | 29,156             |        |                  | $      | 28,512 |        |       | $      | 48,350  |        |       | $      | 64,421  |       
|                                                   |                                                              | Servicing fee revenue   |       |        | 1,632              |        |                  |        | 2,077  |        |       |        | 2,986   |        |       |        | 3,421   |       
|                                                   |                                                              | Average servicing fee % |       |        | 5.60               | %      |                  |        | 7.28   | %      |       |        | 6.18    | %      |       |        | 5.31    | %     
|                                                   | Incentive service fees                                       |                         | $     | 205    |                    |        | $                | 175    |        |        | $     | 256    |         |        | $     | 409    |        
|                                                   | Total Service Fees:                                          |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |        |        
|                                                   |                                                              | $ Collected             |       | $      | 133,544            |        |                  | $      | 60,511 |        |       | $      | 184,561 |        |       | $      | 130,363 |       
|                                                   |                                                              | Servicing fee revenue   |       |        | 4,170              |        |                  |        | 3,204  |        |       |        | 6,392   |        |       |        | 5,669   |       
|                                                   |                                                              | Average servicing fee % |       |        | 3.12               | %      |                  |        | 5.29   | %      |       |        | 3.46    | %      |       |        | 4.35    | %     
|Personnel:                                         |                                                              |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |       
|Personnel expenses                                 |                                                              | $                       | 2,676 |        |                    | $      | 2,014            |        |        | $      | 4,677 |        |         | $      | 3,534 |       
|                                                   | Number of personnel (at period end):                         |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |        |        
|                                                   |                                                              | Production              |       |        | 25                 |        |                  |        | 27     |        |       |        |         |        |       |        |         |       
|                                                   |                                                              | Servicing               |       |        | 135                |        |                  |        | 87     |        |       |        |         |        |       |        |         |       
|Interest expense:                                  |                                                              |                         |       |        |                    |        |                  |        |        |        |       |        |         |        |       |       
|                                                   | Average debt                                                 |                         | $     | 34,880 |                    |        | $                | 45,985 |        |        | $     | 36,057 |         |        | $     | 43,484 |        
|                                                   | Interest expense                                             |                         |       | 778    |                    |        |                  | 1,076  |        |        |       | 1,504  |         |        |       | 2,111  |        
|                                                   | Average cost (annualized)                                    |                         |       | 8.92   | %                  |        |                  | 9.36   | %      |        |       | 8.34   | %       |        |       | 9.71   | %      



21



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##### Table of Contents



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,        
|                                               |                                                           |                              |                      |        |                    |         |                 
|                                               |                                                           |                              |                      |        | 2002               |         | 2001             |        | 2002    |        | 2001 
|                                               |                                                           |                              |                      |        |                    |         |                  |        |         |        |      
|Revenues:                                      |                                                           |                              |                      |        |                    |         |                  |        |         |        |       |        |        |        |       |       
|                                               | Gain on resolution of Portfolio Assets                    |                              | $                    | 33,906 |                    |         | $                | 25,029 |         |        | $     | 52,683 |        |        | $     | 55,287 |       
|                                               | Gross profit percentage on resolution
of Portfolio Assets |                              |                      | 25.63  | %                  |         |                  | 43.26  | %       |        |       | 30.17  | %      |        |       | 46.21  | %     
|                                               | Interest income                                           |                              | $                    | 4,185  |                    |         | $                | 7,665  |         |        | $     | 9,262  |        |        | $     | 12,692 |       
|                                               | Other income                                              |                              |                      | 619    |                    |         |                  | 939    |         |        |       | 1,230  |        |        |       | 1,718  |       
|Interest expense (1):                          |                                                           |                              |                      |        |                    |         |                  |        |         |        |       |        |        |        |       |       
|                                               | Interest expense                                          |                              | $                    | 16,623 |                    |         | $                | 16,774 |         |        | $     | 33,799 |        |        | $     | 35,224 |       
|                                               | Average cost (annualized)                                 |                              |                      | 15.35  | %                  |         |                  | 14.17  | %       |        |       | 15.44  | %      |        |       | 15.02  | %     
|Other expenses:                                |                                                           |                              |                      |        |                    |         |                  |        |         |        |       |        |        |        |       |       
|                                               | Service fees                                              |                              |                      | 7,487  |                    |         |                  | 3,401  |         |        |       | 11,072 |        |        |       | 6,319  |       
|                                               | Other operating costs                                     |                              |                      | 4,519  |                    |         |                  | 4,461  |         |        |       | 7,542  |        |        |       | 9,550  |       
|                                               |                                                           | Income taxes                 |                      |        | 4,206              |         |                  |        | 6,847   |        |       |        | 2,627  |        |       |        | 14,492 |       
|                                               |                                                           | Foreign currency loss (gain) |                      |        | 16,080             |         |                  |        | (14,462 | )      |       |        | 10,020 |        |       |        | (7,398 | )     
|                                               |                                                           |                              |                      |        |                    |         |                  |        |         |        |       |        |        |        |       |       
|                                               |                                                           |                              | Total other expenses |        |                    | 32,292  |                  |        |         | 247    |       |        |        | 31,261 |       |        |        | 22,963 | 
|                                               |                                                           |                              |                      |        |                    |         |                  |        |         |        |       |        |        |        |       |       
|                                               |                                                           |                              | Net earnings (loss)  |        | $                  | (10,205 | )                |        | $       | 16,612 |       |        | $      | (1,885 | )     |        | $      | 11,510 | 
|                                               |                                                           |                              |                      |        |                    |         |                  |        |         |        |       |        |        |        |       |        |       
|Equity in earnings of Acquisition
Partnerships |                                                           | $                            | 3,181                |        |                    | $       | 3,542            |        |         | $      | 5,582 |        |        | $      | 6,667 |       
|Equity in earnings of Servicing Entities       |                                                           |                              | 261                  |        |                    |         | 157              |        |         |        | 680   |        |        |        | 986   |       
|                                               |                                                           |                              |                      |        |                    |         |                  |        |         |        |       |        |        |        |       |       
|                                               |                                                           | $                            | 3,442                |        |                    | $       | 3,699            |        |         | $      | 6,262 |        |        | $      | 7,653 |       
|                                               |                                                           |                              |                      |        |                    |         |                  |        |         |        |       |        |        |        |       |        |       

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Interest expense includes interest on loans to the Acquisition
Partnerships located in Mexico from affiliates of the investor groups. The
rates on these loans range from 19% to 20%. The average cost on debt
excluding the Mexican Acquisition Partnerships was 6.86% and 8.67% for the
three months ended June 30, 2002 and 2001, respectively and 6.38% and
8.37% for the six months ended June 30, 2002 and 2001, respectively.

