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UNITED STATES
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 September 30, 2003

OR

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

Commission file number 033-19694

FirstCity Financial Corporation

(Exact name of Registrant as Specified in Its Charter)


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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [   ]     No [X]


The number of shares of common stock, par value $.01 per share,
outstanding at November 13, 2003 was 11,204,671.



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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)

|                                                                   |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   |               |        |              |   |         |  | 
|------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------------------------------------------------------------------- | ------- | - | ------------- | ------ | ------------ | - | ------- |  | 
|                                                                   |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   | September 30, |        | December 31,
|                                                                   |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   | 2003          |        | 2002        
|                                                                   |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   |               |        |             
|                                                                   |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   | (Unaudited)   |        |              |   |        
|ASSETS                                                            
|Cash and cash equivalents                                          |                                                                                                                                                                                                                                                                             | $ | 3,053                                                                  |         |   | $             | 4,118  |             
|Portfolio Assets, net                                              |                                                                                                                                                                                                                                                                             |   | 4,072                                                                  |         |   |               | 9,820  |             
|Loans receivable from Acquisition Partnerships held for investment |                                                                                                                                                                                                                                                                             |   | 18,995                                                                 |         |   |               | 17,700 |             
|Equity investments                                                 |                                                                                                                                                                                                                                                                             |   | 66,019                                                                 |         |   |               | 58,342 |             
|Deferred tax benefit, net                                          |                                                                                                                                                                                                                                                                             |   | 20,101                                                                 |         |   |               | 20,101 |             
|Service fees receivable from affiliates                            |                                                                                                                                                                                                                                                                             |   | 2,525                                                                  |         |   |               | 2,235  |             
|Other assets, net                                                  |                                                                                                                                                                                                                                                                             |   | 7,304                                                                  |         |   |               | 6,376  |             
|Net assets of discontinued operations                              |                                                                                                                                                                                                                                                                             |   | 6,346                                                                  |         |   |               | 7,764  |             
|                                                                   |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   |               |        |             
|                                                                   |                                                                                                                                                                                                                                                                             |   | Total Assets                                                           |         | $ | 128,415       |        |              | $ | 126,456 | 
|                                                                   |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   |               |        |             
|LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS EQUITY  
|Liabilities:                                                       |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   |               |        |             
|                                                                   | Notes payable to affiliates                                                                                                                                                                                                                                                 |   | $                                                                      | 91,796  |   |               | $      | 95,560       |  
|                                                                   | Notes payable  other                                                                                                                                                                                                                                                       |   |                                                                        | 1,424   |   |               |        | 1,113        |  
|                                                                   | Preferred stock subject to mandatory redemption, including accumulated
dividends in arrears of $1,127 and $0, respectively)                                                                                                                                                 |   |                                                                        | 3,779   |   |               |        |             |  
|                                                                   | Minority interest                                                                                                                                                                                                                                                           |   |                                                                        | 3,704   |   |               |        | 4,052        |  
|                                                                   | Other liabilities                                                                                                                                                                                                                                                           |   |                                                                        | 3,680   |   |               |        | 3,274        |  
|                                                                   |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   |               |        |             
|                                                                   |                                                                                                                                                                                                                                                                             |   | Total Liabilities                                                      |         |   | 104,383       |        |              |   | 103,999 | 
|Commitments and contingencies (Note 10)                            |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   |               |        |             
|Redeemable preferred stock:                                        |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   |               |        |             
|                                                                   | Preferred stock subject to mandatory redemption, including accumulated
dividends in arrears of $0 and $960, respectively (par value $.01;
redemption value of $21 per share; 2,000,000 shares authorized; shares
issued and outstanding: 126,291 and 130,691, respectively) |   |                                                                        |        |   |               |        | 3,705        |  
|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;
shares issued and outstanding: 11,187,437 and 11,195,076, respectively)                                                                                                                              |   |                                                                        | 112     |   |               |        | 112          |  
|                                                                   | Paid in capital                                                                                                                                                                                                                                                             |   |                                                                        | 99,156  |   |               |        | 98,934       |  
|                                                                   | Accumulated deficit                                                                                                                                                                                                                                                         |   |                                                                        | (77,472 | ) |               |        | (82,977      | )
|                                                                   | Accumulated other comprehensive income                                                                                                                                                                                                                                      |   |                                                                        | 2,236   |   |               |        | 2,683        |  
|                                                                   |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   |               |        |             
|                                                                   |                                                                                                                                                                                                                                                                             |   | Total Shareholders Equity                                             |         |   | 24,032        |        |              |   | 18,752  | 
|                                                                   |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   |               |        |             
|                                                                   |                                                                                                                                                                                                                                                                             |   | Total Liabilities, Redeemable Preferred Stock and Shareholders Equity |         | $ | 128,415       |        |              | $ | 126,456 | 
|                                                                   |                                                                                                                                                                                                                                                                             |   |                                                                        |         |   |               |        |             

See accompanying notes to consolidated financial statements.

2



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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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

|                                                                                     |                                                     |                |       |                    |        |                   |        |       |       |      |        |        |        |   |        |       |        | 
|------------------------------------------------------------------------------------ | --------------------------------------------------- | -------------- | ----- | ------------------ | ------ | ----------------- | ------ | ----- | ----- | ---- | ------ | ------ | ------ | - | ------ | ----- | ------ | 
|                                                                                     |                                                     |                |       | Three Months Ended |        | Nine Months Ended
|                                                                                     |                                                     |                |       | September 30,      |        | September 30,    
|                                                                                     |                                                     |                |       |                    |        |                  
|                                                                                     |                                                     |                |       | 2003               |        | 2002              |        | 2003  |       | 2002
|                                                                                     |                                                     |                |       |                    |        |                   |        |       |       |     
|Revenues:                                                                            |                                                     |                |       |                    |        |                   |        |       |       |      |        |        |        |   |        |      
|                                                                                     | Servicing fees from affiliates                      |                | $     | 3,574              |        |                   | $      | 3,263 |       |      | $      | 11,167 |        |   | $      | 9,655 |       
|                                                                                     | Gain on resolution of Portfolio Assets              |                |       | 112                |        |                   |        | 225   |       |      |        | 1,079  |        |   |        | 925   |       
|                                                                                     | Equity in earnings of investments                   |                |       | 5,187              |        |                   |        | 1,277 |       |      |        | 14,211 |        |   |        | 6,691 |       
|                                                                                     | Interest income from affiliates                     |                |       | 501                |        |                   |        | 962   |       |      |        | 2,327  |        |   |        | 3,063 |       
|                                                                                     | Interest income  other                             |                |       | 98                 |        |                   |        | 280   |       |      |        | 443    |        |   |        | 841   |       
|                                                                                     | Gain on sale of interest in equity investments      |                |       |                   |        |                   |        |      |       |      |        |       |        |   |        | 1,779 |       
|                                                                                     | Other income                                        |                |       | 545                |        |                   |        | 534   |       |      |        | 1,161  |        |   |        | 1,710 |       
|                                                                                     |                                                     |                |       |                    |        |                   |        |       |       |      |        |        |        |   |        |       |       
|                                                                                     |                                                     | Total revenues |       |                    | 10,017 |                   |        |       | 6,541 |      |        |        | 30,388 |   |        |       | 24,664 | 
|Expenses:                                                                            |                                                     |                |       |                    |        |                   |        |       |       |      |        |        |        |   |        |      
|                                                                                     | Interest and fees on notes payable to affiliates    |                |       | 1,855              |        |                   |        | 1,503 |       |      |        | 5,550  |        |   |        | 4,439 |       
|                                                                                     | Interest and fees on notes payable  other          |                |       | 20                 |        |                   |        | 64    |       |      |        | 134    |        |   |        | 301   |       
|                                                                                     | Interest on shares subject to mandatory redemption  |                |       | 66                 |        |                   |        |      |       |      |        | 66     |        |   |        |      |       
|                                                                                     | Salaries and benefits                               |                |       | 3,823              |        |                   |        | 3,545 |       |      |        | 11,417 |        |   |        | 9,705 |       
|                                                                                     | Provision for loan and impairment losses            |                |       | 23                 |        |                   |        | 157   |       |      |        | 1      |        |   |        | 278   |       
|                                                                                     | Occupancy, data processing, communication and other |                |       | 2,189              |        |                   |        | 2,219 |       |      |        | 5,919  |        |   |        | 6,589 |       
|                                                                                     |                                                     |                |       |                    |        |                   |        |       |       |      |        |        |        |   |        |       |       
|                                                                                     |                                                     | Total expenses |       |                    | 7,976  |                   |        |       | 7,488 |      |        |        | 23,087 |   |        |       | 21,312 | 
|Earnings (loss) from continuing operations before income taxes and
minority interest |                                                     |                | 2,041 |                    |        |                   | (947   | )     |       |      | 7,301  |        |        |   | 3,352  |      
|Benefit (provision) for income taxes                                                 |                                                     |                | 171   |                    |        |                   | (28    | )     |       |      | (83    | )      |        |   | (35    | )    
|                                                                                     |                                                     |                |       |                    |        |                   |        |       |       |      |        |        |        |   |        |       |       
|Earnings (loss) from continuing operations before minority interest                  |                                                     |                | 2,212 |                    |        |                   | (975   | )     |       |      | 7,218  |        |        |   | 3,317  |      
|Minority interest                                                                    |                                                     |                | (372  | )                  |        |                   | (162   | )     |       |      | (1,160 | )      |        |   | (1,086 | )    
|                                                                                     |                                                     |                |       |                    |        |                   |        |       |       |      |        |        |        |   |        |       |       
|Earnings (loss) from continuing operations                                           |                                                     |                | 1,840 |                    |        |                   | (1,137 | )     |       |      | 6,058  |        |        |   | 2,231  |      
|Loss from discontinued operations                                                    |                                                     |                |      |                    |        |                   | (5,700 | )     |       |      | (420   | )      |        |   | (7,700 | )    
|                                                                                     |                                                     |                |       |                    |        |                   |        |       |       |      |        |        |        |   |        |       |       
|Net earnings (loss)                                                                  |                                                     |                | 1,840 |                    |        |                   | (6,837 | )     |       |      | 5,638  |        |        |   | (5,469 | )    
|Accumulated preferred dividends in arrears                                           |                                                     |                |      |                    |        |                   | (642   | )     |       |      | (133   | )      |        |   | (1,926 | )    
|                                                                                     |                                                     |                |       |                    |        |                   |        |       |       |      |        |        |        |   |        |       |       
|Net earnings (loss) to common shareholders                                           |                                                     | $              | 1,840 |                    |        | $                 | (7,479 | )     |       | $    | 5,505  |        |        | $ | (7,395 | )    
|                                                                                     |                                                     |                |       |                    |        |                   |        |       |       |      |        |        |        |   |        |       |       
|Basic earnings (loss) per common share are as follows:                               |                                                     |                |       |                    |        |                   |        |       |       |      |        |        |        |   |        |      
|                                                                                     | Earnings (loss) from continuing operations          |                | $     | 0.16               |        |                   | $      | (0.21 | )     |      | $      | 0.53   |        |   | $      | 0.04  |       
|                                                                                     | Discontinued operations                             |                | $     |                   |        |                   | $      | (0.68 | )     |      | $      | (0.04  | )      |   | $      | (0.92 | )     
|                                                                                     | Net earnings (loss) to common shareholders          |                | $     | 0.16               |        |                   | $      | (0.89 | )     |      | $      | 0.49   |        |   | $      | (0.88 | )     
|                                                                                     | Weighted average common shares outstanding          |                |       | 11,204             |        |                   |        | 8,376 |       |      |        | 11,203 |        |   |        | 8,376 |       
|Diluted earnings (loss) per common share are as follows:                             |                                                     |                |       |                    |        |                   |        |       |       |      |        |        |        |   |        |      
|                                                                                     | Earnings (loss) from continuing operations          |                | $     | 0.16               |        |                   | $      | (0.21 | )     |      | $      | 0.53   |        |   | $      | 0.04  |       
|                                                                                     | Discontinued operations                             |                | $     |                   |        |                   | $      | (0.68 | )     |      | $      | (0.04  | )      |   | $      | (0.92 | )     
|                                                                                     | Net earnings (loss) to common shareholders          |                | $     | 0.16               |        |                   | $      | (0.89 | )     |      | $      | 0.49   |        |   | $      | (0.88 | )     
|                                                                                     | Weighted average common shares outstanding          |                |       | 11,371             |        |                   |        | 8,376 |       |      |        | 11,259 |        |   |        | 8,376 |       

See accompanying notes to consolidated financial statements.

3



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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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

|                                                                    |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   |             |        |   |   |        |        |  
|------------------------------------------------------------------- | ---------------------------------------------- |  | ---------- | - | ------ | - | ------- | - | ----------- | - | ------------- | - | ------------- | - | ------- | ------ | ----- | - | ----------- | ------ | - | - | ------ | ------ | -
|                                                                    |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   | Accumulated |        |   |   |       
|                                                                    |                                                |  | Number of  |   |        |   |         |   |             |   |               |   |               |   |         |        | Other |   | Total      
|                                                                    |                                                |  | Common     |   | Common |   | Paid in |   | Accumulated |   | Comprehensive |   | Shareholders
|                                                                    |                                                |  | Shares     |   | Stock  |   | Capital |   | Deficit     |   | Income        |   | Equity       
|                                                                    |                                                |  |            |   |        |   |         |   |             |   |               |   |              
|Balances, December 31, 2001                                         |                                                |  | 8,376,500  |   |        | $ | 84      |   |             | $ | 79,645        |   |               | $ | (76,728 | )      |       | $ | 876         |        |   | $ | 3,877  |       
|Issuance of common stock in exchange for
redeemable preferred stock |                                                |  | 2,417,388  |   |        |   | 24      |   |             |   | 18,891        |   |               |   |        |        |       |   |            |        |   |   | 18,915 |       
|Issuance of common stock to acquire minority
interest in subsidiary |                                                |  | 400,000    |   |        |   | 4       |   |             |   | 396           |   |               |   |        |        |       |   |            |        |   |   | 400    |       
|Issuance of shares through employee stock
purchase plan             |                                                |  | 1,188      |   |        |   |        |   |             |   | 2             |   |               |   |        |        |       |   |            |        |   |   | 2      |       
|Comprehensive loss:                                                 |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   |             |        |   |   |        |       
|                                                                    | Net loss for 2002                              |  |            |  |        |   |         |  |             |   |               |  |               |   |         | (3,771 | )     |   |             |       |   |   |        | (3,771 | )
|                                                                    | Foreign currency items                         |  |            |  |        |   |         |  |             |   |               |  |               |   |         |       |       |   |             | 1,782  |   |   |        | 1,782  |  
|                                                                    | Unrealized net gain on securitization          |  |            |  |        |   |         |  |             |   |               |  |               |   |         |       |       |   |             | 25     |   |   |        | 25     |  
|                                                                    |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   |             |        |   |   |        |       
|Total comprehensive loss                                            |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   |             |        |   |   | (1,964 | )     
|                                                                    |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   |             |        |   |   |        |       
|Preferred dividends                                                 |                                                |  |           |   |        |   |        |   |             |   |              |   |               |   | (2,478  | )      |       |   |            |        |   |   | (2,478 | )     
|                                                                    |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   |             |        |   |   |        |       
|Balances, December 31, 2002                                         |                                                |  | 11,195,076 |   |        |   | 112     |   |             |   | 98,934        |   |               |   | (82,977 | )      |       |   | 2,683       |        |   |   | 18,752 |       
|Issuance of common stock in exchange for
redeemable preferred stock |                                                |  | 8,200      |   |        |   |        |   |             |   | 75            |   |               |   |        |        |       |   |            |        |   |   | 75     |       
|Issuance of shares through employee stock
purchase plan             |                                                |  | 1,395      |   |        |   |        |   |             |   | 3             |   |               |   |        |        |       |   |            |        |   |   | 3      |       
|Refund of unconverted Common Stock                                  |                                                |  | (17,234    | ) |        |   |        |   |             |   | 144           |   |               |   |        |        |       |   |            |        |   |   | 144    |       
|Comprehensive income:                                               |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   |             |        |   |   |        |       
|                                                                    | Net earnings for the first nine months of 2003 |  |            |  |        |   |         |  |             |   |               |  |               |   |         | 5,638  |       |   |             |       |   |   |        | 5,638  |  
|                                                                    | Foreign currency items                         |  |            |  |        |   |         |  |             |   |               |  |               |   |         |       |       |   |             | 760    |   |   |        | 760    |  
|                                                                    | Unrealized net loss on securitization          |  |            |  |        |   |         |  |             |   |               |  |               |   |         |       |       |   |             | (1,207 | ) |   |        | (1,207 | )
|                                                                    |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   |             |        |   |   |        |       
|Total comprehensive income                                          |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   |             |        |   |   | 5,191  |       
|                                                                    |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   |             |        |   |   |        |       
|Preferred dividends                                                 |                                                |  |           |   |        |   |        |   |             |   |              |   |               |   | (133    | )      |       |   |            |        |   |   | (133   | )     
|                                                                    |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   |             |        |   |   |        |       
|Balances, September 30, 2003                                        |                                                |  | 11,187,437 |   |        | $ | 112     |   |             | $ | 99,156        |   |               | $ | (77,472 | )      |       | $ | 2,236       |        |   | $ | 24,032 |       
|                                                                    |                                                |  |            |   |        |   |         |   |             |   |               |   |               |   |         |        |       |   |             |        |   |   |        |       

See accompanying notes to consolidated financial statements.