Consumer Lending

The following table presents selected information regarding consumer
lending:

Analysis of Selected Data
Consumer Lending

|                                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |        |   |   |         |        |  
|---------------------------------------------------------------- | ----------------------------------- | - | ------------------ | ------- | ---------------- | - | ------- | ------- | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                 |                                     |   | Three Months Ended |         | Six Months Ended
|                                                                 |                                     |   | June 30,           |         | June 30,        
|                                                                 |                                     |   |                    |         |                 
|                                                                 |                                     |   | 2002               |         | 2001             |   | 2002    |         | 2001
|                                                                 |                                     |   |                    |         |                  |   |         |         |     
|Retail installment contracts acquired                            |                                     | $ | 100,780            |         |                  | $ | 107,890 |         |      | $ | 214,181 |        |   | $ | 230,444 |       
|Origination characteristics                                     
|                                                                 | Face value to wholesale value       |   |                    | 99.56   | %                |   |         | 100.03  | %    |   |         | 100.46 | % |   |         | 100.60 | %
|                                                                 | Weighted average coupon             |   |                    | 21.18   | %                |   |         | 20.76   | %    |   |         | 21.06  | % |   |         | 20.58  | %
|                                                                 | Purchase discount (% of face value) |   |                    | 15.40   | %                |   |         | 15.14   | %    |   |         | 15.59  | % |   |         | 15.23  | %
|Servicing portfolio                                             
|                                                                 | Owned                               |   | $                  | 77,011  |                  |   | $       | 55,718  |      |   |         |        |   |   |         |        |  
|                                                                 | Securitized                         |   |                    | 560,218 |                  |   |         | 439,809 |      |   |         |        |   |   |         |        |  
|                                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |        |   |   |         |       
|                                                                 | Total                               |   | $                  | 637,229 |                  |   | $       | 495,527 |      |   |         |        |   |   |         |        |  
|                                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |        |   |   |         |       
|                                                                 | Owned  number of contracts         |   |                    | 7,428   |                  |   |         | 4,375   |      |   |         |        |   |   |         |        |  
|                                                                 | Securitized  number of contracts   |   |                    | 49,007  |                  |   |         | 38,868  |      |   |         |        |   |   |         |        |  
|                                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |        |   |   |         |       
|                                                                 | Total number of contracts           |   |                    | 56,435  |                  |   |         | 43,243  |      |   |         |        |   |   |         |        |  
|                                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |        |   |   |         |       
|Defaults (% of total loans acquired)                             |                                     |   | 17.70              | %       |                  |   | 14.70   | %       |      |   |         |        |   |   |         |       
|Loss on defaults (% of original loan
balance at time of default) |                                     |   | 8.43               | %       |                  |   | 6.71    | %       |      |   |         |        |   |   |         |       
|Delinquencies (% of total serviced
portfolio)                    |                                     |   | 6.76               | %       |                  |   | 6.50    | %       |      |   |         |        |   |   |         |       



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Provision for Income Taxes

The Company has substantial NOLs, which can be used to offset the tax
liability associated with the Companys pre-tax earnings until the earlier of
the expiration or utilization of such NOLs. The Company accounts for the
benefit of the NOLs by recording the benefit as an asset and then establishing
a valuation allowance to value the net deferred tax asset at a level, which
more likely than not, will be realized. Realization is determined based on
managements expectation of generating sufficient taxable income in a look
forward period over the next four years. The ultimate realization of the
resulting net deferred tax asset is dependent upon generating sufficient
taxable income from its continuing operations prior to expiration of the NOLs.
Although realization is not assured, management believes it is more likely than
not that all of the recorded deferred tax asset, net of the allowance, will be
realized. The amount of the deferred tax asset considered realizable, however,
could be adjusted in the future if estimates of future taxable income during
the carryforward period change. The ability of the Company to realize the
deferred tax asset is periodically reviewed and the valuation allowance is
adjusted accordingly.

Liquidity and Capital Resources

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

BoS(USA) has an option to acquire a warrant for 1,975,000 shares of the
Companys non-voting Common Stock; the option can be exercised after October
31, 2002 if the Companys $12 million Term Loan B owed to BoS(USA) and Bank of
Scotland remains outstanding, but not prior to that date. The strike price is
$2.3125 per share. In the event that prior to October 31, 2002 the Company
either (a) refinances the $12 million Term Loan B with subordinated debt, or
(b) pays off the balance of Term Loan B from proceeds of an equity offering,
then the option to acquire a warrant for 1,975,000 shares of non-voting Common
Stock will terminate. BoS(USA) and the Company have entered into several
amendments to this option to acquire a warrant
for 1,975,000 shares extending the exercise date from its initial
exercise date of August 31, 2001. The most recent amendment extended the date from June 30, 2002 to
October 31, 2002 to allow the Company additional time to pursue the proposed
recapitalization described above. Under the terms of the proposed
recapitalization the option would be cancelled.

BoS(USA) also has a warrant to purchase 425,000 shares of the Companys
voting Common Stock at $2.3125 per share. In the event that Term Loan B is
terminated prior to October 31, 2002 through a transaction involving the
issuance of warrants, BoS(USA) is entitled to additional warrants in connection
with this existing warrant for 425,000 shares to retain its ability to acquire
approximately 4.86% of the Companys voting Common Stock. BoS(USA) and the
Company have also amended the warrant to extend the exercise date
from its initial exercise date of August 31, 2001 to correspond to the extension of the initial exercise date of the
option described in the preceding paragraph. The most recent amendment
extended the date from June 30, 2002 to October 31, 2002, consistent with
the amended exercise date of the option as discussed above.

Currently, the Company has approximately 1.2 million shares of New
Preferred Stock outstanding with accrued and unpaid dividends of approximately
$7.7 million. The Companys Term Loan B, which resulted from the corporate debt
restructure completed in August 2000, restricts the payment of dividends on
these shares until it is repaid in full. Given the continued high debt levels
of the Company, and managements priority of assuring adequate levels of
liquidity, the Company does not anticipate that dividends on



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shares of New Preferred Stock will be paid in 2002. The Company believes
that the proposed recapitalization plan described above will, if implemented,
substantially reduce the number of outstanding shares of New Preferred Stock
and the corresponding accrued dividends on the New Preferred Stock, along with
eliminating the option of BoS(USA) to acquire a warrant to purchase 1,975,000
shares.