4



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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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

|                                                     |                                                                                        |                                                                         |                                                        |         |                   |        |       |         |        |        |  
|---------------------------------------------------- | -------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------------------ | ------- | ----------------- | ------ | ----- | ------- | ------ | ------ | -
|                                                     |                                                                                        |                                                                         |                                                        |         | Nine Months Ended
|                                                     |                                                                                        |                                                                         |                                                        |         | September 30,    
|                                                     |                                                                                        |                                                                         |                                                        |         |                  
|                                                     |                                                                                        |                                                                         |                                                        |         | 2003              |        | 2002 
|                                                     |                                                                                        |                                                                         |                                                        |         |                   |        |      
|Cash flows from operating activities:                |                                                                                        |                                                                         |                                                        |         |                   |        |       |        
|                                                     | Net earnings (loss)                                                                    |                                                                         | $                                                      | 5,638   |                   |        | $     | (5,469  | )     
|                                                     | Adjustments to reconcile net earnings (loss) to net cash used in
operating activities: |                                                                         |                                                        |         |                   |        |       |         |       
|                                                     |                                                                                        | Loss from discontinued operations                                       |                                                        |         | 420               |        |       |         | 7,700  |       
|                                                     |                                                                                        | Proceeds from resolution of Portfolio Assets                            |                                                        |         | 6,314             |        |       |         | 2,998  |       
|                                                     |                                                                                        | Gain on resolution of Portfolio Assets                                  |                                                        |         | (1,079            | )      |       |         | (925   | )     
|                                                     |                                                                                        | Purchase of Portfolio Assets and advances on loans receivable, net      |                                                        |         | (5,174            | )      |       |         | (4,019 | )     
|                                                     |                                                                                        | Provision for loan and impairment losses                                |                                                        |         | 1                 |        |       |         | 278    |       
|                                                     |                                                                                        | Equity in earnings of investments                                       |                                                        |         | (14,211           | )      |       |         | (6,691 | )     
|                                                     |                                                                                        | Proceeds from performing Portfolio Assets and loans receivable, net     |                                                        |         | 3,471             |        |       |         | 4,036  |       
|                                                     |                                                                                        | Capitalized interest and costs on Portfolio Assets and loans receivable |                                                        |         | (172              | )      |       |         | 103    |       
|                                                     |                                                                                        | Depreciation and amortization                                           |                                                        |         | 658               |        |       |         | 528    |       
|                                                     |                                                                                        | Increase in other assets                                                |                                                        |         | (2,560            | )      |       |         | (3,012 | )     
|                                                     |                                                                                        | Gain on sale of interest in equity investments                          |                                                        |         |                  |        |       |         | (1,779 | )     
|                                                     |                                                                                        | Gain on early extinguishment of debt                                    |                                                        |         |                  |        |       |         | (691   | )     
|                                                     |                                                                                        | Increase in other liabilities                                           |                                                        |         | 1,127             |        |       |         | 2,348  |       
|                                                     |                                                                                        |                                                                         |                                                        |         |                   |        |       |         |       
|                                                     |                                                                                        |                                                                         | Net cash used in operating activities                  |         |                   | (5,567 | )     |         |        | (4,595 | )
|                                                     |                                                                                        |                                                                         |                                                        |         |                   |        |       |         |       
|Cash flows from investing activities:                |                                                                                        |                                                                         |                                                        |         |                   |        |       |        
|                                                     | Purchase of minority interest by consolidated subsidiary                               |                                                                         |                                                        | (1,399  | )                 |        |       |        |       
|                                                     | Proceeds from sale of interest in equity investment                                    |                                                                         |                                                        |        |                   |        |       | 3,373   |       
|                                                     | Property and equipment, net                                                            |                                                                         |                                                        | (774    | )                 |        |       | (346    | )     
|                                                     | Contributions to Acquisition Partnerships and Servicing Entities                       |                                                                         |                                                        | (11,367 | )                 |        |       | (10,216 | )     
|                                                     | Distributions from Acquisition Partnerships and Servicing Entities                     |                                                                         |                                                        | 20,564  |                   |        |       | 19,510  |       
|                                                     |                                                                                        |                                                                         |                                                        |         |                   |        |       |         |       
|                                                     |                                                                                        |                                                                         | Net cash provided by investing activities              |         |                   | 7,024  |       |         |        | 12,321 |  
|                                                     |                                                                                        |                                                                         |                                                        |         |                   |        |       |         |       
|Cash flows from financing activities:                |                                                                                        |                                                                         |                                                        |         |                   |        |       |        
|                                                     | Borrowings under notes payable to affiliates                                           |                                                                         |                                                        | 18,090  |                   |        |       | 18,355  |       
|                                                     | Borrowings under notes payable  other                                                 |                                                                         |                                                        | 3,241   |                   |        |       | 438     |       
|                                                     | Payments of notes payable to affiliates                                                |                                                                         |                                                        | (22,018 | )                 |        |       | (18,287 | )     
|                                                     | Payments of notes payable  other                                                      |                                                                         |                                                        | (2,930  | )                 |        |       | (4,719  | )     
|                                                     | Refund on unconverted Common Stock                                                     |                                                                         |                                                        | 144     |                   |        |       |        |       
|                                                     | Payments for tender of redeemable preferred stock                                      |                                                                         |                                                        | (50     | )                 |        |       |        |       
|                                                     | Proceeds from issuance of common stock                                                 |                                                                         |                                                        | 3       |                   |        |       |        |       
|                                                     |                                                                                        |                                                                         |                                                        |         |                   |        |       |         |       
|                                                     |                                                                                        |                                                                         | Net cash used in financing activities                  |         |                   | (3,520 | )     |         |        | (4,213 | )
|                                                     |                                                                                        |                                                                         |                                                        |         |                   |        |       |        
|                                                     |                                                                                        |                                                                         | Net cash provided by (used in) continuing operations   |         |                   | (2,063 | )     |         |        | 3,513  |  
|                                                     |                                                                                        |                                                                         | Net cash provided by (used in) discontinued operations |         |                   | 998    |       |         |        | (836   | )
|                                                     |                                                                                        |                                                                         |                                                        |         |                   |        |       |        
|Net increase (decrease) in cash and cash equivalents |                                                                                        | $                                                                       | (1,065                                                 | )       |                   | $      | 2,677 |        
|Cash and cash equivalents, beginning of period       |                                                                                        |                                                                         | 4,118                                                  |         |                   |        | 5,583 |        
|                                                     |                                                                                        |                                                                         |                                                        |         |                   |        |       |        
|Cash and cash equivalents, end of period             |                                                                                        | $                                                                       | 3,053                                                  |         |                   | $      | 8,260 |        
|                                                     |                                                                                        |                                                                         |                                                        |         |                   |        |       |         |       
|Supplemental disclosure of cash flow information:    |                                                                                        |                                                                         |                                                        |         |                   |        |       |        
|                                                     | Cash paid during the period for:                                                       |                                                                         |                                                        |         |                   |        |       |         |       
|                                                     |                                                                                        | Interest                                                                |                                                        | $       | 4,785             |        |       | $       | 4,160  |       
|                                                     |                                                                                        | Income taxes                                                            |                                                        |         | 314               |        |       |         | 56     |       
|                                                     | Non-cash financing activities:                                                         |                                                                         |                                                        |         |                   |        |       |         |       
|                                                     |                                                                                        | Dividends accumulated and not paid on preferred stock                   |                                                        |         | 133               |        |       |         | 1,926  |       

See accompanying notes to consolidated financial statements.

5



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(Dollars in thousands, except per share data)

(1)  Basis of Presentation, Earnings per Common Share and Stock-Based
Compensation

The unaudited consolidated financial statements of FirstCity Financial
Corporation (FirstCity or the Company) reflect, in the opinion of
management, all adjustments, consisting only of normal and recurring
adjustments, necessary to present fairly FirstCitys consolidated financial
position at September 30, 2003, and the results of operations for the
three-month and nine-month periods ended September 30, 2003 and 2002, and cash
flows for the nine-month periods ended September 30, 2003 and 2002.

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 portfolios of assets or single
assets (collectively referred to as Portfolio Assets or Portfolios) 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.

Basic earnings per common share are computed based on the weighted average
of common shares outstanding during the period. Diluted earnings per common
share are computed based on the weighted average number of common shares and
common stock equivalents, which includes options outstanding under the
Companys stock option plans and outstanding warrants. Options for 203,000
shares and a warrant for 425,000 shares of common stock were potentially
dilutive. The effects of common stock equivalents were antidilutive for the
three and nine month periods ended September 30, 2002.

At September 30, 2003, the Company has two stock-based employee
compensation plans. The Company accounts for those plans under the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued
to Employees,and related Interpretations. No stock-based employee compensation
cost is reflected in the consolidated statements of operations, as all options
granted under those plans had an exercise price equal to the market value of
the underlying common stock on the date of grant. As required by FASB
Statement No. 148, Accounting for Stock-Based Compensation
 Transition and
Disclosure,the following table represents the effect on net earnings and
earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation,
to stock-based employee compensation.

|                                                        |                                                                                                                                             |   |               |     |               |   |        |     |      |   |       |      |   |   |        |      |  
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | --- | ------------- | - | ------ | --- | ---- | - | ----- | ---- | - | - | ------ | ---- | -
|                                                        |                                                                                                                                             |   | Three Months  |     | Nine Months  
|                                                        |                                                                                                                                             |   | Ended         |     | Ended        
|                                                        |                                                                                                                                             |   | September 30, |     | September 30,
|                                                        |                                                                                                                                             |   |               |     |              
|                                                        |                                                                                                                                             |   | 2003          |     | 2002          |   | 2003   |     | 2002
|                                                        |                                                                                                                                             |   |               |     |               |   |        |     |     
|Net earnings (loss) to common stockholders, as reported |                                                                                                                                             | $ | 1,840         |     |               | $ | (7,479 | )   |      | $ | 5,505 |      |   | $ | (7,395 | )   
|                                                        | Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects |   |               | (54 | )             |   |        | (49 | )    |   |       | (152 | ) |   |        | (159 | )
|                                                        |                                                                                                                                             |   |               |     |               |   |        |     |      |   |       |      |   |   |        |     
|Pro forma net earnings (loss) to common stockholders    |                                                                                                                                             | $ | 1,786         |     |               | $ | (7,528 | )   |      | $ | 5,353 |      |   | $ | (7,544 | )   
|                                                        |                                                                                                                                             |   |               |     |               |   |        |     |      |   |       |      |   |   |        |     
|Net earnings per common share:                          |                                                                                                                                             |   |               |     |               |   |        |     |      |   |       |      |   |   |        |     
|Basic  as reported                                     |                                                                                                                                             | $ | 0.16          |     |               | $ | (0.89  | )   |      | $ | 0.49  |      |   | $ | (0.88  | )   
|                                                        |                                                                                                                                             |   |               |     |               |   |        |     |      |   |       |      |   |   |        |     
|Basic  pro forma                                       |                                                                                                                                             | $ | 0.16          |     |               | $ | (0.90  | )   |      | $ | 0.48  |      |   | $ | (0.90  | )   
|                                                        |                                                                                                                                             |   |               |     |               |   |        |     |      |   |       |      |   |   |        |     
|Diluted  as reported                                   |                                                                                                                                             | $ | 0.16          |     |               | $ | (0.89  | )   |      | $ | 0.49  |      |   | $ | (0.88  | )   
|                                                        |                                                                                                                                             |   |               |     |               |   |        |     |      |   |       |      |   |   |        |     
|Diluted  pro forma                                     |                                                                                                                                             | $ | 0.16          |     |               | $ | (0.90  | )   |      | $ | 0.48  |      |   | $ | (0.90  | )   
|                                                        |                                                                                                                                             |   |               |     |               |   |        |     |      |   |       |      |   |   |        |     

6



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(2) Restructure, 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 entities formed to acquire Portfolios
(Acquisition Partnerships), retirement of and interest on preferred stock,
and other investments by FirstCity. 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,
securitization and other structured finance transactions and other special
purpose short-term borrowings.

In December 2002, FirstCity completed a recapitalization in which holders
of redeemable preferred stock, par value $.01 per share, (New Preferred
Stock) exchanged 1,092,210 shares of New Preferred Stock for 2,417,388 shares
of common stock and $10.5 million in cash. As a result, common equity was
increased by $18.9 million. During the first quarter of 2003, 4,400 shares of
New Preferred Stock were redeemed for 8,200 shares of common stock and $50,000
in cash. FirstCity also recorded a $4 million gain in December 2002 from the
release of its guaranty of Drives indebtedness to BoS(USA), Inc. (BoS(USA)).
BoS(USA)s warrant to purchase 1,975,000 shares of non-voting common stock was
cancelled. FirstCity also acquired the minority interest in FirstCity Holdings
Corporation held by Terry R. DeWitt, G. Stephen Fillip and James C. Holmes,
each of whom are Senior Vice Presidents of FirstCity, by issuing 400,000 shares
of common stock of the Company and a note payable, to be periodically redeemed
by the Company for an aggregate of up to $3.2 million out of certain cash
collections from servicing income from Portfolios in Mexico.

As a part of the recapitalization, BoS(USA) provided a non-recourse loan
in the amount of $16 million to FirstCity which was used to pay the cash
portion of the exchange offer to the holders of the New Preferred Stock, to pay
expenses of the exchange offer and recapitalization, and to reduce FirstCitys
debt to the Bank of Scotland (together with BoS(USA), the Senior Lenders).
The $16 million loan is secured by a 20% interest in Drive (64.51% of
FirstCitys remaining 31% interest in Drive) and other assets of Consumer
Lending Corporation (Consumer Corp.). In connection with the $16 million loan,
FirstCity is obligated to pay an arrangement fee to BoS(USA) equal to 20% of
all amounts received by FirstCity in excess of $16 million from any sale or
other disposition of FirstCitys 20% interest in Drive and all dividends and
other distributions paid by Drive or its general partner on FirstCitys 20%
interest in Drive. Management of the Company believes the value of FirstCitys
20% ownership interest of Drive does not exceed $16 million as of September 30,
2003.

In connection with the recapitalization, the Senior Lenders refinanced the
remainder of the Companys debt facilities ($44 million outstanding at
September 30, 2003). The Senior Lenders also provided new financing to
FirstCity, with a total commitment of up to $59 million, consisting of (a) a $5
million revolving credit loan and (b) an acquisition term loan in an amount up
to $54 million ($20 million available at September 30, 2003). The aggregate
amount of outstanding loans under the total commitment by the Senior Lenders
for the refinancing and the new financing at any time may not exceed $77
million.

BoS(USA) has a warrant to purchase 425,000 shares of the Companys voting
Common Stock at $2.3125 per share. 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.

In the third quarter of 1999, dividends on the Companys redeemable
preferred stock (New Preferred Stock) were suspended. At September 30, 2003,
accumulated dividends in arrears on New Preferred Stock totaled $1.1 million,
or $8.92 per share. Since the Company failed to pay quarterly dividends for six
consecutive quarters, the holders of New Preferred Stock are entitled to
exercise their right to elect two directors to the Companys Board until
cumulative dividends have been paid in full. To exercise this right, the
holders of the New Preferred Stock must follow certain prescribed actions set
fourth in the Certificate of Designations of the Companys New Preferred Stock.
To date, the holders of the New Preferred Stock have not exercised this right.
Dividends on outstanding shares of New Preferred Stock of FirstCity will be
restricted until the Tranche II term loan 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 has a $35 million loan facility 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 and matures in March 2005. At September 30, 2003, approximately $25
million was outstanding under this facility.

7



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 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

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51(FIN 46). FIN
46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective immediately for all new variable interest entities created or
acquired after January 31, 2003. For variable interest entities created or
acquired prior to February 1, 2003, FirstCity must apply the provisions of FIN
46 as of December 31, 2003. Based on the new criteria in the Interpretation,
FIN 46 also requires certain disclosures in financial statements issued after
January 31, 2003 if it is reasonably possible that the entity will consolidate
or disclose information about variable interest entities when FIN 46 becomes
effective. Although management is still evaluating the impact of FIN 46, the
adoption is not expected to have a material effect. Presently the Company does
not believe that any of its equity investments will qualify for consolidation
in accordance with FIN 46.

In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities(SFAS 149). SFAS 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 149 is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The Company currently has no
derivatives or hedging relationships, and therefore, the adoption of SFAS 149
had no effect on the Companys consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity
(SFAS 150). SFAS establishes standards for how an issuer measures certain
financial instruments with characteristics of both liabilities and equity and
classifies them in its statement of financial position. It requires that an
issuer classify a financial instrument that is within its scope as a liability
(or an asset in some circumstances) when that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective on July 1, 2003. As it relates to FirstCity, on July 1, 2003, the
carrying value of the New Preferred Stock was $3.7 million and approximated
fair value. Beginning with the third quarter of 2003, the New Preferred Stock
is be presented as a liability in the consolidated financial statements and any
related accretion of discount and dividends are charged to the consolidated
results of operations.

In November 2003, the FASB issued Staff Position, No. 150-3, Effective
Date, Disclosures, and Transition for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests under FASB Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity
(Staff Position 150-3). Staff Position 150-3 defers the application of
various provisions of SFAS 150 for specified mandatorily redeemable
noncontrolling interests in consolidated limited-life entities. FirstCity has
minority interests in various limited-life partnerships with a carrying value
of $895 at September 30, 2003. The estimated amount that would be paid to the
minority interest holder if the instruments were to be settled at September
30, 2003 is $949.

(4) Discontinued Operations

The anticipated net realizable value of the Companys investment in
discontinued operations was $6,346 at September 30, 2003. During the third
quarter of 2003, the Company received $1.4 million in cash flows from the
Companys residual interest in the FC Capital 1998-1 securitization trust. The
Company recorded a provision of $.4 million in the first nine months of 2003
and $7.7 million in the first nine months of 2002 for additional losses from
discontinued operations. The provisions primarily relate to reductions in
anticipated future cash flows from securitization trusts due to increased
expected prepayments and losses. The net assets from discontinued operations
consist of the following:

|                                                                              |                                       |   |               |       |              |   |        |       | 
|----------------------------------------------------------------------------- | ------------------------------------- | - | ------------- | ----- | ------------ | - | ------ | ----- | 
|                                                                              |                                       |   | September 30, |       | December 31,
|                                                                              |                                       |   | 2003          |       | 2002        
|                                                                              |                                       |   |               |       |             
|Estimated future gross cash receipts on residual interests in securitizations |                                       | $ | 6,577         |       |              | $ | 8,764  |      
|Accrual for loss on operations and disposal of discontinued operations, net   |                                       |   | (231          | )     |              |   | (1,000 | )    
|                                                                              |                                       |   |               |       |              |   |        |      
|                                                                              | Net assets of discontinued operations |   | $             | 6,346 |              |   | $      | 7,764 | 
|                                                                              |                                       |   |               |       |              |   |        |      

8



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 value of such investment securities. The cash flows are
collected over a period of time and are valued using prepayment assumptions of
38% to 47% for fixed rate loans and 25% to 35% for variable rate loans. Overall
loss rates are estimated from 3% to 11% of collateral.