The Portfolio Asset acquisition and resolution group of the Company has a
$35 million loan facility (increased from $30 million in August 2002) with CFSC
Capital Corp. XXX, a subsidiary of Cargill. This facility is being used
exclusively to provide equity in new Portfolio acquisitions in partnerships
with Cargill and its affiliates. At June 30, 2002, approximately $25 million
was outstanding under this facility.

Drive has a warehouse line of credit with BoS(USA), which provides
borrowings up to $200 million (increased from $150 million in May 2002).
Drives obligation under this arrangement at June 30, 2002 was $172 million.
The debt is secured by Drives retail installment contracts and has been
extended to July 2003.

In September 2001, Drive entered into a warehouse line of credit agreement
with Variable Funding Capital Corporation, a subsidiary of First Union National
Bank, which provides borrowings up to $100 million. Drives obligation under
the arrangement at June 30, 2002 was $69 million. The debt is secured by
Drives retail installment contracts and terminates on September 5, 2002.
FirstCity has not guaranteed and is not otherwise liable for this indebtedness.

The Company and each of its major operating subsidiaries have entered into
one or more credit facilities to finance their respective operations. Each of
the operating subsidiary credit facilities is nonrecourse to the Company. The
Company has agreed to indemnify BoS(USA) for up to 31% of losses, which might
arise as a result of agreements BoS(USA) executed as a sponsor in connection
with the securitizations completed by Drive. The Company also agreed to provide
support in connection with securitizations by Consumer Corp. and Drive prior to
the acquisition by BoS(USA) of the interest in Drive in August 2000. The
Company has also provided a guaranty limited to a maximum amount of up to $4
million of a $60 million term loan from BoS(USA) to Drive ($21 million
outstanding balance as of June 30, 2002).

On April 29, 2002, BoS(USA) provided a commitment to fund up to $5 million
on a Term Loan E to the Company to allow the Company to purchase existing debt
under a term credit facility at a purchase price not to exceed 85% of the
unpaid principal balance. Term Loan E, secured by assets of the Company,
provides for an interest rate of LIBOR plus 6% and matures on March 31, 2004.
At June 30, 2002, advances of $2.8 million have been made on this loan and used
to purchase existing debt with a balance of $3.5 million, resulting in a gain
of $.7 million on early extinguishment of debt included in other
income in the
consolidated statements of operations. Bosque Asset Corp., a wholly-owned
subsidiary of FirstCity (Bosque), issued the original notes pursuant to a
Note Agreement dated June 6, 1997 in connection with its acquisition of
approximately 1,500 loans. A security interest in the acquired loans was
granted by Bosque to Bankers Trust Company of California, N.A., as trustee for
the noteholders. The notes issued by Bosque matured according to the original
terms on June 5, 2002. FirstCity has not guaranteed payment or performance of
Bosque under the notes or the Note Agreement. As of June 30, 2002, FirstCity
has acquired notes issued under the Note Agreement that represent 57.94% or
$3.4 million of the aggregate outstanding principal balances of the notes under
the Note Agreement. The notes acquired by FirstCity were purchased at eighty
percent (80%) of the outstanding principal balance of the notes. As of June
30, 2002, the aggregate balance of the outstanding notes held by persons
unrelated to FirstCity was $2.5 million. The current trustee under the Note
Agreement has not taken any action related to the maturity of the notes. The
collections from the notes continue to be distributed to the noteholders,
including FirstCity, under the terms of the matured loan facility. Collections
for the month of June 2002 resulted in a principal payment of $1.0 million on
July 5, 2002, of which $.6 million was paid to FirstCity and $.4 million was
paid to noteholders unrelated to FirstCity. As of August 5, 2002, the
aggregate outstanding principal balance of the notes under the Note Agreement
was $4.9 million, of which $2.8 million was held by
FirstCity and $2.1 million
was held by persons unrelated to FirstCity FirstCity intends to purchase the
notes held by unrelated persons or to obtain their consent to the extension of
maturity date for the notes under the Note Agreement.

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

Excluding the term acquisition facilities of the unconsolidated
Acquisition Partnerships and the term and warehouse facilities of Drive, as of
June 30, 2002, the Company and its subsidiaries had credit facilities providing
for borrowings in an aggregate principal amount of $105 million and outstanding
borrowings of $89 million.



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

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

Credit Facilities

|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          |                              |  |  |  | 
|---------------------------- | ------------------------ | ----- | ----------- |  | ------------- | - | -------------------------- | -- | --- | - | --- | -- | -- | -------------- | ------------ | ---------------------------- | ------------------------ | ---------------------------- |  |  |  | 
|                             | Funded and               |       |             |  |               |   |                            |    |     |   |     |    |   
|                             | Unfunded                 |       | Outstanding |  |               |   |                            |    |     |   |    
|                             | Commitment               |       | Borrowings  |  |               |   |                            |    |     |   |    
|                             | Amount as of             |       | as of       |  |               |   |                            |    |     |   |    
|                             | August 14,               |       | June 30,    |  |               |   |                            |    |     |   |    
|                             | 2002                     |       | 2002        |  | Interest Rate |   | Other Terms and Conditions
|                             |                          |       |             |  |               |   |                           
|                             | (Dollars in millions)    |       |             |  |               |   |                            |    |    
|FirstCity                    |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          |                              |  | 
|Company Senior Facility:     |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          |                              |  | 
|                             | Revolving Line of Credit |       |             |  |               |   | $                          | 14 |     |   | $   | 10 |    |                | LIBOR + 2.5% |                              | Secured by the assets of
|                             | Term Loan A              |       |             |  |               |   |                            | 31 |     |   |     | 31 |    |                | LIBOR + 2.5% |                              | the Company, matures    
|                             | Term Loan B              |       |             |  |               |   |                            | 12 |     |   |     | 12 |    |                | Prime        |                              | December 2003           
|                             | Term Loan E              |       |             |  |               |   |                            | 5  |     |   |     | 3  |    |                | LIBOR + 6.0% |                              | March 2004              
|Term credit facility         |                          |       |             |  |               |   | 3                          |    |     |   | 3   |    |    | LIBOR + 5.0%   |              | Secured by ownership        
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          | interests in certain        
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          | Acquisition partnerships    
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          | Matures January 2003        
|Commercial Corp.             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          |                              |  | 
|Acquisition facility         |                          |       |             |  |               |   | 2                          |    |     |   | 2   |    |    | LIBOR + 4.0%   |              | Secured by existing         
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          | Portfolio Assets, matures   
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          | January 2003                
|Term facilities              |                          |       |             |  |               |   | 3                          |    |     |   | 3   |    |    | Fixed at       |              | Secured by Portfolio        
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | 7.00% to 7.66% |              | Assets, matured June 2002   
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          | and November 2002           
|Equity investment facility   |                          |       |             |  |               |   | 35                         |    |     |   | 25  |    |    | LIBOR + 4.5%   |              | Acquisition facility for    
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          | the investment in future    
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          | Acquisition partnerships,   
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          | matures March 2003          
|                             |                          | Total |             |  |               |   |                            | $  | 105 |   |     | $  | 89 |                |              |                              |                          |                              |  |  |  | 
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          |                              |  |  |  | 
|Unconsolidated Acquisition   |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          |                              |  | 
|Partnerships term            |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          |                              |  | 
|Facilities(1)                |                          |       |             |  |               | $ | 111                        |    |     | $ | 111 |    |    | Fixed at 10%,  |              | Secured by Portfolio        
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | LIBOR + 2.25%  |              | Assets, various Maturities  
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | to 5% and      |              |                              |                          |                             
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | Prime + 1%     |              |                              |                          |                             
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | to 7%          |              |                              |                          |                             
|Unconsolidated Drive         |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          |                              |  | 
|Warehouse Facility           |                          |       |             |  |               | $ | 200                        |    |     | $ | 172 |    |    | LIBOR + 1%;    |              | Secured by warehouse        
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | Prime  1.5%   |              | inventory, matures July 2003
|Warehouse Facility           |                          |       |             |  |               |   | 100                        |    |     |   | 69  |    |    | Rate based on  |              | Secured by warehouse        
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | Commercial     |              | inventory, matures September
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | paper rates    |              | 2002                         |                          |                             
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | combined with  |              |                              |                          |                             
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | certain        |              |                              |                          |                             
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | facility fees  |              |                              |                          |                             
|Subordinate capital Facility |                          |       |             |  |               |   | 65                         |    |     |   | 40  |    |    | Fixed at 16%   |              | Secured by all assets of    
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          | Drive, matures February 2006
|Term Facility                |                          |       |             |  |               |   | 21                         |    |     |   | 21  |    |    |                |              |                              |                          |                              |  | 
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | LIBOR + 1%;    |              | Secured by residual         
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    | Prime  1.5%   |              | interests, matures August   
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          | 2003                         |  | 
|                             |                          |       |             |  |               | $ | 386                        |    |     | $ | 302 |    |    |                |              |                              |                          |                              |  | 
|                             |                          |       |             |  |               |   |                            |    |     |   |     |    |    |                |              |                              |                          |                              |  | 



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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 $295 million outstanding as of June 30, 2002
owed to affiliates of the investor groups. Of this amount, the Company has
recorded approximately $21 million as Loans Receivable on the Consolidated
Balance Sheets.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q or
incorporated by reference from time to time, including, but not limited to,
statements relating to the Companys strategic objectives and future
performance, which are not historical facts, may be deemed to be
forward-looking statements under the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include, without limitation, any statement
that may project, indicate or imply future results, performance or
achievements, and may contain the words expect, intend, plan, estimate,
believe, will be, will continue, will likely result, and similar
expressions. Such statements inherently are subject to a variety of risks and
uncertainties that could cause actual results to differ materially from those
projected. There are many important factors that could cause the Companys
actual results to differ materially from those indicated in the forward-looking
statements. Such factors include, but are not limited to, the consummation and
effect of the proposed recapitalization; the performance of the Companys
subsidiaries and affiliates; the availability of Portfolio Assets; assumptions
underlying asset performance; the impact of certain covenants in loan
agreements of the Company and its subsidiaries; continued availability of the
Companys credit facilities; the degree to which the Company is leveraged; the
ability of the Company to utilize NOLs; interest rate risk; prepayment speeds;
delinquency and default rates; credit loss rates; changes (legislative and
otherwise) in the asset securitization industry; demand for the Companys
services; fluctuations in residential and commercial real estate values; risk
of declining value of assets, loans or collateral; capital market conditions,
including the markets for asset-backed securities; risks associated with
foreign operations; currency exchange rate fluctuations; general economic
conditions; changes in foreign political, social and economic conditions;
regulatory initiatives and compliance with governmental regulations; the
ability to attract and retain qualified personnel; uncertainties of any
litigation that might arise in a bankruptcy proceeding; factors more fully
discussed and identified in the Companys Annual Report on Form 10-K, filed
March 29, 2002 (including those discussed under Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations), as
well as in other Securities and Exchange Commission filings of the Company.
Many of these factors are beyond the Companys control. In addition, it should
be noted that past financial and operational performance of the Company is not
necessarily indicative of future financial and operational performance. Given
these risks and uncertainties, investors should not place undue reliance on
forward-looking statements. The forward-looking statements in this Form 10-Q
speak only as of the date of this Form 10-Q. The Company expressly disclaims
any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statement to reflect any change in the Companys
expectations with regard thereto or any change in events, conditions or
circumstances on which any forward-looking statement is based.




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



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nature and history of these loans, changes in prevailing benchmark rates
(such as the prime rate or LIBOR) generally have a nominal effect on the
ultimate future cash flow to be realized from the loan assets. Furthermore,
these pools of assets are held for sale, not for investment; therefore, the
disposition strategy is to liquidate these assets as quickly as possible.

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

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

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

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

In summary, the Company would be negatively impacted by rising interest
rates and declining prices for its sub-prime loans. Rising interest rates would
negatively impact the value of residual interests in securitizations and costs
of borrowings. Declining prices for the Companys sub-prime loans would
adversely affect the levels of gains achieved upon the sale of those loans.
There have been no material changes in the quantitative and qualitative risks
of the Company since December 31, 2001.