(5) Portfolio Assets

Portfolio Assets are summarized as follows:

|                                                                                  |                        |   |               |        |              |   |         |        | 
|--------------------------------------------------------------------------------- | ---------------------- | - | ------------- | ------ | ------------ | - | ------- | ------ | 
|                                                                                  |                        |   | September 30, |        | December 31,
|                                                                                  |                        |   | 2003          |        | 2002        
|                                                                                  |                        |   |               |        |             
|Non-performing Portfolio Assets                                                   |                        | $ | 25,557        |        |              | $ | 39,241  |       
|Performing Portfolio Assets                                                       |                        |   | 2,979         |        |              |   | 7,761   |       
|Real estate Portfolios                                                            |                        |   | 887           |        |              |   | 1,242   |       
|                                                                                  |                        |   |               |        |              |   |         |       
|                                                                                  | Total Portfolio Assets |   |               | 29,423 |              |   |         | 48,244 | 
|Adjusted purchase discount required to reflect Portfolio Assets at carrying value |                        |   | (25,351       | )      |              |   | (38,424 | )     
|                                                                                  |                        |   |               |        |              |   |         |       
|                                                                                  | Portfolio Assets, net  |   | $             | 4,072  |              |   | $       | 9,820  | 
|                                                                                  |                        |   |               |        |              |   |         |       

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

(6) Loans Receivable from Acquisition Partnerships Held for Investment

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

|         |  |               |        |              |  |   |        | 
|-------- |  | ------------- | ------ | ------------ |  | - | ------ | 
|         |  | September 30, |        | December 31,
|         |  | 2003          |        | 2002        
|         |  |               |        |             
|Mexico   |  | $             | 14,333 |              |  | $ | 16,399 | 
|France   |  |               | 3,246  |              |  |   |       | 
|Domestic |  |               | 1,416  |              |  |   | 1,301  | 
|         |  |               |        |              |  |   |        | 
|         |  | $             | 18,995 |              |  | $ | 17,700 | 
|         |  |               |        |              |  |   |        | 

There were no provisions recorded on these loans during the first nine
months of 2003 and 2002. The loans receivable from the Mexican partnerships are
secured by the assets/loans acquired by the Mexican partnerships with purchase
money loans provided by affiliates of the investors in the Mexican partnerships
to purchase the asset pools held in those entities. These loans are evaluated
for impairment by analyzing the expected future cash flows from the underlying
assets within each pool to determine that the cash flows are 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 are necessary. Equity method
losses, which were recorded to reduce the loans and interest receivable from
the Mexican partnerships, were $1.8 million and $2.1 million during the first
nine months of 2003 and 2002, respectively, in compliance with EITF 98-13,
Accounting by an Equity Method Investor for Investee Losses When the Investor
Has Loans to and Investments in Other Securities of the Investee. During the
third quarter of 2003, the Company amended loan agreements with three Mexican
partnerships to provide for no interest to be payable with respect to periods
after the effective date of the amendment. This change had no impact on the
consolidated net earnings as the effect is offset through equity earnings in
the partnerships.

At September 30, 2003, the Company has a $3.2 million loan receivable from
one French Acquisition Partnership. This loan is secured by the assets/loans
held by the Partnership and is evaluated for impairment in the same manner as
the loans to the Mexican Partnerships described above. The results of this
evaluation indicated that the cash flows from the underlying assets will be
sufficient to repay the loan and no allowance for impairment is necessary.

(7) Equity Investments

The
Company has investments in Acquisition Partnerships and their general
partners and investments in servicing entities that are accounted for under the
equity method. The condensed combined financial position and results of
operations of the Acquisition

9



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Partnerships (excluding servicing entities),
which include the domestic and foreign Acquisition Partnerships and their
general partners, are summarized below:

Condensed Combined Balance Sheets

|                                              |  |               |         |              |  |   |         | 
|--------------------------------------------- |  | ------------- | ------- | ------------ |  | - | ------- | 
|                                              |  | September 30, |         | December 31,
|                                              |  | 2003          |         | 2002        
|                                              |  |               |         |             
|Assets                                        |  | $             | 518,124 |              |  | $ | 585,435 | 
|                                              |  |               |         |              |  |   |         | 
|Liabilities                                   |  | $             | 463,232 |              |  | $ | 480,713 | 
|Net equity                                    |  |               | 54,892  |              |  |   | 104,722 | 
|                                              |  |               |         |              |  |   |         | 
|                                              |  | $             | 518,124 |              |  | $ | 585,435 | 
|                                              |  |               |         |              |  |   |         | 
|Equity investment in Acquisition Partnerships |  | $             | 48,029  |              |  | $ | 46,029  | 
|Equity investment in servicing entities       |  |               | 3,932   |              |  |   | 3,247   | 
|                                              |  |               |         |              |  |   |         | 
|                                              |  | $             | 51,961  |              |  | $ | 49,276  | 
|                                              |  |               |         |              |  |   |         | 

Condensed Combined Summary of Operations

|                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|---------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                               |  | Three Months Ended |        | Nine Months Ended
|                                               |  | September 30,      |        | September 30,    
|                                               |  |                    |        |                  
|                                               |  | 2003               |        | 2002              |  | 2003 |        | 2002
|                                               |  |                    |        |                   |  |      |        |     
|Proceeds from resolution of Portfolio Assets   |  | $                  | 69,506 |                   |  | $    | 46,473 |      |  | $ | 187,699 |   |  | $ | 221,106 |  
|Gain on resolution of Portfolio Assets         |  |                    | 29,169 |                   |  |      | 16,849 |      |  |   | 72,403  |   |  |   | 69,532  |  
|Interest income on performing Portfolio Assets |  |                    | 1,756  |                   |  |      | 2,699  |      |  |   | 5,884   |   |  |   | 11,961  |  
|Net loss                                       |  |                    | (7,880 | )                 |  |      | (4,826 | )    |  |   | (11,838 | ) |  |   | (6,711  | )
|                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|Equity in earnings of Acquisition Partnerships |  | $                  | 3,007  |                   |  | $    | 912    |      |  | $ | 8,135   |   |  | $ | 6,494   |  
|Equity in earnings of servicing entities       |  |                    | 155    |                   |  |      | 12     |      |  |   | 474     |   |  |   | 692     |  
|                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|                                               |  | $                  | 3,162  |                   |  | $    | 924    |      |  | $ | 8,609   |   |  | $ | 7,186   |  
|                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  

The assets and equity of the Acquisition Partnerships and FirstCitys
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.
MinnTex Investment Partners LP is considered to be a significant subsidiary of
FirstCity.

|                                               |           |                                |         |               |         |              |         |         |         | 
|---------------------------------------------- | --------- | ------------------------------ | ------- | ------------- | ------- | ------------ | ------- | ------- | ------- | 
|                                               |           |                                |         | September 30, |         | December 31,
|                                               |           |                                |         | 2003          |         | 2002        
|                                               |           |                                |         |               |         |             
|Assets:                                        |           |                                |         |               |         |              |         |        
|                                               | Domestic: |                                |         |               |         |              |         |         |        
|                                               |           | WAMCO Partnerships             |         | $             | 186,529 |              |         | $       | 189,392 | 
|                                               |           | MinnTex Investment Partners LP |         |               | 1,991   |              |         |         | 3,733   | 
|                                               |           | Other                          |         |               | 15,728  |              |         |         | 15,758  | 
|                                               | Mexico    |                                |         | 199,901       |         |              |         | 246,087 |        
|                                               | France    |                                |         | 113,975       |         |              |         | 130,465 |        
|                                               |           |                                |         |               |         |              |         |        
|                                               |           | $                              | 518,124 |               |         | $            | 585,435 |        
|                                               |           |                                |         |               |         |              |         |         |         | 
|Equity (deficit):                              |           |                                |         |               |         |              |         |        
|                                               | Domestic: |                                |         |               |         |              |         |         |        
|                                               |           | WAMCO Partnerships             |         | $             | 83,317  |              |         | $       | 80,059  | 
|                                               |           | MinnTex Investment Partners LP |         |               | 1,857   |              |         |         | 3,569   | 
|                                               |           | Other                          |         |               | 3,784   |              |         |         | 3,643   | 
|                                               | Mexico    |                                |         | (98,898       | )       |              |         | (51,567 | )      
|                                               | France    |                                |         | 64,832        |         |              |         | 69,018  |        
|                                               |           |                                |         |               |         |              |         |        
|                                               |           | $                              | 54,892  |               |         | $            | 104,722 |        
|                                               |           |                                |         |               |         |              |         |         |         | 
|Equity investment in Acquisition Partnerships: |           |                                |         |               |         |              |         |        
|                                               | Domestic: |                                |         |               |         |              |         |         |        
|                                               |           | WAMCO Partnerships             |         | $             | 32,131  |              |         | $       | 29,951  | 
|                                               |           | MinnTex Investment Partners LP |         |               | 613     |              |         |         | 1,178   | 
|                                               |           | Other                          |         |               | 2,258   |              |         |         | 2,316   | 
|                                               | Mexico    |                                |         | 1,044         |         |              |         | 1,108   |        
|                                               | France    |                                |         | 11,983        |         |              |         | 11,476  |        
|                                               |           |                                |         |               |         |              |         |        
|                                               |           | $                              | 48,029  |               |         | $            | 46,029  |        
|                                               |           |                                |         |               |         |              |         |         |         | 

10



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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

|                                                       |           |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |         |        | 
|------------------------------------------------------ | --------- | ------------------------------ | ------ | ------------------ | ----- | ----------------- | ------ | ------- | ----- | ---- | ------- | ------- | ------ | - | ------ | ------- | ------ | 
|                                                       |           |                                |        | Three Months Ended |       | Nine Months Ended
|                                                       |           |                                |        | September 30,      |       | September 30,    
|                                                       |           |                                |        |                    |       |                  
|                                                       |           |                                |        | 2003               |       | 2002              |        | 2003    |       | 2002
|                                                       |           |                                |        |                    |       |                   |        |         |       |     
|Revenues:                                              |           |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |        
|                                                       | Domestic: |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |         |       
|                                                       |           | WAMCO Partnerships             |        | $                  | 8,102 |                   |        | $       | 5,688 |      |         | $       | 26,143 |   |        | $       | 37,069 | 
|                                                       |           | MinnTex Investment Partners LP |        |                    | 3,200 |                   |        |         | 1,918 |      |         |         | 9,908  |   |        |         | 3,915  | 
|                                                       |           | Other                          |        |                    | 59    |                   |        |         | 12    |      |         |         | 97     |   |        |         | 423    | 
|                                                       | Mexico    |                                |        | 7,113              |       |                   |        | 8,807   |       |      |         | 19,251  |        |   |        | 29,554  |       
|                                                       | France    |                                |        | 12,979             |       |                   |        | 3,695   |       |      |         | 24,425  |        |   |        | 12,334  |       
|                                                       |           |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |         |        | 
|                                                       |           | $                              | 31,453 |                    |       | $                 | 20,120 |         |       | $    | 79,824  |         |        | $ | 83,295 |        
|                                                       |           |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |         |        | 
|Net earnings (loss):                                   |           |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |        
|                                                       | Domestic: |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |         |       
|                                                       |           | WAMCO Partnerships             |        | $                  | 4,776 |                   |        | $       | 2,210 |      |         | $       | 15,032 |   |        | $       | 23,936 | 
|                                                       |           | MinnTex Investment Partners LP |        |                    | 2,841 |                   |        |         | 1,232 |      |         |         | 8,751  |   |        |         | 2,423  | 
|                                                       |           | Other                          |        |                    | (184  | )                 |        |         | (83   | )    |         |         | (414   | ) |        |         | 104    | 
|                                                       | Mexico    |                                |        | (24,391            | )     |                   |        | (10,464 | )     |      |         | (51,126 | )      |   |        | (40,875 | )     
|                                                       | France    |                                |        | 9,078              |       |                   |        | 2,279   |       |      |         | 15,919  |        |   |        | 7,701   |       
|                                                       |           |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |         |        | 
|                                                       |           | $                              | (7,880 | )                  |       | $                 | (4,826 | )       |       | $    | (11,838 | )       |        | $ | (6,711 | )      
|                                                       |           |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |         |        | 
|Equity in earnings (loss) of Acquisition
Partnerships: |           |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |        
|                                                       | Domestic: |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |         |       
|                                                       |           | WAMCO Partnerships             |        | $                  | 1,599 |                   |        | $       | 923   |      |         | $       | 5,284  |   |        | $       | 6,797  | 
|                                                       |           | MinnTex Investment Partners LP |        |                    | 937   |                   |        |         | 407   |      |         |         | 2,888  |   |        |         | 800    | 
|                                                       |           | Other                          |        |                    | (56   | )                 |        |         | (21   | )    |         |         | (81    | ) |        |         | 214    | 
|                                                       | Mexico    |                                |        | (1,104             | )     |                   |        | (812    | )     |      |         | (2,774  | )      |   |        | (2,726  | )     
|                                                       | France    |                                |        | 1,631              |       |                   |        | 415     |       |      |         | 2,818   |        |   |        | 1,409   |       
|                                                       |           |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |         |        | 
|                                                       |           | $                              | 3,007  |                    |       | $                 | 912    |         |       | $    | 8,135   |         |        | $ | 6,494  |        
|                                                       |           |                                |        |                    |       |                   |        |         |       |      |         |         |        |   |        |         |        | 

FirstCity also has an investment in Drive that is accounted for under the
equity method. The condensed consolidated financial position and results of
operations of Drive are summarized below:

Condensed Consolidated Balance Sheets

|                                      |                   |                         |         |               |        |              |         |         |       | 
|------------------------------------- | ----------------- | ----------------------- | ------- | ------------- | ------ | ------------ | ------- | ------- | ----- | 
|                                      |                   |                         |         | September 30, |        | December 31,
|                                      |                   |                         |         | 2003          |        | 2002        
|                                      |                   |                         |         |               |        |             
|Cash                                  |                   | $                       | 25,551  |               |        | $            | 14,337  |        
|Restricted cash                       |                   |                         | 41,124  |               |        |              | 12,124  |        
|Retail installment contracts, net     |                   |                         | 577,973 |               |        |              | 367,520 |        
|Residual interests in securitizations |                   |                         | 37,435  |               |        |              | 63,202  |        
|Other assets                          |                   |                         | 18,677  |               |        |              | 14,494  |        
|                                      |                   |                         |         |               |        |              |         |        
|                                      | Total assets      |                         | $       | 700,760       |        |              | $       | 471,677 |      
|                                      |                   |                         |         |               |        |              |         |        
|Notes payable                         |                   | $                       | 648,953 |               |        | $            | 434,422 |        
|Other liabilities                     |                   |                         | 15,520  |               |        |              | 14,123  |        
|                                      |                   |                         |         |               |        |              |         |        
|                                      | Total liabilities |                         |         | 664,473       |        |              |         | 448,545 |      
|Net equity                            |                   |                         | 36,287  |               |        |              | 23,132  |        
|                                      |                   |                         |         |               |        |              |         |        
|                                      |                   | $                       | 700,760 |               |        | $            | 471,677 |        
|                                      |                   |                         |         |               |        |              |         |        
|Equity investment in Drive            |                   | $                       | 14,058  |               |        | $            | 9,066   |        
|                                      | Minority interest |                         |         | (2,809        | )      |              |         | (1,812  | )    
|                                      |                   |                         |         |               |        |              |         |        
|                                      |                   | Net investment in Drive |         | $             | 11,249 |              |         | $       | 7,254 | 
|                                      |                   |                         |         |               |        |              |         |        

11



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Condensed Consolidated Summary Of Operations

|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |        |        |  
|------------------------------------------------------------------------------ | ---------------------------------------------------- | --------------------------------------------------------------------- | ------ | ------------------ | ------ | ----------------- | ------ | ----- | ------ | ---- | ------- | ------ | ------- | - | ------ | ------ | ------ | -
|                                                                               |                                                      |                                                                       |        | Three Months Ended |        | Nine Months Ended
|                                                                               |                                                      |                                                                       |        | September 30,      |        | September 30,    
|                                                                               |                                                      |                                                                       |        |                    |        |                  
|                                                                               |                                                      |                                                                       |        | 2003               |        | 2002              |        | 2003  |        | 2002
|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |     
|Finance and other interest income                                              |                                                      | $                                                                     | 50,349 |                    |        | $                 | 34,558 |       |        | $    | 135,834 |        |         | $ | 60,289 |       
|Interest expense                                                               |                                                      |                                                                       | 8,583  |                    |        |                   | 4,895  |       |        |      | 22,880  |        |         |   | 10,638 |       
|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       
|                                                                               |                                                      | Net interest margin                                                   |        |                    | 41,766 |                   |        |       | 29,663 |      |         |        | 112,954 |   |        |        | 49,651 |  
|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       
|Provision for credit losses on retail
installment contracts                    |                                                      |                                                                       | 16,803 |                    |        |                   | 16,320 |       |        |      | 46,831  |        |         |   | 16,340 |       
|Impairment of residual interests in
securitizations, including servicing
asset |                                                      |                                                                       | 3,904  |                    |        |                   | 112    |       |        |      | 6,361   |        |         |   | 112    |       
|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       
|                                                                               |                                                      | Net interest margin after
provision for credit losses
and impairments |        |                    | 21,059 |                   |        |       | 13,231 |      |         |        | 59,762  |   |        |        | 33,199 |  
|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       
|Other revenues:                                                                |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       
|                                                                               | Servicing income                                     |                                                                       |        | 6,333              |        |                   |        | 4,977 |        |      |         | 17,762 |         |   |        | 14,212 |       
|                                                                               | Other income                                         |                                                                       |        | 607                |        |                   |        | 337   |        |      |         | 1,733  |         |   |        | 751    |       
|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       
|                                                                               |                                                      | Total other revenues                                                  |        |                    | 6,940  |                   |        |       | 5,314  |      |         |        | 19,495  |   |        |        | 14,963 |  
|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       
|Costs and expenses:                                                            |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       
|                                                                               | Salaries and benefits                                |                                                                       |        | 11,397             |        |                   |        | 9,832 |        |      |         | 34,483 |         |   |        | 30,279 |       
|                                                                               | Servicing expense                                    |                                                                       |        | 8,497              |        |                   |        | 4,460 |        |      |         | 21,950 |         |   |        | 10,867 |       
|                                                                               | Occupancy, data processing,
communication, and other |                                                                       |        | 2,876              |        |                   |        | 3,340 |        |      |         | 8,094  |         |   |        | 8,292  |       
|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       
|                                                                               |                                                      | Total costs and expenses                                              |        |                    | 22,770 |                   |        |       | 17,632 |      |         |        | 64,527  |   |        |        | 49,438 |  
|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       
|                                                                               |                                                      | Net income (loss)                                                     |        | $                  | 5,229  |                   |        | $     | 913    |      |         | $      | 14,730  |   |        | $      | (1,276 | )
|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       
|Equity in earnings (loss) of Drive                                             |                                                      | $                                                                     | 2,025  |                    |        | $                 | 353    |       |        | $    | 5,602   |        |         | $ | (495   | )     
|Minority interest                                                              |                                                      |                                                                       | (404   | )                  |        |                   | (71    | )     |        |      | (1,119  | )      |         |   | 99     |       
|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       
|                                                                               | Net equity in earnings (loss) of Drive               |                                                                       | $      | 1,621              |        |                   | $      | 282   |        |      | $       | 4,483  |         |   | $      | (396   | )     
|                                                                               |                                                      |                                                                       |        |                    |        |                   |        |       |        |      |         |        |         |   |        |       