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PART II

OTHER INFORMATION




ITEM 1. Legal Proceedings

On October 14, 1999, Harbor Financial Group, Inc. (Harbor Parent),
Harbor Financial Mortgage Corporation (Harbor) and four subsidiaries of
Harbor filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code before the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division. On December 14, 1999, the bankruptcy
proceedings were converted to liquidation proceedings under Chapter 7 of the
United States Bankruptcy Code. John H. Litzler, the Chapter 7 Trustee in the
bankruptcy proceedings (the Trustee), initiated adversary proceedings on May
25, 2001 against FirstCity and various current and former directors and
officers of FirstCity and Harbor alleging breach of fiduciary duties,
mismanagement, and self-dealing by FirstCity and Harbor directors and officers,
and improper transfer of funds from the Harbor related entities to FirstCity.
The claims also included fraudulent and preferential transfer of assets of the
Harbor entities, fraud and conspiracy. The Trustee, FirstCity, the other
defendants and the insurers providing Directors and Officers Insurance
coverage for FirstCity and its subsidiaries (the Insurers) have executed a
settlement agreement setting forth the terms of the compromise of the claims
brought in the adversary proceedings, subject to obtaining the approval of the
Bankruptcy Court. Under the terms of the settlement agreement, if approved by
the Bankruptcy Court, the Trustee will release the defendants, their affiliates
and subsidiaries from any and all claims which were brought or could have been
brought by the Trustee against any of the defendants, any past and present
officers and directors of FirstCity or any affiliates or subsidiaries of
FirstCity in consideration of (i) the payment of the sum of $3,575,000 by the
Insurers to the Trustee, (ii) a payment by FirstCity to the Trustee in the sum
of $225,000, of which $162,500 is contingent upon FirstCitys receiving that
sum in connection with finalizing a settlement with Chase Securities, Inc. and
JP Morgan Chase Bank (collectively, the Chase Entities) in the matter styled
Chase Securities, Inc. v. FirstCity Financial Corporation,Index No. 604538/99
(N.Y. Sup. Ct.) discussed below, and (iii) the release of any and all claims of
FirstCity and its affiliates and subsidiaries and of the individual defendants
in the bankruptcy proceedings against the Trustee, including administrative and
expense claims, with the exception of a portion of the administrative claim of
FirstCity as noted below. The payment by the Insurers is conditioned upon
FirstCitys administrative claim in the Bankruptcy Case being allowed in the
amount of $300,000, which claim FirstCity will assign to the Insurers and which
shall be paid by the Trustee directly to the Insurers. FirstCity has received
the $162,500 payment from the Chase entities as described above. The motions
of the Trustee for approval of the settlement agreement, mutual releases and a
bar order precluding certain claims by third parties against FirstCity have
been filed in the bankruptcy proceedings and have been set for hearing on
August 26, 2002. The approval of the Bankruptcy Court of the proposed terms of
settlement has not been obtained, and there can be no assurance that such
consent and approval will be secured. In the event that Bankruptcy Court
approval is not obtained, FirstCity intends to vigorously contest the claims of
the Trustee, as FirstCity believes that the claims are without merit and that
it has valid defenses to these claims.

FirstCity and Harbor Parent filed suit in the Federal District Court for
the Western District of Texas, Waco Division, against Chase Bank of Texas, N.A.
and Chase Securities, Inc. in September 1999 seeking injunctive relief and
damages resulting from alleged violations by the defendants of the Bank Holding
Company Act and from civil conspiracy engaged in by the defendants, arising
from an engagement letter entered into between FirstCity and Chase Securities,
Inc. relating to the sale of assets or securities of Harbor Parent, Harbor and
their subsidiaries (collectively HFMC). FirstCity and Harbor Parent alleged
that Chase Bank Texas, N.A. conditioned the extension of credit to Harbor on
the retention of Chase Securities, Inc. by FirstCity and Harbor in violation of
the Bank Holding Company Act. FirstCity additionally sought a judicial
declaration that the plaintiffs were not obligated to pay any commission to
Chase Securities, Inc. under the engagement letter. FirstCity and Harbor Parent
also sought recovery of treble damages pursuant to the Bank Holding Company Act
and recovery of 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. FirstCity was granted leave by the Supreme
Court for the State of New York to amend its answer in that proceeding to
include the claims asserted in the Texas suit as a counterclaim to the suit
brought by Chase Securities, Inc. and to assert certain affirmative defenses.

On October 4, 1999, Chase Securities, Inc. filed suit against FirstCity
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
discussed above and other relief. FirstCity denied that it had any liability to
Chase Securities, Inc. FirstCity asserted as a defense to this action the
violations of the Bank Holding Company Act and other claims asserted in the
litigation filed in the Federal District Court for the Western District of
Texas. FirstCity was granted leave to amend its answer in the suit to include a
counterclaim against Chase Securities, Inc. asserting breach of contract based
upon the matters that were asserted in the Texas suit.



28



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The Trustee filed an action in the United States District Court for the
Southern District of New York against Chase Manhattan Bank, formerly Chase Bank
of Texas, N.A. and Chase Securities, Inc. seeking recovery of damages arising
from or relating to various agreements by and between Harbor Parent and Harbor
and Chase Manhattan Bank (Chase Bank) and Chase Securities, Inc. (CSI),
including the alleged violations of the Anti-Tying provision of the Bank
Holding Company Act as had been asserted by FirstCity and Harbor Parent in the
Texas suit.

The Trustee, FirstCity and Chase Bank and CSI have completed a settlement
of the claims in the suits described above and related to the fees alleged to
be due to CSI under the engagement letter. Pursuant to the terms of the
settlement between Chase Bank, CSI and FirstCity, FirstCity received a payment
of $162,500 and FirstCity, Chase and CSI mutually released each other from all
facts alleged and claims and counterclaims made in pleadings, proposed
pleadings, submissions to the New York State Supreme Court, and/or answers to
interrogatories served in the suits pending in the New York courts described
above or related to the September 30, 1998 Engagement Letter executed by
FirstCity and CSI, the February 17, 1998 Securitization Agreement executed by
Harbor Parent and CSI, the February 25, 1998 Securitization Commitment Letter
executed by Harbor and Chase Bank, the February 1, 1999 Syndication Commitment
Letter executed by Harbor, CSI and Chase Bank, and/or the February 1, 1999
Syndication Fee Letter executed by Harbor, CSI and Chase Bank. Chase, CSI and
HFMC also completed a settlement of the claims asserted in the suit filed by
the Trustee and under the fee agreements with HFMC receiving a payment of
$1,087,500 and the parties mutually releasing each other from all claims in the
suit filed by the Trustee and under the agreements referred to above.

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




ITEM 3. Defaults Upon Senior Securities

In the third quarter of 1999, dividends on the Companys adjusting rate
preferred stock were suspended. At June 30, 2002, accumulated dividends in
arrears on such preferred stock totaled $7.7 million, or $6.30 per share.




ITEM 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits.
| | --- |  | ---------

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.1     |  |  Joint Plan of Reorganization by First City
Bancorporation of Texas, Inc., Official Committee of Equity
Security Holders and J-Hawk Corporation, with the
Participation of Cargill Financial Services Corporation,
Under Chapter 11 of the United States Bankruptcy Code, Case
No. 392-39474-HCA-11 (incorporated herein by reference to
Exhibit 2.1 of the Companys Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
|2.2     |  |  Agreement and Plan of Merger, dated as of July 3, 1995,
by and between First City Bancorporation of Texas, Inc. and
J-Hawk Corporation (incorporated herein by reference to
Exhibit 2.2 of the Companys Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).                                                                                                                                                            
|3.1     |  |  Amended and Restated Certificate of Incorporation of
the Company (incorporated herein by reference to Exhibit
3.1 of the Companys Current Report on Form 8-K dated July
3, 1995 filed with the Commission on July 18, 1995).                                                                                                                                                                                                                                  
|3.2     |  |  Bylaws of the Company (incorporated herein by reference
to Exhibit 3.2 of the Companys Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).                                                                                                                                                                                                                                                                             
|4.1     |  |  Certificate of Designations of the New Preferred Stock
($0.01 par value) of the Company. (incorporated herein by
reference to Exhibit 4.1 to the Companys Current Report on
Form 10-K dated March 24, 1998 filed with the Commission on
March 26, 1998).                                                                                                                                                                                                      



29



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.2     |  |  Warrant Agreement, dated July 3, 1995, by and between
the Company and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to Exhibit
4.2 of the Companys Current Report on Form 8-K dated July
3, 1995 filed with the Commission on July 18, 1995).                                                                                                                                                                     
|4.3     |  |  Registration Rights Agreement, dated July 1, 1997,
among the Company, Richard J. Gillen, Bernice J. Gillen,
Harbor Financial Mortgage Company Employees Pension Plan,
Lindsey Capital Corporation, Ed Smith and Thomas E. Smith.
(incorporated herein by reference to Exhibit 4.3 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).                                                                                  
|4.4     |  |  Stock Purchase Agreement, dated March 24, 1998, between
the Company and Texas Commerce Shareholders Company.
(incorporated herein by reference to Exhibit 4.4 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).                                                                                                                                                                                                      
|4.5     |  |  Registration Rights Agreement, dated March 24, 1998,
between the Company and Texas Commerce Shareholders
Company. (incorporated herein by reference to Exhibit 4.5
of the Companys Form 10-K dated March 24, 1998 filed with
the Commission on March 24, 1998).                                                                                                                                                                                                 
|10.1    |  |  Trust Agreement of FirstCity Liquidating Trust, dated
July 3, 1995 (incorporated herein by reference to Exhibit
10.1 of the Companys Current Report on Form 8-K dated July
3, 1995 filed with the Commission on July 18, 1995).                                                                                                                                                                                                                                 
|10.2    |  |  Investment Management Agreement, dated July 3, 1995,
between the Company and FirstCity Liquidating Trust
(incorporated herein by reference to Exhibit 10.2 of the
Companys Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995).                                                                                                                                                                                           
|10.3    |  |  Lock-Box Agreement, dated July 11, 1995, among the
Company, NationsBank of Texas, N.A., as lock-box agent,
FirstCity Liquidating Trust, FCLT Loans, L.P., and the
other Trust-Owned Affiliates signatory thereto, and each of
NationsBank of Texas, N.A. and Fleet National Bank, as
co-lenders (incorporated herein by reference to Exhibit
10.3 of the Companys Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).               
|10.4    |  |  Custodial Agreement, dated July 11, 1995, among Fleet
National Bank, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company (incorporated herein by reference to Exhibit 10.4
of the Companys Form 8-A/A dated August 25, 1995 filed
with the Commission on August 25, 1995).                                                                                                                              
|10.5    |  |  Tier 3 Custodial Agreement, dated July 11, 1995, among
the Company, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company, as servicer (incorporated herein by reference to
Exhibit 10.5 of the Companys Form 8-A/A dated August 25,
1995 filed with the Commission on August 25, 1995).                                                                                                                  
|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).                                                                                            



30



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                               
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                               
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                               
|10.9    |  |  Employment Agreement, dated as of July 1, 1997, by and between Harbor Financial Mortgage Corporation and Richard
J. Gillen. (incorporated herein by reference to Exhibit
10.9 of the Companys 10-K dated March 24, 1998 filed with
the Commission March 26, 1998).                                                                                                                                         
|10.10   |  |  Employment Agreement, dated as of September 8, 1997, by
and between FirstCity Funding Corporation and Thomas R.
Brower, with similar agreements between FC Capital Corp.
and each of James H. Aronoff and Christopher J. Morrissey.
(incorporated herein by reference to Exhibit 10.10 of the
Companys Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).                           
|10.11   |  |  Shareholder Agreement, dated as of September 8, 1997,
among FirstCity Funding Corporation, FirstCity Consumer
Lending Corporation, Thomas R. Brower, Scot A. Foith,
Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves,
Stephen H. Trent and Blake P. Bozman. (incorporated herein
by reference to Exhibit 10.11 of the Companys Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
|10.12   |  |  Revolving Credit Loan Agreement, dated as of March 20,
1998, by and between FC Properties, Ltd. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.12 of the Companys Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).                                                                                                                         
|10.13   |  |  Revolving Credit Loan Agreement, dated as of February
27, 1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.13 of the Companys Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).                                                                                                                        
|10.14   |  |  Note Agreement, dated as of June 6, 1997, among Bosque
Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque
Investment Realty Partners, L.P. and Bankers Trust Company
of California, N.A. (incorporated herein by reference to
Exhibit 10.14 of the Companys Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).                                                               
|10.15   |  |  60,000,000 French Franc Revolving Promissory Note,
dated September 25, 1997, by J-Hawk International
Corporation in favor of the Bank of Scotland. (incorporated
herein by reference to Exhibit 10.15 of the Companys Form
10-K dated March 24, 1998 filed with the Commission March
26, 1998).                                                                                                            
|10.16   |  |  Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation. (incorporated herein reference to Exhibit
10.16 of the Companys Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).                                                                                                                                            
|10.17   |  |  Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk (incorporated herein by reference to Exhibit 10.17
of the Companys Form 10-K dated March 24, 1998 filed with
the Commission March 26, 1998).                                                                                                                                                                                                 
|10.18   |  |  Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland. (incorporated herein by reference to Exhibit
10.18 of the Companys Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).                                                                                                                                          
|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).                                       