(8) Segment Reporting

The Company is engaged in two reportable segments: (i) Portfolio Asset
acquisition and resolution; and (ii) consumer lending. These segments have been
segregated based on products and services offered. The Portfolio Asset
acquisition and resolution business involves acquiring Portfolio Assets at a
discount to face value and servicing and resolving such Portfolios in an effort
to maximize the present value of the ultimate cash recoveries. The consumer
lending business is conducted through the Companys equity investment in Drive.
Drive is a specialized consumer finance company engaged in the purchase,
securitization and servicing of retail installment contracts originated by
automobile dealers. The following is a summary of results of operations for
each of the segments and reconciliation to earnings from continuing operations
for the three months and nine months ended September 30, 2003 and 2002.

|                                            |           |                                                     |       |   |                    |       |                   |   |       |       |      |   |        |        |  |   |       |        | 
|------------------------------------------- | --------- | --------------------------------------------------- | ----- | - | ------------------ | ----- | ----------------- | - | ----- | ----- | ---- | - | ------ | ------ |  | - | ----- | ------ | 
|                                            |           |                                                     |       |   | Three Months Ended |       | Nine Months Ended
|                                            |           |                                                     |       |   | September 30,      |       | September 30,    
|                                            |           |                                                     |       |   |                    |       |                  
|                                            |           |                                                     |       |   | 2003               |       | 2002              |   | 2003  |       | 2002
|                                            |           |                                                     |       |   |                    |       |                   |   |       |       |     
|Portfolio Asset Acquisition and Resolution: |           |                                                     |       |   |                    |       |                   |   |       |       |      |   |        |        |  |  
|                                            | Revenues: |                                                     |       |   |                    |       |                   |   |       |       |      |   |        |        |  |   |      
|                                            |           | Servicing fees                                      |       | $ | 3,574              |       |                   | $ | 3,263 |       |      | $ | 11,167 |        |  | $ | 9,655 |       
|                                            |           | Gain on resolution of Portfolio Assets              |       |   | 112                |       |                   |   | 225   |       |      |   | 1,079  |        |  |   | 925   |       
|                                            |           | Equity in earnings of investments                   |       |   | 3,162              |       |                   |   | 924   |       |      |   | 8,609  |        |  |   | 7,186 |       
|                                            |           | Interest income                                     |       |   | 598                |       |                   |   | 1,240 |       |      |   | 2,767  |        |  |   | 3,899 |       
|                                            |           | Gain on sale of interest in equity investment       |       |   |                   |       |                   |   |      |       |      |   |       |        |  |   | 1,779 |       
|                                            |           | Other                                               |       |   | 405                |       |                   |   | 491   |       |      |   | 888    |        |  |   | 1,588 |       
|                                            |           |                                                     |       |   |                    |       |                   |   |       |       |      |   |        |        |  |   |       |       
|                                            |           |                                                     | Total |   |                    | 7,851 |                   |   |       | 6,143 |      |   |        | 24,510 |  |   |       | 25,032 | 
|                                            | Expenses: |                                                     |       |   |                    |       |                   |   |       |       |      |   |        |        |  |   |      
|                                            |           | Interest and fees on notes payable                  |       |   | 587                |       |                   |   | 628   |       |      |   | 1,848  |        |  |   | 2,132 |       
|                                            |           | Salaries and benefits                               |       |   | 2,972              |       |                   |   | 2,809 |       |      |   | 9,117  |        |  |   | 7,298 |       
|                                            |           | Provision for loan and impairment losses            |       |   | 23                 |       |                   |   | 157   |       |      |   | 1      |        |  |   | 278   |       
|                                            |           | Occupancy, data processing, communication and other |       |   | 1,492              |       |                   |   | 1,581 |       |      |   | 4,062  |        |  |   | 4,754 |       

12



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |       |       |   |        |  
|------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------- | - | ------------------------------------------------- | ----- | ------------------ | ----- | ----------------- | --- | ---- | ----- | ----- | ----- | - | ------ | ----- | ----- | - | ------ | -
|                    |                                                                                   |                                                     |   |                                                   |       | Three Months Ended |       | Nine Months Ended
|                    |                                                                                   |                                                     |   |                                                   |       | September 30,      |       | September 30,    
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                  
|                    |                                                                                   |                                                     |   |                                                   |       | 2003               |       | 2002              |     | 2003 |       | 2002 
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |      
|                    |                                                                                   | Minority interest                                   |   |                                                   | (32   | )                  |       |                   | 91  |      |       |       | 41    |   |        |       | 1,185 |  
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      
|                    |                                                                                   |                                                     |   | Total                                             |       |                    | 5,042 |                   |     |      | 5,266 |       |       |   | 15,069 |       |       |   | 15,647 |  
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      
|                    | Operating contribution before direct taxes                                        |                                                     | $ | 2,809                                             |       |                    | $     | 877               |     |      | $     | 9,441 |       |   | $      | 9,385 |      
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      
|                    | Operating contribution, net of direct taxes                                       |                                                     | $ | 3,005                                             |       |                    | $     | 849               |     |      | $     | 9,418 |       |   | $      | 9,350 |      
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      
|Consumer Lending:   |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      
|                    | Revenues:                                                                         |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |       |      
|                    |                                                                                   | Equity in earnings (loss) of investment             |   | $                                                 | 2,025 |                    |       | $                 | 353 |      |       | $     | 5,602 |   |        | $     | (495  | )
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      
|                    |                                                                                   |                                                     |   | Total                                             |       |                    | 2,025 |                   |     |      | 353   |       |       |   | 5,602  |       |       |   | (495   | )
|                    | Expenses:                                                                         |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |       |      
|                    |                                                                                   | Interest and fees on notes payable                  |   |                                                   | 85    |                    |       |                   |    |      |       |       | 273   |   |        |       |      |  
|                    |                                                                                   | Occupancy, data processing, communication and other |   |                                                   | 21    |                    |       |                   | 2   |      |       |       | 33    |   |        |       | 10    |  
|                    |                                                                                   | Minority interest                                   |   |                                                   | 404   |                    |       |                   | 71  |      |       |       | 1,119 |   |        |       | (99   | )
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      
|                    |                                                                                   |                                                     |   | Total                                             |       |                    | 510   |                   |     |      | 73    |       |       |   | 1,425  |       |       |   | (89    | )
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      
|                    | Operating contribution (loss) before direct taxes                                 |                                                     | $ | 1,515                                             |       |                    | $     | 280               |     |      | $     | 4,177 |       |   | $      | (406  | )    
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      
|                    | Operating contribution (loss), net of direct taxes                                |                                                     | $ | 1,491                                             |       |                    | $     | 280               |     |      | $     | 4,118 |       |   | $      | (406  | )    
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      
|                    |                                                                                   |                                                     |   | Total operating contribution, net of direct taxes |       | $                  | 4,496 |                   |     | $    | 1,129 |       |       | $ | 13,536 |       |       | $ | 8,944  |  
|Corporate Overhead: |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      
|                    | Corporate interest expense                                                        |                                                     |   | 1,269                                             |       |                    |       | 939               |     |      |       | 3,629 |       |   |        | 2,608 |      
|                    | Salaries and benefits, occupancy, professional and
other income and expenses, net |                                                     |   | 1,387                                             |       |                    |       | 1,327             |     |      |       | 3,849 |       |   |        | 4,105 |      
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      
|                    | Earnings (loss) from continuing operations                                        |                                                     | $ | 1,840                                             |       |                    | $     | (1,137            | )   |      | $     | 6,058 |       |   | $      | 2,231 |      
|                    |                                                                                   |                                                     |   |                                                   |       |                    |       |                   |     |      |       |       |       |   |        |      

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  |       | Nine Months  
|              |       |   | Ended         |       | Ended        
|              |       |   | September 30, |       | September 30,
|              |       |   |               |       |              
|              |       |   | 2003          |       | 2002          |   | 2003  |       | 2002
|              |       |   |               |       |               |   |       |       |     
|Domestic      |       | $ | 4,109         |       |               | $ | 3,361 |       |      | $ | 13,903 |        |  | $ | 15,322 |       
|Mexico        |       |   | 1,869         |       |               |   | 2,379 |       |      |   | 7,089  |        |  |   | 5,746  |       
|France        |       |   | 1,873         |       |               |   | 401   |       |      |   | 3,518  |        |  |   | 3,957  |       
|Other foreign |       |   |              |       |               |   | 2     |       |      |   |       |        |  |   | 7      |       
|              |       |   |               |       |               |   |       |       |      |   |        |        |  |   |        |       
|              | Total |   | $             | 7,851 |               |   | $     | 6,143 |      |   | $      | 24,510 |  |   | $      | 25,032 | 
|              |       |   |               |       |               |   |       |       |      |   |        |        |  |   |        |       

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

|                                            |          |              |        |               |         |              |        |        |         | 
|------------------------------------------- | -------- | ------------ | ------ | ------------- | ------- | ------------ | ------ | ------ | ------- | 
|                                            |          |              |        | September 30, |         | December 31,
|                                            |          |              |        | 2003          |         | 2002        
|                                            |          |              |        |               |         |             
|Portfolio acquisition and resolution assets |          |              |        |               |         |              |        |       
|                                            | Domestic |              | $      | 40,515        |         |              | $      | 44,610 |        
|                                            | Mexico   |              |        | 15,412        |         |              |        | 17,542 |        
|                                            | France   |              |        | 20,069        |         |              |        | 15,592 |        
|Consumer assets                             |          |              | 14,092 |               |         |              | 9,127  |       
|Deferred tax benefit, net                   |          |              | 20,101 |               |         |              | 20,101 |       
|Cash                                        |          |              | 3,053  |               |         |              | 4,118  |       
|Other assets, net                           |          |              | 8,827  |               |         |              | 7,602  |       
|Net assets of discontinued operations       |          |              | 6,346  |               |         |              | 7,764  |       
|                                            |          |              |        |               |         |              |        |       
|                                            |          | Total assets |        | $             | 128,415 |              |        | $      | 126,456 | 
|                                            |          |              |        |               |         |              |        |       

(9) Income Taxes

Federal income taxes are provided at a 35% rate. The Company has
substantial net operating losses (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

13



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##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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

(10) Commitments and Contingencies

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.

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

The Company 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. Management of the Company currently does not believe it is likely that
FirstCity will be required to make payments on these indemnification
agreements.

FirstCity is obligated to pay BOS(USA) an arrangement fee related to the
$16 million loan equal to 20% of all proceeds and other amounts paid to
FirstCity from any sale or other disposition (regardless of when such sale or
other disposition occurs) of, and of all dividends and other distributions paid
to FirstCity by Drive or its general partner (regardless of when such dividend
or other distribution occurs) on, its 20% interest in Drive, in each case in
excess of $16 million in the aggregate. As of September 30, 2003 the Company
has not accrued any amount related to this contingent liability. The Companys
maximum loss exposure related to this

14



---



##### 



FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

contingency is the amount of the arrangement fee that would be calculated
in the event the fair value of Drive exceeds $16 million in the future.

The Company guarantees certain debt of a domestic Acquisition Partnership.
In the event of default, the Company would assume losses related to this
guarantee to the extent that they exceed the value of the collateral up to a
maximum exposure of $.7 million as of September 30, 2003.

The Company has recently discovered that it has issued more shares of its
Common Stock than it should have under the terms of one of the Companys
employee benefit plans. The FirstCity 1995 Employee Stock Purchase Plan (the
Plan) provides that 100,000 shares of Common Stock were available to
employees of the Company, subject to appropriate adjustment for stock
dividends, stock splits or combination of shares, recapitalization or other
changes in the Companys capitalization. The Company registered 100,000 shares
of Common Stock that were to be issued under the Plan and such additional
shares of Common Stock as would become issuable pursuant to the antidilution
provisions of the Plan pursuant to a registration statement on Form S-8. The
Company has issued a total of 138,578 shares of Common Stock under the Plan.
The additional 38,578 shares of Common Stock were issued during 2000, 2001 and
2003 (including 227 shares during the quarter ended September 30, 2003) as a
result of a misinterpretation of the adjustment provision by the employees
administering the Plan.

The average exercise price of options for the 38,578 additional shares
issued under the Plan was $1.55 and the highest exercise price of options for
such shares was $3.37. The closing price of the Common Stock as of November 11,
2003 was $4.27. The Company is currently evaluating the legal issues involved
with this over-issuance of 38,578 shares of Common Stock in order to determine
whether any securities laws have been violated, and, if so, how it will comply
with such laws.

15



---



##### 



WAMCO PARTNERSHIPS

Combined Financial Statements
September 30, 2003
(Unaudited)

16



---



##### 



WAMCO PARTNERSHIPS

COMBINED BALANCE SHEETS
(Unaudited)

|                                                                                             |                   |   |                        |         |              |   |         |         | 
|-------------------------------------------------------------------------------------------- | ----------------- | - | ---------------------- | ------- | ------------ | - | ------- | ------- | 
|                                                                                             |                   |   | September 30,          |         | December 31,
|                                                                                             |                   |   | 2003                   |         | 2002        
|                                                                                             |                   |   |                        |         |             
|                                                                                             |                   |   | (Dollars in thousands)
|ASSETS                                                                                       |                   |   |                        |         |              |   |         |        
|Cash                                                                                         |                   | $ | 12,238                 |         |              | $ | 13,035  |        
|Portfolio Assets, net                                                                        |                   |   | 151,987                |         |              |   | 147,686 |        
|Investments in partnerships                                                                  |                   |   | 2,350                  |         |              |   | 2,302   |        
|Investments in trust certificates                                                            |                   |   |                       |         |              |   | 7,883   |        
|Deferred profit sharing                                                                      |                   |   | 19,187                 |         |              |   | 17,671  |        
|Other assets, net                                                                            |                   |   | 767                    |         |              |   | 815     |        
|                                                                                             |                   |   |                        |         |              |   |         |        
|                                                                                             |                   | $ | 186,529                |         |              | $ | 189,392 |        
|                                                                                             |                   |   |                        |         |              |   |         |        
|LIABILITIES AND PARTNERS CAPITAL                                                            |                   |   |                        |         |              |   |         |        
|Notes payable (including $43,739 and $46,137 to affiliates in 2003 and 2002, respectively)   |                   | $ | 77,974                 |         |              | $ | 79,891  |        
|Deferred compensation                                                                        |                   |   | 22,194                 |         |              |   | 21,706  |        
|Other liabilities (including $1,564 and $1,862 to affiliates in 2003 and 2002, respectively) |                   |   | 3,044                  |         |              |   | 3,392   |        
|                                                                                             |                   |   |                        |         |              |   |         |        
|                                                                                             | Total liabilities |   |                        | 103,212 |              |   |         | 104,989 | 
|Commitments and contingencies (note 8)                                                       |                   |   |                        |         |              |   |         |        
|Preferred equity                                                                             |                   |   |                       |         |              |   | 4,344   |        
|Partners capital                                                                            |                   |   | 83,317                 |         |              |   | 80,059  |        
|                                                                                             |                   |   |                        |         |              |   |         |        
|                                                                                             |                   | $ | 186,529                |         |              | $ | 189,392 |        
|                                                                                             |                   |   |                        |         |              |   |         |        

See accompanying notes to combined financial statements.

17



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##### 



WAMCO PARTNERSHIPS

COMBINED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                |                                        |   |                        |       |                   |   |        |       |      |   |        |        |  |   |         |        | 
|----------------------------------------------- | -------------------------------------- | - | ---------------------- | ----- | ----------------- | - | ------ | ----- | ---- | - | ------ | ------ |  | - | ------- | ------ | 
|                                                |                                        |   | Three Months Ended     |       | Nine Months Ended
|                                                |                                        |   | September 30,          |       | September 30,    
|                                                |                                        |   |                        |       |                  
|                                                |                                        |   | 2003                   |       | 2002              |   | 2003   |       | 2002
|                                                |                                        |   |                        |       |                   |   |        |       |     
|                                                |                                        |   | (Dollars in thousands)
|Proceeds from resolution of Portfolio Assets    |                                        | $ | 17,563                 |       |                   | $ | 12,382 |       |      | $ | 64,048 |        |  | $ | 117,983 |       
|Cost of Portfolio Assets resolved               |                                        |   | 11,000                 |       |                   |   | 9,084  |       |      |   | 43,191 |        |  |   | 91,843  |       
|                                                |                                        |   |                        |       |                   |   |        |       |      |   |        |        |  |   |         |       
|                                                | Gain on resolution of Portfolio Assets |   |                        | 6,563 |                   |   |        | 3,298 |      |   |        | 20,857 |  |   |         | 26,140 | 
|Interest income on performing Portfolio Assets  |                                        |   | 1,262                  |       |                   |   | 1,926  |       |      |   | 4,194  |        |  |   | 9,515   |       
|Interest and fees on notes payable  affiliates |                                        |   | (589                   | )     |                   |   | (839   | )     |      |   | (2,109 | )      |  |   | (4,312  | )     
|Interest and fees on notes payable  other      |                                        |   | (394                   | )     |                   |   | (592   | )     |      |   | (1,361 | )      |  |   | (1,496  | )     
|Provision for loan losses                       |                                        |   | (378                   | )     |                   |   | (108   | )     |      |   | (904   | )      |  |   | (207    | )     
|Servicing fees  affiliate                      |                                        |   | (762                   | )     |                   |   | (665   | )     |      |   | (2,581 | )      |  |   | (3,191  | )     
|General, administrative and operating expenses  |                                        |   | (1,203                 | )     |                   |   | (1,274 | )     |      |   | (4,156 | )      |  |   | (3,927  | )     
|Other income, net                               |                                        |   | 277                    |       |                   |   | 464    |       |      |   | 1,092  |        |  |   | 1,414   |       
|                                                |                                        |   |                        |       |                   |   |        |       |      |   |        |        |  |   |         |       
|                                                | Net earnings                           |   | $                      | 4,776 |                   |   | $      | 2,210 |      |   | $      | 15,032 |  |   | $       | 23,936 | 
|                                                |                                        |   |                        |       |                   |   |        |       |      |   |        |        |  |   |         |       

See accompanying notes to combined financial statements.

18



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##### 



WAMCO PARTNERSHIPS

COMBINED STATEMENTS OF CHANGES IN PARTNERS CAPITAL
(Unaudited)

|                              |                                        |   |                |     |          |   |          |        |          |   |                        |      |       |   |       |      |   |   |        |         |   |   |        |         |  
|----------------------------- | -------------------------------------- | - | -------------- | --- | -------- | - | -------- | ------ | -------- | - | ---------------------- | ---- | ----- | - | ----- | ---- | - | - | ------ | ------- | - | - | ------ | ------- | -
|                              |                                        |   |                |     |          |   |          |        |          |   | Class B                |      |       |   |       |      |   |   |        |         |   |   |       
|                              |                                        |   | Class A Equity |     | Equity   |   |          |        |          |   |                        |      |       |   |       |      |  
|                              |                                        |   |                |     |          |   |          |        |          |   |                        |      |       |   |       |      |  
|                              |                                        |   | General        |     | Limited  |   | Limited  |        | General  |   | Limited                |      |       |   |      
|                              |                                        |   | Partners       |     | Partners |   | Partners |        | Partners |   | Partners               |      | Total
|                              |                                        |   |                |     |          |   |          |        |          |   |                        |      |      
|                              |                                        |   |                |     |          |   |          |        |          |   | (Dollars in thousands) |      |       |   |       |      |   |   |       
|Balance at December 31, 2001  |                                        | $ | 131            |     |          | $ | 6,402    |        |          | $ | 1,108                  |      |       | $ | 1,082 |      |   | $ | 81,526 |         |   | $ | 90,249 |        
|                              | Contributions                          |   |                |    |          |   |          |       |          |   |                        |     |       |   |       | 159  |   |   |        | 15,812  |   |   |        | 15,971  |  
|                              | Distributions                          |   |                | (43 | )        |   |          | (2,119 | )        |   |                        | (126 | )     |   |       | (605 | ) |   |        | (51,305 | ) |   |        | (54,198 | )
|                              | Comprehensive income:                  |   |                |     |          |   |          |        |          |   |                        |      |       |   |       |      |   |   |        |         |   |   |        |         |  
|                              | Net earnings                           |   |                | 28  |          |   |          | 1,376  |          |   |                        | 76   |       |   |       | 300  |   |   |        | 25,761  |   |   |        | 27,541  |  
|                              | Unrealized net gain on securitizations |   |                | 7   |          |   |          | 351    |          |   |                        | 5    |       |   |       | 3    |   |   |        | 130     |   |   |        | 496     |  
|                              |                                        |   |                |     |          |   |          |        |          |   |                        |      |       |   |       |      |   |   |        |         |   |   |        |        
|                              | Total comprehensive income             |   |                | 35  |          |   |          | 1,727  |          |   |                        | 81   |       |   |       | 303  |   |   |        | 25,891  |   |   |        | 28,037  |  
|                              |                                        |   |                |     |          |   |          |        |          |   |                        |      |       |   |       |      |   |   |        |         |   |   |        |        
|Balance at December 31, 2002  |                                        |   | 123            |     |          |   | 6,010    |        |          |   | 1,063                  |      |       |   | 939   |      |   |   | 71,924 |         |   |   | 80,059 |        
|                              | Contributions                          |   |                |    |          |   |          |       |          |   |                        |     |       |   |       | 224  |   |   |        | 19,555  |   |   |        | 19,779  |  
|                              | Distributions                          |   |                | (85 | )        |   |          | (4,159 | )        |   |                        | (312 | )     |   |       | (353 | ) |   |        | (25,205 | ) |   |        | (30,114 | )
|                              | Comprehensive income:                  |   |                |     |          |   |          |        |          |   |                        |      |       |   |       |      |   |   |        |         |   |   |        |         |  
|                              | Net earnings                           |   |                | 35  |          |   |          | 1,738  |          |   |                        | 55   |       |   |       | 222  |   |   |        | 12,982  |   |   |        | 15,032  |  
|                              | Unrealized net loss on securitizations |   |                | (21 | )        |   |          | (1,018 | )        |   |                        | (5   | )     |   |       | (17  | ) |   |        | (378    | ) |   |        | (1,439  | )
|                              |                                        |   |                |     |          |   |          |        |          |   |                        |      |       |   |       |      |   |   |        |         |   |   |        |        
|                              | Total comprehensive income             |   |                | 14  |          |   |          | 720    |          |   |                        | 50   |       |   |       | 205  |   |   |        | 12,604  |   |   |        | 13,593  |  
|                              |                                        |   |                |     |          |   |          |        |          |   |                        |      |       |   |       |      |   |   |        |         |   |   |        |        
|Balance at September 30, 2003 |                                        | $ | 52             |     |          | $ | 2,571    |        |          | $ | 801                    |      |       | $ | 1,015 |      |   | $ | 78,878 |         |   | $ | 83,317 |        
|                              |                                        |   |                |     |          |   |          |        |          |   |                        |      |       |   |       |      |   |   |        |         |   |   |        |        

See accompanying notes to combined financial statements.

19



---



##### 



WAMCO PARTNERSHIPS

COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                      |                                                                                     |                                                      |                                           |         |                        |         |        |          |         |          |  
|------------------------------------- | ----------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------- | ------- | ---------------------- | ------- | ------ | -------- | ------- | -------- | -
|                                      |                                                                                     |                                                      |                                           |         | Nine Months Ended     
|                                      |                                                                                     |                                                      |                                           |         | September 30,         
|                                      |                                                                                     |                                                      |                                           |         |                       
|                                      |                                                                                     |                                                      |                                           |         | 2003                   |         | 2002  
|                                      |                                                                                     |                                                      |                                           |         |                        |         |       
|                                      |                                                                                     |                                                      |                                           |         | (Dollars in thousands)
|Cash flows from operating activities: |                                                                                     |                                                      |                                           |         |                        |         |        |         
|                                      | Net earnings                                                                        |                                                      | $                                         | 15,032  |                        |         | $      | 23,936   |        
|                                      | Adjustments to reconcile net earnings to net cash provided by operating activities: |                                                      |                                           |         |                        |         |        |          |        
|                                      |                                                                                     | Amortization of loan origination and commitment fees |                                           |         | 335                    |         |        |          | 414     |         
|                                      |                                                                                     | Amortization of deferred profit sharing              |                                           |         | 1,796                  |         |        |          | 661     |         
|                                      |                                                                                     | Accretion of unrealized gain on trust certificates   |                                           |         | (197                   | )       |        |          | (203    | )       
|                                      |                                                                                     | Provision for loan losses                            |                                           |         | 904                    |         |        |          | 207     |         
|                                      |                                                                                     | Gain on resolution of Portfolio Assets               |                                           |         | (20,857                | )       |        |          | (26,140 | )       
|                                      |                                                                                     | Purchase of Portfolio Assets                         |                                           |         | (49,734                | )       |        |          | (12,639 | )       
|                                      |                                                                                     | Advances on Portfolio Asset lines of credit          |                                           |         | (39,127                | )       |        |          |        |         
|                                      |                                                                                     | Receipts on Portfolio Assets lines of credit         |                                           |         | 40,033                 |         |        |          |        |         
|                                      |                                                                                     | Capitalized costs on Portfolio Assets                |                                           |         | (1,170                 | )       |        |          | (3,662  | )       
|                                      |                                                                                     | Capitalized interest on Portfolio Assets             |                                           |         | (742                   | )       |        |          | (654    | )       
|                                      |                                                                                     | Proceeds from resolution of Portfolio Assets         |                                           |         | 64,048                 |         |        |          | 117,983 |         
|                                      |                                                                                     | Principal payments on Performing Portfolio Assets    |                                           |         | 8,246                  |         |        |          | 20,554  |         
|                                      |                                                                                     | Increase in deferred profit sharing                  |                                           |         | (3,312                 | )       |        |          | (2,704  | )       
|                                      |                                                                                     | Increase in other assets                             |                                           |         | (225                   | )       |        |          | (17     | )       
|                                      |                                                                                     | Increase in deferred compensation                    |                                           |         | 3,312                  |         |        |          | 2,704   |         
|                                      |                                                                                     | Deferred compensation paid                           |                                           |         | (2,824                 | )       |        |          | (1,730  | )       
|                                      |                                                                                     | Decrease in other liabilities                        |                                           |         | (348                   | )       |        |          | (849    | )       
|                                      |                                                                                     |                                                      |                                           |         |                        |         |        |         
|                                      |                                                                                     |                                                      | Net cash provided by operating activities |         |                        | 15,170  |        |          |         | 117,861  |  
|Cash flows from investing activities: |                                                                                     |                                                      |                                           |         |                        |         |        |         
|                                      | Contribution to subsidiaries                                                        |                                                      |                                           | (48     | )                      |         |        |         |        
|                                      | Change in trust certificates                                                        |                                                      |                                           | 676     |                        |         |        | 1,291    |        
|                                      |                                                                                     |                                                      |                                           |         |                        |         |        |         
|                                      |                                                                                     |                                                      | Net cash provided by investing activities |         |                        | 628     |        |          |         | 1,291    |  
|Cash flows from financing activities: |                                                                                     |                                                      |                                           |         |                        |         |        |         
|                                      | Borrowing of debt  affiliates                                                      |                                                      |                                           | 31,569  |                        |         |        | 24,564   |        
|                                      | Borrowing of debt                                                                   |                                                      |                                           | 26,000  |                        |         |        | 28,500   |        
|                                      | Repayment of debt  affiliates                                                      |                                                      |                                           | (38,126 | )                      |         |        | (104,994 | )      
|                                      | Repayment of debt                                                                   |                                                      |                                           | (25,519 | )                      |         |        | (30,640  | )      
|                                      | Repayment of preferred equity                                                       |                                                      |                                           | (184    | )                      |         |        | (192     | )      
|                                      | Capital contributions                                                               |                                                      |                                           | 19,779  |                        |         |        | 8,198    |        
|                                      | Capital distributions                                                               |                                                      |                                           | (30,114 | )                      |         |        | (50,016  | )      
|                                      |                                                                                     |                                                      |                                           |         |                        |         |        |         
|                                      |                                                                                     |                                                      | Net cash used in financing activities     |         |                        | (16,595 | )      |          |         | (124,580 | )
|                                      |                                                                                     |                                                      |                                           |         |                        |         |        |         
|Net decrease in cash                  |                                                                                     |                                                      | (797                                      | )       |                        |         | (5,428 | )       
|Cash at beginning of period           |                                                                                     |                                                      | 13,035                                    |         |                        |         | 13,397 |         
|                                      |                                                                                     |                                                      |                                           |         |                        |         |        |         
|Cash at end of period                 |                                                                                     | $                                                    | 12,238                                    |         |                        | $       | 7,969  |         
|                                      |                                                                                     |                                                      |                                           |         |                        |         |        |         

Supplemental disclosure of cash flow information:

Cash paid for interest was $2,972 and $5,460 for the nine months ended
September 30, 2003 and 2002, respectively.

Unrealized net gain (loss) on trust certificates recorded in partners
capital was $(1,242) and $829 for the nine months ended September 30, 2003 and
2002, respectively.

See accompanying notes to combined financial statements.

20



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##### 



WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 2003
(Dollars in thousands)
(Unaudited)

(1) Basis of Presentation

The unaudited combined financial statements of the WAMCO Partnerships
reflect, in the opinion of management, all adjustments, consisting only of
normal and recurring adjustments, necessary to present fairly the combined
financial position at September 30, 2003, and the results of operations for the
three-month and nine-month periods ended September 30, 2003 and 2002, and cash
flows for the nine-month periods ended September 30, 2003 and 2002.

(2) Organization and Partnership Agreements

The combined financial statements represent domestic limited partnerships
and limited liability companies (Acquisition Partnerships or Partnerships)
and include WAMCO III, Ltd. (WAMCO III); WAMCO IX, Ltd.; WAMCO XXIV, Ltd.;
WAMCO XXV, Ltd.; WAMCO XXVI Ltd.; WAMCO XXVII Ltd.; WAMCO XXVIII Ltd. (WAMCO
XXVIII); WAMCO XXIX, Ltd.; WAMCO XXX, Ltd.; WAMCO 31, Ltd. (WAMCO 31),
Calibat Fund, LLC; First B Realty, Ltd.; First Paradee, Ltd.; FirstStreet
Investments LLC (FirstStreet); FC Properties, Ltd. (FC Properties); and
Community Development Investment, LLC. FirstCity Financial Corporation or its
subsidiaries, FirstCity Commercial Corporation and FirstCity Holdings
Corporation (together FirstCity), own limited partnership interests and
participate as equity owners in the general partners in common with Cargill
Financial Services, Inc. in all of the Partnerships. FC Properties and WAMCO
XXVIII are considered significant subsidiaries of FirstCity.

The Partnerships were formed to acquire, hold and dispose of Portfolio
Assets acquired from the Federal Deposit Insurance Corporation, Resolution
Trust Corporation and other nongovernmental agency sellers, pursuant to certain
purchase agreements or assignments of such purchase agreements. In accordance
with the purchase agreements, the Partnerships retain certain rights of return
regarding the assets in the event of a breach of a representation or a warranty
related to an asset.

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

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

During September 2003, WAMCO XXIX, Ltd. was merged with and into WAMCO
XXVII, Ltd. with WAMCO XXVII, Ltd being the surviving entity. Also during
September 2003, Community Development Investment, LLC. was merged with and into
WAMCO XXIV, Ltd. with WAMCO XXIV, Ltd being the surviving entity.

21



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##### 



WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS  (Continued)

(3) Combining Financial Statements

FC Properties and WAMCO XXVIII are considered significant subsidiaries of
FirstCity. The following tables summarize the combining balance sheets and
changes in partners capital of the WAMCO Partnerships as of September 30, 2003
and December 31, 2002, the related combining statements of operations for the
three months and nine months ended September 30, 2003 and 2002, and combining
cash flows for the nine months ended September 30, 2003 and 2002.