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                
|10.22   |  |  Master Repurchase Agreement Governing Purchased and
Sales of Mortgage Loans, dated as of July 1998, between
Lehman Commercial Paper Inc. and FHB Funding Corp.
(incorporated herein by reference to Exhibit 10.1 of the
Companys Form 10-Q dated August 14, 1998, filed with the
Commission August 18, 1998).                                                                               
|10.23   |  |  Warehouse Credit Agreement, dated as of April 30, 1998
among ContiTrade Services, L.L.C., FirstCity Consumer
Lending Corporation, FirstCity Auto Receivables L.L.C. and
FirstCity Financial Corporation. (incorporated herein by
reference to Exhibit 10.2 of the Companys Form 10-Q dated
August 14, 1998, filed with the Commission August 16,
1998).                                     
|10.24   |  |  Servicing Agreement, dated as of April 30, 1998 among
FirstCity Auto Receivables L.L.C. , FirstCity Servicing
Corporation of California, FirstCity Consumer Lending
Corporation and ContiTrade Services L.L.C. (incorporated
herein by reference to Exhibit 10.3 of the Companys Form
10-Q dated August 14, 1998, filed with the Commission
August 16, 1998).                               
|10.25   |  |  Security and Collateral Agreement, dated as of April
30, 1998 among FirstCity Auto Receivables L.L.C.,
ContiTrade Services L.L.C. and Chase Bank of Texas,
National Association. (incorporated herein by reference to
Exhibit 10.4 of the Companys Form 10-Q dated August 14,
1998, filed with the Commission August 16, 1998).                                                             
|10.26   |  |  Loan Agreement, dated as of July 24, 1998, between
FirstCity Commercial Corporation and CFSC Capital Corp. XXX
(incorporated herein by reference Exhibit 10.5 of the
Companys Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).                                                                                                                               
|10.27   |  |  Loan Agreement, dated April 8, 1998 between Bank of
Scotland and the Company (incorporated herein by reference
to Exhibit 10.6 of the Companys Form 10-Q dated August 14,
1998, filed with the Commission on August 18, 1998).                                                                                                                                                              
|10.28   |  |  First Amendment to Loan Agreement, dated July 20, 1998,
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.7 of the Companys Form
10-Q dated August 14, 1998, filed with the Commission on
August 18, 1998).                                                                                                                                          
|10.29   |  |  Employment Agreement, dated October 1, 1998, by and
between FirstCity. Financial Mortgage Corporation, and
Buddy L. Terrell (incorporated herein by reference to
Exhibit 10.29 of the Companys Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).                                                                                                                    
|10.30   |  |  Security Agreement, dated as of April 30, 1998 among
Enterprise Funding Corporation, FCAR Receivables L.L.C.,
MBIA Insurance Corporation, FirstCity Funding Corporation,
NationsBank N.A. and CSC Logic/MSA LLP d/b/a Loan Servicing
enterprise (incorporated herein by reference to Exhibit
10.30 of the Companys Form 10-Q dated May 17, 1999, filed
with the commission on May 17, 1999).
|10.31   |  |  Note purchase agreement, dated March 30, 1999 among
Enterprise Funding Corporation, FCAR Receivables, L.L.C.
and NationsBank, N.A. (incorporated herein by reference to
Exhibit 10.31 of the Companys Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).                                                                                                             
|10.32   |  |  Custodian Agreement, dated March 30, 1999, among FCAR
Receivables L.L.C., FirstCity Funding Corporation,
NationsBank, N.A., Enterprise Funding Corporation and Chase
Bank of Texas, N.A. (incorporated herein by reference to
Exhibit 10.32 of the Companys Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).                                                       
|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,                                                                                                                                                                                                                      