COMBINING BALANCE SHEETS
September 30, 2003

|                                                                |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |         | 
|--------------------------------------------------------------- | ----------------- | - | ---------- | ------ | ------ | - | ---------------------- | ------ | -------- | - | ------- | ------ |  | - | ------- | ------- | 
|                                                                |                   |   | FC         |        | WAMCO  |   | Other                  |        |          |   |        
|                                                                |                   |   | Properties |        | XXVIII |   | Partnerships           |        | Combined
|                                                                |                   |   |            |        |        |   |                        |        |         
|                                                                |                   |   |            |        |        |   | (Dollars in thousands) |        |          |   |        
|                                                                |                   |   |            |        |        |   | (Unaudited)            |        |          |   |        
|ASSETS                                                          |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|Cash                                                            |                   | $ | 1,316      |        |        | $ | 924                    |        |          | $ | 9,998   |        |  | $ | 12,238  |        
|Portfolio Assets, net                                           |                   |   | 13,795     |        |        |   | 21,887                 |        |          |   | 116,305 |        |  |   | 151,987 |        
|Investments in partnerships                                     |                   |   |           |        |        |   |                       |        |          |   | 2,350   |        |  |   | 2,350   |        
|Deferred profit sharing                                         |                   |   | 19,187     |        |        |   |                       |        |          |   |        |        |  |   | 19,187  |        
|Other assets, net                                               |                   |   | 12         |        |        |   | 175                    |        |          |   | 580     |        |  |   | 767     |        
|                                                                |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|                                                                |                   | $ | 34,310     |        |        | $ | 22,986                 |        |          | $ | 129,233 |        |  | $ | 186,529 |        
|                                                                |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|LIABILITIES AND
PARTNERS CAPITAL                               |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|Notes payable                                                   |                   | $ |           |        |        | $ | 9,933                  |        |          | $ | 68,041  |        |  | $ | 77,974  |        
|Deferred compensation                                           |                   |   | 22,194     |        |        |   |                       |        |          |   |        |        |  |   | 22,194  |        
|Other liabilities                                               |                   |   | 349        |        |        |   | 1,227                  |        |          |   | 1,468   |        |  |   | 3,044   |        
|                                                                |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|                                                                | Total liabilities |   |            | 22,543 |        |   |                        | 11,160 |          |   |         | 69,509 |  |   |         | 103,212 | 
|Partners capital                                               |                   |   | 11,767     |        |        |   | 11,826                 |        |          |   | 59,724  |        |  |   | 83,317  |        
|                                                                |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|                                                                |                   | $ | 34,310     |        |        | $ | 22,986                 |        |          | $ | 129,233 |        |  | $ | 186,529 |        
|                                                                |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|Notes payable owed to affiliates included in above balances     |                   | $ |           |        |        | $ |                       |        |          | $ | 43,739  |        |  | $ | 43,739  |        
|Other liabilities owed to affiliates included in above balances |                   | $ |           |        |        |   | 750                    |        |          |   | 814     |        |  |   | 1,564   |        

COMBINING BALANCE SHEETS
December 31, 2002

|                                                                |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |         | 
|--------------------------------------------------------------- | ----------------- | - | ---------- | ------ | ------ | - | ---------------------- | ------ | -------- | - | ------- | ------ |  | - | ------- | ------- | 
|                                                                |                   |   | FC         |        | WAMCO  |   | Other                  |        |          |   |        
|                                                                |                   |   | Properties |        | XXVIII |   | Partnerships           |        | Combined
|                                                                |                   |   |            |        |        |   |                        |        |         
|                                                                |                   |   |            |        |        |   | (Dollars in thousands) |        |          |   |        
|                                                                |                   |   |            |        |        |   | (Unaudited)            |        |          |   |        
|ASSETS                                                          |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|Cash                                                            |                   | $ | 1,484      |        |        | $ | 2,440                  |        |          | $ | 9,111   |        |  | $ | 13,035  |        
|Portfolio Assets, net                                           |                   |   | 15,182     |        |        |   | 32,341                 |        |          |   | 100,163 |        |  |   | 147,686 |        
|Investments in partnerships                                     |                   |   |           |        |        |   |                       |        |          |   | 2,302   |        |  |   | 2,302   |        
|Investments in trust certificates                               |                   |   |           |        |        |   |                       |        |          |   | 7,883   |        |  |   | 7,883   |        
|Deferred profit sharing                                         |                   |   | 17,671     |        |        |   |                       |        |          |   |        |        |  |   | 17,671  |        
|Other assets, net                                               |                   |   | 5          |        |        |   | 346                    |        |          |   | 464     |        |  |   | 815     |        
|                                                                |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|                                                                |                   | $ | 34,342     |        |        | $ | 35,127                 |        |          | $ | 119,923 |        |  | $ | 189,392 |        
|                                                                |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|LIABILITIES AND
PARTNERS CAPITAL                               |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|Notes payable                                                   |                   | $ |           |        |        | $ | 18,882                 |        |          | $ | 61,009  |        |  | $ | 79,891  |        
|Deferred compensation                                           |                   |   | 21,706     |        |        |   |                       |        |          |   |        |        |  |   | 21,706  |        
|Other liabilities                                               |                   |   | 540        |        |        |   | 1,301                  |        |          |   | 1,551   |        |  |   | 3,392   |        
|                                                                |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|                                                                | Total liabilities |   |            | 22,246 |        |   |                        | 20,183 |          |   |         | 62,560 |  |   |         | 104,989 | 
|Preferred equity                                                |                   |   |           |        |        |   |                       |        |          |   | 4,344   |        |  |   | 4,344   |        
|Partners capital                                               |                   |   | 12,096     |        |        |   | 14,944                 |        |          |   | 53,019  |        |  |   | 80,059  |        
|                                                                |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|                                                                |                   | $ | 34,342     |        |        | $ | 35,127                 |        |          | $ | 119,923 |        |  | $ | 189,392 |        
|                                                                |                   |   |            |        |        |   |                        |        |          |   |         |        |  |   |         |        
|Notes payable owed to affiliates included in above balances     |                   | $ |           |        |        | $ |                       |        |          | $ | 46,137  |        |  | $ | 46,137  |        
|Other liabilities owed to affiliates included in above balances |                   |   | 20         |        |        |   | 1,196                  |        |          |   | 646     |        |  |   | 1,862   |        

22



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##### 



WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS  (Continued)

COMBINING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2003

|                                               |              |   |            |       |        |   |                        |     |          |   |        |       |  |   |        |       | 
|---------------------------------------------- | ------------ | - | ---------- | ----- | ------ | - | ---------------------- | --- | -------- | - | ------ | ----- |  | - | ------ | ----- | 
|                                               |              |   | FC         |       | WAMCO  |   | Other                  |     |          |   |       
|                                               |              |   | Properties |       | XXVIII |   | Partnerships           |     | Combined
|                                               |              |   |            |       |        |   |                        |     |         
|                                               |              |   |            |       |        |   | (Dollars in thousands) |     |          |   |       
|                                               |              |   |            |       |        |   | (Unaudited)            |     |          |   |       
|Proceeds from resolution of Portfolio Assets   |              | $ | 2,682      |       |        | $ | 1,998                  |     |          | $ | 12,883 |       |  | $ | 17,563 |      
|Cost of Portfolio Assets resolved              |              |   | 461        |       |        |   | 1,553                  |     |          |   | 8,986  |       |  |   | 11,000 |      
|                                               |              |   |            |       |        |   |                        |     |          |   |        |       |  |   |        |      
|Gain on resolution of Portfolio Assets         |              |   | 2,221      |       |        |   | 445                    |     |          |   | 3,897  |       |  |   | 6,563  |      
|Interest income on performing Portfolio Assets |              |   |           |       |        |   | 262                    |     |          |   | 1,000  |       |  |   | 1,262  |      
|Interest and fees expense  affiliates         |              |   |           |       |        |   | (169                   | )   |          |   | (420   | )     |  |   | (589   | )    
|Interest and fees expense  other              |              |   |           |       |        |   | (145                   | )   |          |   | (249   | )     |  |   | (394   | )    
|Provision for loan losses                      |              |   | (1         | )     |        |   | (32                    | )   |          |   | (345   | )     |  |   | (378   | )    
|Service fees  affiliate                       |              |   | (80        | )     |        |   | (99                    | )   |          |   | (583   | )     |  |   | (762   | )    
|General, administrative and operating expenses |              |   | (432       | )     |        |   | (288                   | )   |          |   | (483   | )     |  |   | (1,203 | )    
|Other income, net                              |              |   |           |       |        |   | 2                      |     |          |   | 275    |       |  |   | 277    |      
|                                               |              |   |            |       |        |   |                        |     |          |   |        |       |  |   |        |      
|                                               | Net earnings |   | $          | 1,708 |        |   | $                      | (24 | )        |   | $      | 3,092 |  |   | $      | 4,776 | 
|                                               |              |   |            |       |        |   |                        |     |          |   |        |       |  |   |        |      

COMBINING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2002

|                                               |              |   |             |      |        |   |                        |       |          |   |       |       |  |   |        |       | 
|---------------------------------------------- | ------------ | - | ----------- | ---- | ------ | - | ---------------------- | ----- | -------- | - | ----- | ----- |  | - | ------ | ----- | 
|                                               |              |   | FC          |      | WAMCO  |   | Other                  |       |          |   |      
|                                               |              |   | Properties  |      | XXVIII |   | Partnerships           |       | Combined
|                                               |              |   |             |      |        |   |                        |       |         
|                                               |              |   |             |      |        |   | (Dollars in thousands) |       |          |   |      
|                                               |              |   | (Unaudited) |     
|Proceeds from resolution of Portfolio Assets   |              | $ | 99          |      |        | $ | 6,818                  |       |          | $ | 5,465 |       |  | $ | 12,382 |      
|Cost of Portfolio Assets resolved              |              |   | 9           |      |        |   | 4,990                  |       |          |   | 4,085 |       |  |   | 9,084  |      
|                                               |              |   |             |      |        |   |                        |       |          |   |       |       |  |   |        |      
|Gain on resolution of Portfolio Assets         |              |   | 90          |      |        |   | 1,828                  |       |          |   | 1,380 |       |  |   | 3,298  |      
|Interest income on performing Portfolio Assets |              |   |            |      |        |   | 611                    |       |          |   | 1,315 |       |  |   | 1,926  |      
|Interest and fees expense  affiliates         |              |   |            |      |        |   | (195                   | )     |          |   | (644  | )     |  |   | (839   | )    
|Interest and fees expense  other              |              |   | (9          | )    |        |   | (321                   | )     |          |   | (262  | )     |  |   | (592   | )    
|Provision for loan losses                      |              |   |            |      |        |   |                       |       |          |   | (108  | )     |  |   | (108   | )    
|Service fees  affiliate                       |              |   | (3          | )    |        |   | (312                   | )     |          |   | (350  | )     |  |   | (665   | )    
|General, administrative and operating expenses |              |   | (413        | )    |        |   | (602                   | )     |          |   | (259  | )     |  |   | (1,274 | )    
|Other income, net                              |              |   | 6           |      |        |   | 7                      |       |          |   | 451   |       |  |   | 464    |      
|                                               |              |   |             |      |        |   |                        |       |          |   |       |       |  |   |        |      
|                                               | Net earnings |   | $           | (329 | )      |   | $                      | 1,016 |          |   | $     | 1,523 |  |   | $      | 2,210 | 
|                                               |              |   |             |      |        |   |                        |       |          |   |       |       |  |   |        |      

See accompanying notes to combined financial statements.

23



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##### 



WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS  (Continued)

COMBINING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2003

|                                               |              |   |            |       |        |   |                        |       |          |   |        |       |  |   |        |        | 
|---------------------------------------------- | ------------ | - | ---------- | ----- | ------ | - | ---------------------- | ----- | -------- | - | ------ | ----- |  | - | ------ | ------ | 
|                                               |              |   | FC         |       | WAMCO  |   | Other                  |       |          |   |       
|                                               |              |   | Properties |       | XXVIII |   | Partnerships           |       | Combined
|                                               |              |   |            |       |        |   |                        |       |         
|                                               |              |   |            |       |        |   | (Dollars in thousands) |       |          |   |       
|                                               |              |   |            |       |        |   | (Unaudited)            |       |          |   |       
|Proceeds from resolution of Portfolio Assets   |              | $ | 8,654      |       |        | $ | 11,255                 |       |          | $ | 44,139 |       |  | $ | 64,048 |       
|Cost of Portfolio Assets resolved              |              |   | 1,954      |       |        |   | 8,467                  |       |          |   | 32,770 |       |  |   | 43,191 |       
|                                               |              |   |            |       |        |   |                        |       |          |   |        |       |  |   |        |       
|Gain on resolution of Portfolio Assets         |              |   | 6,700      |       |        |   | 2,788                  |       |          |   | 11,369 |       |  |   | 20,857 |       
|Interest income on performing Portfolio Assets |              |   |           |       |        |   | 1,040                  |       |          |   | 3,154  |       |  |   | 4,194  |       
|Interest and fees expense  affiliates         |              |   |           |       |        |   | (495                   | )     |          |   | (1,614 | )     |  |   | (2,109 | )     
|Interest and fees expense  other              |              |   |           |       |        |   | (555                   | )     |          |   | (806   | )     |  |   | (1,361 | )     
|Provision for loan losses                      |              |   | (1         | )     |        |   | (206                   | )     |          |   | (697   | )     |  |   | (904   | )     
|Service fees  affiliate                       |              |   | (259       | )     |        |   | (481                   | )     |          |   | (1,841 | )     |  |   | (2,581 | )     
|General, administrative and operating expenses |              |   | (2,533     | )     |        |   | (490                   | )     |          |   | (1,133 | )     |  |   | (4,156 | )     
|Other income, net                              |              |   |           |       |        |   | 7                      |       |          |   | 1,085  |       |  |   | 1,092  |       
|                                               |              |   |            |       |        |   |                        |       |          |   |        |       |  |   |        |       
|                                               | Net earnings |   | $          | 3,907 |        |   | $                      | 1,608 |          |   | $      | 9,517 |  |   | $      | 15,032 | 
|                                               |              |   |            |       |        |   |                        |       |          |   |        |       |  |   |        |       

COMBINING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2002

|                                               |              |   |            |       |        |   |                        |       |          |   |        |        |  |   |         |        | 
|---------------------------------------------- | ------------ | - | ---------- | ----- | ------ | - | ---------------------- | ----- | -------- | - | ------ | ------ |  | - | ------- | ------ | 
|                                               |              |   | FC         |       | WAMCO  |   | Other                  |       |          |   |       
|                                               |              |   | Properties |       | XXVIII |   | Partnerships           |       | Combined
|                                               |              |   |            |       |        |   |                        |       |         
|                                               |              |   |            |       |        |   | (Dollars in thousands) |       |          |   |       
|                                               |              |   |            |       |        |   | (Unaudited)            |       |          |   |       
|Proceeds from resolution of Portfolio Assets   |              | $ | 5,819      |       |        | $ | 43,141                 |       |          | $ | 69,023 |        |  | $ | 117,983 |       
|Cost of Portfolio Assets resolved              |              |   | 1,698      |       |        |   | 31,026                 |       |          |   | 59,119 |        |  |   | 91,843  |       
|                                               |              |   |            |       |        |   |                        |       |          |   |        |        |  |   |         |       
|Gain on resolution of Portfolio Assets         |              |   | 4,121      |       |        |   | 12,115                 |       |          |   | 9,904  |        |  |   | 26,140  |       
|Interest income on performing Portfolio Assets |              |   |           |       |        |   | 2,304                  |       |          |   | 7,211  |        |  |   | 9,515   |       
|Interest and fees expense  affiliates         |              |   |           |       |        |   | (1,625                 | )     |          |   | (2,687 | )      |  |   | (4,312  | )     
|Interest and fees expense  other              |              |   | (9         | )     |        |   | (331                   | )     |          |   | (1,156 | )      |  |   | (1,496  | )     
|Provision for loan losses                      |              |   | (17        | )     |        |   |                       |       |          |   | (190   | )      |  |   | (207    | )     
|Service fees  affiliate                       |              |   | (175       | )     |        |   | (1,385                 | )     |          |   | (1,631 | )      |  |   | (3,191  | )     
|General, administrative and operating expenses |              |   | (1,571     | )     |        |   | (1,270                 | )     |          |   | (1,086 | )      |  |   | (3,927  | )     
|Other income, net                              |              |   | 16         |       |        |   | 29                     |       |          |   | 1,369  |        |  |   | 1,414   |       
|                                               |              |   |            |       |        |   |                        |       |          |   |        |        |  |   |         |       
|                                               | Net earnings |   | $          | 2,365 |        |   | $                      | 9,837 |          |   | $      | 11,734 |  |   | $       | 23,936 | 
|                                               |              |   |            |       |        |   |                        |       |          |   |        |        |  |   |         |       

See accompanying notes to combined financial statements.

24



---



##### 



WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS  (Continued)

COMBINING STATEMENTS OF CHANGES IN PARTNERS CAPITAL

|                              |                                        |   |            |        |        |   |                        |         |          |   |        |         |   |   |        |         |  
|----------------------------- | -------------------------------------- | - | ---------- | ------ | ------ | - | ---------------------- | ------- | -------- | - | ------ | ------- | - | - | ------ | ------- | -
|                              |                                        |   | FC         |        | WAMCO  |   | Other                  |         |          |   |       
|                              |                                        |   | Properties |        | XXVIII |   | Partnerships           |         | Combined
|                              |                                        |   |            |        |        |   |                        |         |         
|                              |                                        |   |            |        |        |   | (Dollars in thousands) |         |          |   |       
|                              |                                        |   |            |        |        |   | (Unaudited)            |         |          |   |       
|Balance at December 31, 2001  |                                        | $ | 12,024     |        |        | $ | 24,810                 |         |          | $ | 53,415 |         |   | $ | 90,249 |        
|                              | Contributions                          |   |            |       |        |   |                        |        |          |   |        | 15,971  |   |   |        | 15,971  |  
|                              | Distributions                          |   |            | (2,596 | )      |   |                        | (20,668 | )        |   |        | (30,934 | ) |   |        | (54,198 | )
|                              | Net earnings                           |   |            | 2,668  |        |   |                        | 10,802  |          |   |        | 14,071  |   |   |        | 27,541  |  
|                              | Unrealized net gain on securitizations |   |            |       |        |   |                        |        |          |   |        | 496     |   |   |        | 496     |  
|                              |                                        |   |            |        |        |   |                        |         |          |   |        |         |   |   |        |        
|                              | Total comprehensive income             |   |            | 2,668  |        |   |                        | 10,802  |          |   |        | 14,567  |   |   |        | 28,037  |  
|                              |                                        |   |            |        |        |   |                        |         |          |   |        |         |   |   |        |        
|Balance at December 31, 2002  |                                        |   | 12,096     |        |        |   | 14,944                 |         |          |   | 53,019 |         |   |   | 80,059 |        
|                              | Contributions                          |   |            |       |        |   |                        |        |          |   |        | 19,779  |   |   |        | 19,779  |  
|                              | Distributions                          |   |            | (4,236 | )      |   |                        | (4,726  | )        |   |        | (21,152 | ) |   |        | (30,114 | )
|                              | Net earnings                           |   |            | 3,907  |        |   |                        | 1,608   |          |   |        | 9,517   |   |   |        | 15,032  |  
|                              | Unrealized net loss on securitizations |   |            |       |        |   |                        |        |          |   |        | (1,439  | ) |   |        | (1,439  | )
|                              |                                        |   |            |        |        |   |                        |         |          |   |        |         |   |   |        |        
|                              | Total comprehensive income             |   |            | 3,907  |        |   |                        | 1,608   |          |   |        | 8,078   |   |   |        | 13,593  |  
|                              |                                        |   |            |        |        |   |                        |         |          |   |        |         |   |   |        |        
|Balance at September 30, 2003 |                                        | $ | 11,767     |        |        | $ | 11,826                 |         |          | $ | 59,724 |         |   | $ | 83,317 |        
|                              |                                        |   |            |        |        |   |                        |         |          |   |        |         |   |   |        |        

COMBINING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2003

|                                                 |                                                                                     |   |                                                      |                                                     |   |            |        |        |   |                        |         |          |   |         |        |         |   |         |         |  
|------------------------------------------------ | ----------------------------------------------------------------------------------- | - | ---------------------------------------------------- | --------------------------------------------------- | - | ---------- | ------ | ------ | - | ---------------------- | ------- | -------- | - | ------- | ------ | ------- | - | ------- | ------- | -
|                                                 |                                                                                     |   |                                                      |                                                     |   | FC         |        | WAMCO  |   | Other                  |         |          |   |        
|                                                 |                                                                                     |   |                                                      |                                                     |   | Properties |        | XXVIII |   | Partnerships           |         | Combined
|                                                 |                                                                                     |   |                                                      |                                                     |   |            |        |        |   |                        |         |         
|                                                 |                                                                                     |   |                                                      |                                                     |   |            |        |        |   | (Dollars in thousands) |         |          |   |        
|                                                 |                                                                                     |   |                                                      |                                                     |   |            |        |        |   | (Unaudited)            |         |          |   |        
|Cash flows from operating activities:            |                                                                                     |   |                                                      |                                                     |   |            |        |        |   |                        |         |          |   |         |        |        
|                                                 | Net earnings                                                                        |   | $                                                    | 3,907                                               |   |            | $      | 1,608  |   |                        | $       | 9,517    |   |         | $      | 15,032  |  
|                                                 | Adjustments to reconcile net earnings to net cash
provided
by operating activities: |   |                                                      |                                                     |   |            |        |        |   |                        |         |          |   |         |        |         |  
|                                                 |                                                                                     |   | Amortization of loan origination and commitment fees |                                                     |   |           |        |        |   | 131                    |         |          |   | 204     |        |         |   | 335     |        
|                                                 |                                                                                     |   | Amortization of deferred profit sharing              |                                                     |   | 1,796      |        |        |   |                       |         |          |   |        |        |         |   | 1,796   |        
|                                                 |                                                                                     |   | Accretion of unrealized gain on trust certificates   |                                                     |   |           |        |        |   |                       |         |          |   | (197    | )      |         |   | (197    | )      
|                                                 |                                                                                     |   | Provision for loan losses                            |                                                     |   | 1          |        |        |   | 206                    |         |          |   | 697     |        |         |   | 904     |        
|                                                 |                                                                                     |   | Gain on resolution of Portfolio Assets               |                                                     |   | (6,700     | )      |        |   | (2,788                 | )       |          |   | (11,369 | )      |         |   | (20,857 | )      
|                                                 |                                                                                     |   | Purchase of Portfolio Assets                         |                                                     |   |           |        |        |   |                       |         |          |   | (49,734 | )      |         |   | (49,734 | )      
|                                                 |                                                                                     |   | Advances on Portfolio Asset lines of credit          |                                                     |   |           |        |        |   |                       |         |          |   | (39,127 | )      |         |   | (39,127 | )      
|                                                 |                                                                                     |   | Receipts on Portfolio Asset lines of credit          |                                                     |   |           |        |        |   |                       |         |          |   | 40,033  |        |         |   | 40,033  |        
|                                                 |                                                                                     |   | Capitalized costs on Portfolio Assets                |                                                     |   | (568       | )      |        |   | (258                   | )       |          |   | (344    | )      |         |   | (1,170  | )      
|                                                 |                                                                                     |   | Capitalized interest on Portfolio Assets             |                                                     |   |           |        |        |   | (81                    | )       |          |   | (661    | )      |         |   | (742    | )      
|                                                 |                                                                                     |   | Proceeds from resolution of Portfolio Assets         |                                                     |   | 8,654      |        |        |   | 11,255                 |         |          |   | 44,139  |        |         |   | 64,048  |        
|                                                 |                                                                                     |   | Principal payments on Performing Portfolio Assets    |                                                     |   |           |        |        |   | 2,120                  |         |          |   | 6,126   |        |         |   | 8,246   |        
|                                                 |                                                                                     |   | Increase in deferred profit sharing                  |                                                     |   | (3,312     | )      |        |   |                       |         |          |   |        |        |         |   | (3,312  | )      
|                                                 |                                                                                     |   | Decrease (increase) in other assets                  |                                                     |   | (7         | )      |        |   | 40                     |         |          |   | (258    | )      |         |   | (225    | )      
|                                                 |                                                                                     |   | Increase in deferred compensation                    |                                                     |   | 3,312      |        |        |   |                       |         |          |   |        |        |         |   | 3,312   |        
|                                                 |                                                                                     |   | Deferred compensation paid                           |                                                     |   | (2,824     | )      |        |   |                       |         |          |   |        |        |         |   | (2,824  | )      
|                                                 |                                                                                     |   | Decrease in other liabilities                        |                                                     |   | (191       | )      |        |   | (74                    | )       |          |   | (83     | )      |         |   | (348    | )      
|                                                 |                                                                                     |   |                                                      |                                                     |   |            |        |        |   |                        |         |          |   |         |        |        
|                                                 |                                                                                     |   |                                                      | Net cash provided by (used in) operating activities |   |            | 4,068  |        |   |                        | 12,159  |          |   |         | (1,057 | )       |   |         | 15,170  |  
|Cash flows from investing activities:            |                                                                                     |   |                                                      |                                                     |   |            |        |        |   |                        |         |          |   |         |        |        
|                                                 | Contribution to subsidiaries                                                        |   |                                                      |                                                    |   |            |        |       |   |                        |         | (48      | ) |         |        | (48     | )
|                                                 | Change in trust certificates                                                        |   |                                                      |                                                    |   |            |        |       |   |                        |         | 676      |   |         |        | 676     |  
|                                                 |                                                                                     |   |                                                      |                                                     |   |            |        |        |   |                        |         |          |   |         |        |        
|                                                 |                                                                                     |   |                                                      | Net cash provided by investing activities           |   |            |       |        |   |                        |        |          |   |         | 628    |         |   |         | 628     |  
|Cash flows from financing activities:            |                                                                                     |   |                                                      |                                                     |   |            |        |        |   |                        |         |          |   |         |        |        
|                                                 | Borrowing of debt  affiliates                                                      |   |                                                      |                                                    |   |            |        |       |   |                        |         | 31,569   |   |         |        | 31,569  |  
|                                                 | Borrowing of debt                                                                   |   |                                                      |                                                    |   |            |        |       |   |                        |         | 26,000   |   |         |        | 26,000  |  
|                                                 | Repayment of debt  affiliates                                                      |   |                                                      |                                                    |   |            |        |       |   |                        |         | (38,126  | ) |         |        | (38,126 | )
|                                                 | Repayment of debt                                                                   |   |                                                      |                                                    |   |            |        | (8,949 | ) |                        |         | (16,570  | ) |         |        | (25,519 | )
|                                                 | Repayment of preferred equity                                                       |   |                                                      |                                                    |   |            |        |       |   |                        |         | (184     | ) |         |        | (184    | )
|                                                 | Capital contributions                                                               |   |                                                      |                                                    |   |            |        |       |   |                        |         | 19,779   |   |         |        | 19,779  |  
|                                                 | Capital distributions                                                               |   |                                                      | (4,236                                              | ) |            |        | (4,726 | ) |                        |         | (21,152  | ) |         |        | (30,114 | )
|                                                 |                                                                                     |   |                                                      |                                                     |   |            |        |        |   |                        |         |          |   |         |        |        
|                                                 |                                                                                     |   |                                                      | Net cash provided by (used in) financing activities |   |            | (4,236 | )      |   |                        | (13,675 | )        |   |         | 1,316  |         |   |         | (16,595 | )
|                                                 |                                                                                     |   |                                                      |                                                     |   |            |        |        |   |                        |         |          |   |         |        |        
|Net increase (decrease) in cash                  |                                                                                     |   | (168                                                 | )                                                   |   |            | (1,516 | )      |   |                        | 887     |          |   |         | (797   | )      
|Cash at beginning of period                      |                                                                                     |   | 1,484                                                |                                                     |   |            | 2,440  |        |   |                        | 9,111   |          |   |         | 13,035 |        
|                                                 |                                                                                     |   |                                                      |                                                     |   |            |        |        |   |                        |         |          |   |         |        |        
|Cash at end of period                            |                                                                                     | $ | 1,316                                                |                                                     |   | $          | 924    |        |   | $                      | 9,998   |          |   | $       | 12,238 |        
|                                                 |                                                                                     |   |                                                      |                                                     |   |            |        |        |   |                        |         |          |   |         |        |        
|Supplemental disclosure of cash flow information |                                                                                     |   |                                                      |                                                     |   |            |        |        |   |                        |         |          |   |         |        |        
|Cash paid for interest                           |                                                                                     | $ |                                                     |                                                     |   | $          | 960    |        |   | $                      | 2,012   |          |   | $       | 2,972  |        

25



---



##### 



WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS  (Continued)

COMBINING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2002

|                                                 |                                                                                     |                                                      |                                           |        |                        |        |        |         |              |         |          |         |         |         |        |          |         |          |  
|------------------------------------------------ | ----------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------- | ------ | ---------------------- | ------ | ------ | ------- | ------------ | ------- | -------- | ------- | ------- | ------- | ------ | -------- | ------- | -------- | -
|                                                 |                                                                                     |                                                      |                                           |        | FC                     |        | WAMCO  |         | Other        |         |          |         |        
|                                                 |                                                                                     |                                                      |                                           |        | Properties             |        | XXVIII |         | Partnerships |         | Combined
|                                                 |                                                                                     |                                                      |                                           |        |                        |        |        |         |              |         |         
|                                                 |                                                                                     |                                                      |                                           |        | (Dollars in thousands)
|                                                 |                                                                                     |                                                      |                                           |        | (Unaudited)           
|Cash flows from operating activities:            |                                                                                     |                                                      |                                           |        |                        |        |        |         |              |         |          |         |         |         |        |         
|                                                 | Net earnings                                                                        |                                                      | $                                         | 2,365  |                        |        | $      | 9,837   |              |         | $        | 11,734  |         |         | $      | 23,936   |        
|                                                 | Adjustments to reconcile net earnings to net cash
provided
by operating activities: |                                                      |                                           |        |                        |        |        |         |              |         |          |         |         |         |        |          |        
|                                                 |                                                                                     | Amortization of loan origination and commitment fees |                                           |        |                       |        |        |         | 44           |         |          |         | 370     |         |        |          | 414     |         
|                                                 |                                                                                     | Amortization of deferred profit sharing              |                                           |        | 661                    |        |        |         |             |         |          |         |        |         |        |          | 661     |         
|                                                 |                                                                                     | Accretion of unrealized gain on trust certificates   |                                           |        |                       |        |        |         |             |         |          |         | (203    | )       |        |          | (203    | )       
|                                                 |                                                                                     | Provision for loan losses                            |                                           |        | 17                     |        |        |         |             |         |          |         | 190     |         |        |          | 207     |         
|                                                 |                                                                                     | Gain on resolution of Portfolio Assets               |                                           |        | (4,121                 | )      |        |         | (12,115      | )       |          |         | (9,904  | )       |        |          | (26,140 | )       
|                                                 |                                                                                     | Purchase of Portfolio Assets                         |                                           |        |                       |        |        |         |             |         |          |         | (12,639 | )       |        |          | (12,639 | )       
|                                                 |                                                                                     | Capitalized costs on Portfolio Assets                |                                           |        | (1,381                 | )      |        |         | (2,134       | )       |          |         | (147    | )       |        |          | (3,662  | )       
|                                                 |                                                                                     | Capitalized interest on Portfolio Assets             |                                           |        |                       |        |        |         | (92          | )       |          |         | (562    | )       |        |          | (654    | )       
|                                                 |                                                                                     | Proceeds from resolution of Portfolio Assets         |                                           |        | 5,819                  |        |        |         | 43,141       |         |          |         | 69,023  |         |        |          | 117,983 |         
|                                                 |                                                                                     | Principal payments on Performing Portfolio Assets    |                                           |        |                       |        |        |         | 5,396        |         |          |         | 15,158  |         |        |          | 20,554  |         
|                                                 |                                                                                     | Increase in deferred profit sharing                  |                                           |        | (2,704                 | )      |        |         |             |         |          |         |        |         |        |          | (2,704  | )       
|                                                 |                                                                                     | (Increase) decrease in other assets                  |                                           |        | (7                     | )      |        |         | (304         | )       |          |         | 294     |         |        |          | (17     | )       
|                                                 |                                                                                     | Increase in deferred compensation                    |                                           |        | 2,704                  |        |        |         |             |         |          |         |        |         |        |          | 2,704   |         
|                                                 |                                                                                     | Deferred compensation paid                           |                                           |        | (1,730                 | )      |        |         |             |         |          |         |        |         |        |          | (1,730  | )       
|                                                 |                                                                                     | Increase (decrease) in other liabilities             |                                           |        | (61                    | )      |        |         | 179          |         |          |         | (967    | )       |        |          | (849    | )       
|                                                 |                                                                                     |                                                      |                                           |        |                        |        |        |         |              |         |          |         |         |         |        |         
|                                                 |                                                                                     |                                                      | Net cash provided by operating activities |        |                        | 1,562  |        |         |              | 43,952  |          |         |         | 72,347  |        |          |         | 117,861  |  
|Cash flows from investing activities:            |                                                                                     |                                                      |                                           |        |                        |        |        |         |              |         |          |         |         |         |        |         
|                                                 | Change in trust certificates                                                        |                                                      |                                           |       |                        |        |        |        |              |         |          | 1,291   |         |         |        | 1,291    |        
|                                                 |                                                                                     |                                                      |                                           |        |                        |        |        |         |              |         |          |         |         |         |        |         
|                                                 |                                                                                     |                                                      | Net cash provided by investing activities |        |                        |       |        |         |              |        |          |         |         | 1,291   |        |          |         | 1,291    |  
|Cash flows from financing activities:            |                                                                                     |                                                      |                                           |        |                        |        |        |         |              |         |          |         |         |         |        |         
|                                                 | Borrowing of debt  affiliates                                                      |                                                      |                                           |       |                        |        |        |        |              |         |          | 24,564  |         |         |        | 24,564   |        
|                                                 | Borrowing of debt                                                                   |                                                      |                                           |       |                        |        |        | 28,500  |              |         |          |        |         |         |        | 28,500   |        
|                                                 | Repayment of debt  affiliates                                                      |                                                      |                                           |       |                        |        |        | (47,964 | )            |         |          | (57,030 | )       |         |        | (104,994 | )      
|                                                 | Repayment of debt                                                                   |                                                      |                                           |       |                        |        |        | (7,380  | )            |         |          | (23,260 | )       |         |        | (30,640  | )      
|                                                 | Repayment of preferred equity                                                       |                                                      |                                           |       |                        |        |        |        |              |         |          | (192    | )       |         |        | (192     | )      
|                                                 | Capital contributions                                                               |                                                      |                                           |       |                        |        |        |        |              |         |          | 8,198   |         |         |        | 8,198    |        
|                                                 | Capital distributions                                                               |                                                      |                                           | (2,595 | )                      |        |        | (19,099 | )            |         |          | (28,322 | )       |         |        | (50,016  | )      
|                                                 |                                                                                     |                                                      |                                           |        |                        |        |        |         |              |         |          |         |         |         |        |         
|                                                 |                                                                                     |                                                      | Net cash used in financing activities     |        |                        | (2,595 | )      |         |              | (45,943 | )        |         |         | (76,042 | )      |          |         | (124,580 | )
|                                                 |                                                                                     |                                                      |                                           |        |                        |        |        |         |              |         |          |         |         |         |        |         
|Net decrease in cash                             |                                                                                     |                                                      | (1,033                                    | )      |                        |        | (1,991 | )       |              |         | (2,404   | )       |         |         | (5,428 | )       
|Cash at beginning of period                      |                                                                                     |                                                      | 1,942                                     |        |                        |        | 3,510  |         |              |         | 7,945    |         |         |         | 13,397 |         
|                                                 |                                                                                     |                                                      |                                           |        |                        |        |        |         |              |         |          |         |         |         |        |         
|Cash at end of period                            |                                                                                     | $                                                    | 909                                       |        |                        | $      | 1,519  |         |              | $       | 5,541    |         |         | $       | 7,969  |         
|                                                 |                                                                                     |                                                      |                                           |        |                        |        |        |         |              |         |          |         |         |         |        |          |        
|Supplemental disclosure of cash flow information |                                                                                     |                                                      |                                           |        |                        |        |        |         |              |         |          |         |         |         |        |         
|Cash paid for interest                           |                                                                                     | $                                                    |                                          |        |                        | $      | 1,997  |         |              | $       | 3,463    |         |         | $       | 5,460  |         

26



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WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS  (Continued)