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|        |  |                                                                                                                                                                                                                                                                                                                                                      
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                      
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                      
|        |  | and Guaranty Federal Bank F.S.B. as Administrative Agent
and Bank One, Texas, N.A. as Collateral Agent (incorporated
herein by reference to Exhibit 10.33 of the Companys Form
10-Q dated August 16, 1999, filed with the commission on
August 16, 1999).                                                                                           
|10.34   |  |  Tenth Amendment to Loan Agreement, dated August 11,
1999 between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.34 of the Companys Form
10-Q dated August 16, 1999, filed with the Commission on
August 16, 1999).                                                                                              
|10.35   |  |  Amended and Restated Loan Agreement, dated December 20,
1999, by and among FirstCity Financial Corporation as
Borrower and The Lenders Named Herein, as Lenders and Bank
of Scotland as Agent (incorporated herein by reference to
Exhibit 10.1 of the Companys Form 8-K dated December 22,
1999, filed with the commission on December 28, 1999).
|10.36   |  |  Subordinated Secured Senior Note Purchase Agreement,
dated December 20, 1999, between FirstCity Financial
Corporation, as Issuer and IFA Corporation, as Purchaser
(incorporated herein by reference to Exhibit 10.2 of the
Companys Form 8-K dated December 22, 1999, filed with the
commission on December 28, 1999).                           
|10.37   |  |  Employment Agreement, dated October 1, 1999, by and
between FirstCity Commercial Corporation and Terry R.
DeWitt. (incorporated herein by reference to Exhibit 10.37
of the Companys Form 10-K dated April 6, 2000, filed
with the commission on April 6, 2000).                                                                                  
|10.38   |  |  Employment Agreement, dated October 1, 1999, by and
between FirstCity Commercial Corporation and G. Stephen
Fillip. (incorporated herein by reference to Exhibit 10.38
of the Companys Form 10-K dated April 6, 2000, filed
with the commission on April 6, 2000).                                                                                
|10.39   |  |  Shareholder Agreement, dated October 1, 1999, by and
among FirstCity Holdings Corporation, FirstCity Commercial
Corporation, Terry R. DeWitt, G. Stephen Fillip and James
C. Holmes. (incorporated herein by reference to Exhibit
10.39 of the Companys Form 10-K dated April 6, 2000,
filed with the commission on April 6, 2000).               
|10.40   |  |  Securities Purchase Agreement, dated as of August 18,
2000, by and among the Company, Consumer Corp., Funding LP,
Funding GP, IFA-GP and IFA-LP. (incorporated herein by
reference to Exhibit 10.40 of the Companys Form 8-K dated
August 25, 2000, filed with the commission on September 11,
2000).                                             
|10.41   |  |  Contribution and Assumption Agreement by and between
Consumer Corp. and Drive dated as of August 18, 2000.
(incorporated herein by reference to Exhibit 10.41 of the
Companys Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).                                                                                   
|10.42   |  |  Contribution and Assumption Agreement by and between
Funding LP and Drive dated as of August 18, 2000.
(incorporated herein by reference to Exhibit 10.42 of the
Companys Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).                                                                                       
|10.43   |  |  Second Amendment to Amended and Restated Loan
Agreement, dated December 20, 1999, by and among the
Company, as borrower, and the Lenders, as lenders, and Bank
of Scotland, as Agent. (incorporated herein by reference to
Exhibit 10.43 of the Companys Form 8-K dated August 25,
2000, filed with the commission on September 11, 2000).        
|10.44   |  |  Receivables Financing Agreement, dated August 18, 2000,
among Drive BOS LP, Drive Financial Services LP, each
Lender, IPA Inc. and Wells Fargo Bank Minnesota, N.A.
(incorporated herein by reference to Exhibit 10.44 of the
Companys Form 10-K dated April 13, 2001, filed with the
Commission on April 13, 2001).                              
|10.45   |  |  Amendment to Loan Agreement and extension of Promissory
Note, dated January 12, 2001, by and between FirstCity
Holdings Corporation and CSFC Capital Corp. XXX
(incorporated herein by reference to Exhibit 10.45 of the
Companys Form 10-K dated April 13, 2001, filed with the
Commission on April 13, 2001).                                   



33



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.46   |  |  Second Amendment, dated as of February 16, 2001, to the
Receivables Financing Agreement, dated as of August 18,
2000, among Drive BOS LP, Drive Financial Services LP the
Lenders party thereto, IPA Incorporated and Wells Fargo Bank
Minnesota, NA (incorporated herein by reference to Exhibit
10.46 of the Companys Form 10-K dated April 13, 2001, filed
with the Commission on April 13, 2001).
|10.47   |  |  Subordinate Capital Loan Agreement, dated as of February 16,
2001, among Drive Financial Services LP, DRIVE BOS LP, the
financial institutions from time to time party hereto and
IPA Incorporated (incorporated herein by reference to
Exhibit 10.47 of the Companys Form 10-K dated April 13,
2001, filed with the Commission on April 13, 2001).                                                  
|10.48   |  |  Amended and Restated Amendment #4 (Option and Option
Warrant), dated as of December 31, 2001, between the Company
and BoS(USA) Inc. (incorporated herein by reference to
Exhibit 99.1 of the Companys Form 8-K dated January 18,
2002, filed with the Commission on January 18,
2002).                                                                                                               



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

On May 15, 2002, the Company filed a Current Report on Form 8-K to
disclose a press release announcing the Companys first quarter results.

On July 17, 2002, the Company filed a Current Report on Form 8-K to
disclose a press release announcing the resignation of David W. MacLennan
from the Companys Board of Directors.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

| |                                 |  |                                                                                                                                                                              
| | ------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | FIRSTCITY FINANCIAL CORPORATION
|
| | By:                             |  | /s/ JAMES T. SARTAIN
James T. 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, 2002



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EXHIBIT INDEX

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





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





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





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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  | 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                                                                                                                                                                                                                                                              





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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  | Companys Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).                                                                                                                                                                                                                                                                                                             
|10.42   |  |  Contribution and Assumption Agreement by and between
Funding LP and Drive dated as of August 18, 2000.
(incorporated herein by reference to Exhibit 10.42 of the
Companys Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).                                                                                                                                          
|10.43   |  |  Second Amendment to Amended and Restated Loan
Agreement, dated December 20, 1999, by and among the
Company, as borrower, and the Lenders, as lenders, and Bank
of Scotland, as Agent. (incorporated herein by reference to
Exhibit 10.43 of the Companys Form 8-K dated August 25,
2000, filed with the commission on September 11, 2000).                                                           
|10.44   |  |  Receivables Financing Agreement, dated August 18, 2000,
among Drive BOS LP, Drive Financial Services LP, each
Lender, IPA Inc. and Wells Fargo Bank Minnesota, N.A.
(incorporated herein by reference to Exhibit 10.44 of the
Companys Form 10-K dated April 13, 2001, filed with the
Commission on April 13, 2001).                                                                                 
|10.45   |  |  Amendment to Loan Agreement and extension of Promissory
Note, dated January 12, 2001, by and between FirstCity
Holdings Corporation and CSFC Capital Corp. XXX
(incorporated herein by reference to Exhibit 10.45 of the
Companys Form 10-K dated April 13, 2001, filed with the
Commission on April 13, 2001).                                                                                      
|10.46   |  |  Second Amendment, dated as of February 16, 2001, to the
Receivables Financing Agreement, dated as of August 18,
2000, among Drive BOS LP, Drive Financial Services LP the
Lenders party thereto, IPA Incorporated and Wells Fargo Bank
Minnesota, NA (incorporated herein by reference to Exhibit
10.46 of the Companys Form 10-K dated April 13, 2001, filed
with the Commission on April 13, 2001).
|10.47   |  |  Subordinate Capital Loan Agreement, dated as of February 16,
2001, among Drive Financial Services LP, DRIVE BOS LP, the
financial institutions from time to time party hereto and
IPA Incorporated (incorporated herein by reference to
Exhibit 10.47 of the Companys Form 10-K dated April 13,
2001, filed with the Commission on April 13, 2001).                                                  
|10.48   |  |  Amended and Restated Amendment #4 (Option and Option
Warrant), dated as of December 31, 2001, between the Company
and BoS(USA) Inc. (incorporated herein by reference to
Exhibit 99.1 of the Companys Form 8-K dated January 18,
2002, filed with the Commission on January 18, 2002).