(3) Portfolio Assets

Portfolio Assets are summarized as follows:

|                                                                |                        |   |                    |        |        |   |              |        |          |   |         |         |  |   |          |         | 
|--------------------------------------------------------------- | ---------------------- | - | ------------------ | ------ | ------ | - | ------------ | ------ | -------- | - | ------- | ------- |  | - | -------- | ------- | 
|                                                                |                        |   | September 30, 2003
|                                                                |                        |   |                   
|                                                                |                        |   | FC                 |        | WAMCO  |   | Other        |        |          |   |        
|                                                                |                        |   | Properties         |        | XXVIII |   | Partnerships |        | Combined
|                                                                |                        |   |                    |        |        |   |              |        |         
|Non-performing Portfolio Assets                                 |                        | $ |                   |        |        | $ | 38,969       |        |          | $ | 154,110 |         |  | $ | 193,079  |        
|Performing Portfolio Assets                                     |                        |   |                   |        |        |   | 15,017       |        |          |   | 57,501  |         |  |   | 72,518   |        
|Real estate Portfolios                                          |                        |   | 13,795             |        |        |   |             |        |          |   | 4,182   |         |  |   | 17,977   |        
|                                                                |                        |   |                    |        |        |   |              |        |          |   |         |         |  |   |          |        
|                                                                | Total Portfolio Assets |   |                    | 13,795 |        |   |              | 53,986 |          |   |         | 215,793 |  |   |          | 283,574 | 
|Discount required to reflect
Portfolio Assets at carrying
value |                        |   |                   |        |        |   | (32,099      | )      |          |   | (99,488 | )       |  |   | (131,587 | )      
|                                                                |                        |   |                    |        |        |   |              |        |          |   |         |         |  |   |          |        
|                                                                | Portfolio Assets, net  |   | $                  | 13,795 |        |   | $            | 21,887 |          |   | $       | 116,305 |  |   | $        | 151,987 | 
|                                                                |                        |   |                    |        |        |   |              |        |          |   |         |         |  |   |          |        

|                                                                |                        |   |                   |        |        |   |              |        |          |   |          |         |  |   |          |         | 
|--------------------------------------------------------------- | ---------------------- | - | ----------------- | ------ | ------ | - | ------------ | ------ | -------- | - | -------- | ------- |  | - | -------- | ------- | 
|                                                                |                        |   | December 31, 2002
|                                                                |                        |   |                  
|                                                                |                        |   | FC                |        | WAMCO  |   | Other        |        |          |   |         
|                                                                |                        |   | Properties        |        | XXVIII |   | Partnerships |        | Combined
|                                                                |                        |   |                   |        |        |   |              |        |         
|Non-performing Portfolio Assets                                 |                        | $ |                  |        |        | $ | 60,386       |        |          | $ | 141,468  |         |  | $ | 201,854  |        
|Performing Portfolio Assets                                     |                        |   |                  |        |        |   | 20,404       |        |          |   | 59,461   |         |  |   | 79,865   |        
|Real estate Portfolios                                          |                        |   | 15,182            |        |        |   |             |        |          |   | 1,129    |         |  |   | 16,311   |        
|                                                                |                        |   |                   |        |        |   |              |        |          |   |          |         |  |   |          |        
|                                                                | Total Portfolio Assets |   |                   | 15,182 |        |   |              | 80,790 |          |   |          | 202,058 |  |   |          | 298,030 | 
|Discount required to reflect
Portfolio Assets at carrying
value |                        |   |                  |        |        |   | (48,449      | )      |          |   | (101,895 | )       |  |   | (150,344 | )      
|                                                                |                        |   |                   |        |        |   |              |        |          |   |          |         |  |   |          |        
|                                                                | Portfolio Assets, net  |   | $                 | 15,182 |        |   | $            | 32,341 |          |   | $        | 100,163 |  |   | $        | 147,686 | 
|                                                                |                        |   |                   |        |        |   |              |        |          |   |          |         |  |   |          |        

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

(4) Interest Related to Residual Interest in Trust Certificates

Residual certificates held by FirstStreet to which FirstStreet receives
all the economic benefits and risks consist of retained interests in the amount
of $0 and $7,883 at September 30, 2003 and December 31, 2002, respectively.
FirstStreet recognized interest income on these certificates utilizing a yield
of 21.5% for eight months ended August 31, 2003 and 20.9% for the nine months ended September 30,
2002. During September 2003 FirstStreet purchased the
underlying assets from the trust. At the time of this purchase, these assets
were included in the Performing Portfolio Assets at their remaining historical
cost of $5,902 and the remaining balance for the adjustment to market value of
$905 was reversed against its corresponding balance of unrealized net gain on
securitizations in the FirstStreets equity.

(5) Deferred Profit Sharing and Deferred Compensation

In connection with the formation of FC Properties, an agreement was
entered into which provided for potential payments to the project manager based
on a percentage of total estimated sales. An equal amount of deferred profit
participation and deferred compensation is recorded based on such estimates
with the deferred profit participation being amortized into expense in
proportion to actual sales realized. No profit participation was paid until the
limited partners recognized a 20% return on their investment. At September 30,
2003 and December 31, 2002, the estimated liability for this profit
participation was $22,194 and $21,706, respectively, and was included in
deferred compensation in the accompanying combined balance sheets.
Additionally, amortization of $1,796 and $661 was recognized during the nine
months ended September 30, 2003 and 2002, respectively, and has been included
in general, administrative and operating expenses in the accompanying combined
statements of operations.

Effective March 31, 2001, the limited partners 20% return on their
investment was met. Consequently, payments against the deferred compensation
liability began in April 2001 and will continue thereafter. Payments in the
amount of $2,824 and 1,730 were made to the project manager during the nine
months ended September 30, 2003 and 2002, respectively.

(6) Transactions with Affiliates

27



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WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS  (Continued)

Under the terms of the various servicing agreements between the
Partnerships and FirstCity, FirstCity receives a servicing fee based on
proceeds from resolution of the Portfolio Assets for processing transactions on
the Portfolio Assets and for conducting settlement, collection and other
resolution activities. Included in the accompanying combined statements of
operations are $2,581 and $3,191 in servicing fees incurred by the Partnerships
during the nine months ended September 30, 2003 and 2002, respectively.

(7) Preferred Equity

In 1999, CFSC Capital Corp. XXX contributed $3,556 as preferred equity in
Community Development Investment, LLC. This preferred equity was converted to a
note payable on August 30, 2003. The balance converted was $4,159. The note
agreement has terms similar to the preferred equity and a maturity date of
August 30, 2006. The note agreement requires interest to be paid at a rate
equal to the London Interbank Offering Rate (1.12% at September 30, 2003) plus
5%. Interest in the amount of $8 and $11 has been accrued at September 30, 2003
and December 31, 2002, respectively. Interest expense on the preferred equity
totaled $180 (plus additional $21 after being converted to note payable) and
$237 during the nine months ended September 30, 2003 and 2002, respectively.
This interest expense is included in interest and fees on notes payable 
affiliates in the accompanying combined statements of operations.

On July 1, 2003, the Partnerships adopted SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity(SFAS 150). SFAS 150 establishes standards for how an issuer measures
certain financial instruments with characteristics of both liabilities and
equity and classifies them in its statement of financial position. It requires
that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances) when that financial instrument
embodies an obligation of the issuer. At September 30, 2003, SFAS 150 had
no impact on the combined financial statements since the preferred equity was
converted to a note payable.

(8) Commitments and Contingencies

WAMCO 31 owns a pool of loans that includes three lines of credit with a
combined outstanding balance of $3.4 million at September 30, 2003. The
maximum commitment associated with these lines was $9.4 million at September
30, 2003. After reserves and borrowing base requirements, the total
availability was $1.9 million at September 30, 2003.

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

28



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##### 



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

Overview

FirstCity is a financial services company engaged in the acquisition and
resolution of portfolios of assets or single assets (collectively referred to
as Portfolio Assets). 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. FirstCity also has an equity investment
in Drive Financial Services LP (Drive), which is engaged in the acquisition,
origination, warehousing, securitization and servicing of sub-prime automobile
receivables.

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

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

The Company reported earnings from continuing operations for the three
months and nine months ended September 30, 2003 of $1.8 million and $6.1
million, respectively. Net earnings to common stockholders were $1.8 million or
$.16 per share on a basic and diluted basis for the quarter. For the nine
months ended September 30, 2003, net earnings to common stockholders were $5.5
million or $.49 per share on a basic and diluted basis.

|                                           |                                            |   |                    |       |                   |   |        |        |      |   |        |       |  |   |        |        |  
|------------------------------------------ | ------------------------------------------ | - | ------------------ | ----- | ----------------- | - | ------ | ------ | ---- | - | ------ | ----- |  | - | ------ | ------ | -
|                                           |                                            |   | Three Months Ended |       | Nine Months Ended
|                                           |                                            |   | September 30,      |       | September 30,    
|                                           |                                            |   |                    |       |                  
|                                           |                                            |   | 2003               |       | 2002              |   | 2003   |        | 2002
|                                           |                                            |   |                    |       |                   |   |        |        |     
|Portfolio Asset Acquisition and Resolution |                                            | $ | 3,005              |       |                   | $ | 849    |        |      | $ | 9,418  |       |  | $ | 9,350  |       
|Consumer                                   |                                            |   | 1,491              |       |                   |   | 280    |        |      |   | 4,118  |       |  |   | (406   | )     
|Corporate interest                         |                                            |   | (1,269             | )     |                   |   | (939   | )      |      |   | (3,629 | )     |  |   | (2,608 | )     
|Corporate overhead                         |                                            |   | (1,387             | )     |                   |   | (1,327 | )      |      |   | (3,849 | )     |  |   | (4,105 | )     
|                                           |                                            |   |                    |       |                   |   |        |        |      |   |        |       |  |   |        |       
|                                           | Earnings (loss) from continuing operations |   |                    | 1,840 |                   |   |        | (1,137 | )    |   |        | 6,058 |  |   |        | 2,231  |  
|Accrued preferred dividends                |                                            |   |                   |       |                   |   | (642   | )      |      |   | (133   | )     |  |   | (1,926 | )     
|Loss from discontinued operations          |                                            |   |                   |       |                   |   | (5,700 | )      |      |   | (420   | )     |  |   | (7,700 | )     
|                                           |                                            |   |                    |       |                   |   |        |        |      |   |        |       |  |   |        |       
|                                           | Net earnings (loss) to common shareholders |   | $                  | 1,840 |                   |   | $      | (7,479 | )    |   | $      | 5,505 |  |   | $      | (7,395 | )
|                                           |                                            |   |                    |       |                   |   |        |        |      |   |        |       |  |   |        |       

Results of Operations

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

Third Quarter 2003 Compared to Third Quarter 2002

The Company reported earnings from continuing operations of $1.8 million
in the third quarter of 2003. Net earnings to common stockholders were $1.8
million in the third quarter of 2003 compared to a loss of $7.5 million in the
third quarter of 2002. On a per share basis, basic and diluted net earnings
attributable to common stockholders were $.16 in the third quarter of 2003
compared to a loss of $.49 in the third quarter of 2002.

Portfolio Asset Acquisition and Resolution

The operating contribution from the Portfolio Asset acquisition and
resolutions segment was $3.0 million in the third quarter of 2003 compared to
$.8 million in the third quarter of 2002. FirstCity purchased $39 million of
Portfolio Assets during the third quarter of 2003 through the Acquisition
Partnerships, compared to $51 million in acquisitions in the third quarter of
2002. FirstCitys investment in these acquisitions was $3.9 million and $2.6
million in the third quarter of 2003 and 2002, respectively. There were no
purchases of wholly owned Portfolio Assets during either period.
FirstCitys quarter end investment in wholly owned Portfolio Assets

29



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decreased
to $4.1 million from $10.5 million at September 30, 2003 and 2002,
respectively, with regular collections and sales from those Portfolios.

Servicing fee revenues.Servicing fee revenues were flat from period to
period. Service fees from the Mexican partnerships (including incentive
servicing fees) increased $.4 million or 22% from $2.5 million in the third
quarter of 2002 due to increased servicing responsibilities in Mexico as a
result of bringing the majority of the servicing responsibilities in-house and
not using third party servicers to provide the servicing function for the
Mexican partnerships. For the Mexican Acquisition Partnerships, FirstCity earns
a servicing fee based on costs of servicing plus a profit margin. Service fees
from the domestic Acquisition Partnerships decreased from $1.2 million in the
third quarter of 2002 to $1.1 million in 2003.

Gain on resolution of Portfolio Assets.The net gain on resolution of
Portfolio Assets decreased from $.2 million in the third quarter of 2002 to $.1
million in the third quarter of 2003. The weighted average gross profit
percentage on the resolution of Portfolio Assets in the third quarter of 2003
declined to 6% as compared to 37% in the third quarter of 2002 primarily as a
result of a payoff of five performing loans generating proceeds of $1.5 million
and no gain.

Equity in earnings of investments.Equity in earnings of Acquisition
Partnerships increased 230% to $3.0 million in the third quarter of 2003
compared to $.9 million in the third quarter of 2002. The Acquisition
Partnerships reflected a combined loss of $7.9 million in the third quarter of
2003 compared to a combined loss of $4.8 million in the third quarter of 2002.
Following is a discussion of equity earnings by geographic region.



| |  |  | Domestic Equity in earnings of domestic Acquisition Partnerships
increased 89% to $2.5 million in the third quarter of 2003 from $1.3
million in 2002 primarily due to a $.5 million increase in equity
earnings from MinTex Investment Partners LP that began operations in
2002 and $.5 million in equity earnings from one WAMCO partnership that
began operations in 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Mexico Equity in losses of Mexican Acquisition Partnerships were
$1.1 million in the third quarter of 2003 compared to $.8 million in
2002. These partnerships reflected losses of $24.4 million in the third
quarter of 2003 compared to a $10.5 million loss in 2002. The
partnerships recorded foreign exchange losses of $14 million in the
third quarter of 2003 compared to foreign exchange losses of $8 million
in 2002. Interest expense of $12 million and $13 million were recorded
during the third quarter of 2003 and 2002, respectively. This interest
is owed to affiliates of the investors of these partnerships, of which
FirstCity recorded $.4 million and $.9 million, respectively, as
interest income. Excluding effects of foreign currency transactions and
interest expense, these partnerships reflected adjusted net earnings of
$2.1 million in the third quarter of 2003 compared to $10.0 million in
2002, which is primarily due to the Mexican partnerships receiving $4.6
million or 22% less collections in the third quarter of 2003 compared to
2002. Also, in the third quarter of 2002, two Mexico partnerships
recorded approximately $9 million of deferred tax income as a result of
net operating losses in those entities. The Company continues to see
opportunities to invest in Mexico that are favorable taking into
consideration the currency risk and continues to monitor the foreign
currency exposure on a daily basis and evaluate the advisability of
hedging these investments through analysis of currency forecasts, the
cost of hedging those investments and the available liquidity to do so.
|
| |  |  | France Equity in earnings of Acquisition Partnerships located in
France increased from $.4 million in the third quarter of 2002 to $1.6
million in the third quarter of 2003. This increase is principally due
to the addition of three French Partnerships during 2002 and two in
2003, which accounted for $1.0 million in equity in earnings in the
first nine months of 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Interest income.Interest income decreased 52% from $1.2 million in the
third quarter of 2002 to $.6 million in the third quarter of 2003 primarily due
to the Company amending three loan agreements from Acquisition Partnerships
located in Mexico to provide for no interest to be payable with respect to
periods after the effective date of the amendment. This change had no impact
on the consolidated net earnings as the effect is offset through equity
earnings in these Partnerships.

Other income.Other income was flat from quarter to quarter.

Expenses.Operating expenses were relative flat from quarter to quarter.

Interest and fees on notes payable was flat from quarter to quarter. The
average debt for the quarter decreased to $27.1 million in the third quarter of
2003 from $28.6 million in the third quarter of 2002.

Salaries and benefits increased $.2 million, or 6%, due to increased
servicing personnel in Mexico. Total personnel within the Portfolio Asset
acquisition and resolution segment increased from 172 to 236 at September 30,
2002 and 2003, respectively, with the

30



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personnel in Mexico increasing from 97 to
173. FirstCity also recorded additional servicing fee revenues with the
increased servicing responsibilities in Mexico.

The provision for loan and impairment losses totaled $23,000 in the third
quarter of 2003 compared to $157,000 in the third quarter of 2002.

Impairment on performing Portfolio Assets is measured based on the present
value of the expected future cash flows in the aggregate discounted at the
loans risk adjusted rates, which approximates the effective interest rates, or
the fair value of the collateral, less estimated selling costs, if any loans
are collateral dependent and foreclosure is probable. Impairment on
nonperforming Portfolios is evaluated by analyzing the expected future cash
flows from the underlying assets within each Portfolio. The expected future
cash flows are reviewed monthly and adjusted as deemed necessary. Changes in
various factors including, but not limited to, economic conditions,
deterioration of collateral values, deterioration in the borrowers 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.

For real estate Portfolios, the evaluation of impairment is determined
quarterly based on the review of the estimated future cash receipts less
estimated costs to sell, which represents the net realizable value of the real
estate Portfolio. A valuation allowance is established for any impairment
identified through provisions charged to operations in the period the
impairment is identified.

There were no provisions recorded on loans receivable from Acquisition
Partnerships during the third quarter of 2003 and 2002. The loans receivable
from the Mexican partnerships are secured by the assets/loans acquired by the
Mexican partnerships with purchase money loans provided by affiliates of the
investors in the Mexican partnerships to purchase the asset pools held in those
entities. These loans are evaluated for impairment by analyzing the expected
future cash flows from the underlying assets within each pool to determine that
the cash flows were sufficient to repay these notes. The Company applies the
asset valuation methodology consistently in all venues and uses the same
proprietary asset management system to evaluate impairment on all asset pools.
The results of this evaluation indicated that cash flows from the pools will be
sufficient to repay the loans and no allowances for impairment were necessary.

Occupancy, data processing, communication and other expenses was flat from
quarter to quarter.

Minority interest income was $32,000 in the third quarter of 2003 compared
to expense of $91,000 in 2002. In December 2002, FirstCity acquired the
minority interest in FirstCity Holdings as part of a recapitalization, and in
April 2003, acquired the minority interest in MCSFC LP.

Consumer Lending

FirstCitys consumer lending segment consists of the Companys net
investment in Drive. The operating contribution for the third quarter of 2003
was $1.5 million compared to $.3 million during the third quarter of 2002.
Drive recorded net income of $5.2 million in the third quarter of 2003 compared
to $.9 million in the third quarter of 2002. Drives inventory of retail
installments contracts has grown from $311 million at September 30, 2002 to
$578 million at September 30, 2003. Consequently, net interest margin after
provision for credit losses and impairments at Drive rose from $13.2 million to
$21.1 million during the third quarter of 2002 and 2003, respectively. The
provisions for impairment on residual assets of $3.9 million was related to
higher losses and delinquencies as a result of market and general economic
conditions and are more prevalent in pools of loans originated prior to
September 2001. Recent market conditions do indicate initial signs of
improvement but Drive Management continues to monitor trends in cash flow and
performance to determine the impact upon the need for additional provisions.

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 interest and overhead.Company level interest expense increased
by 35% to $1.3 million in the third quarter of 2003 from $.9 million in the
third quarter of 2002 primarily due to increased effective interest costs.
Other corporate overhead expenses were flat from period to period.

31



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Income taxes.Benefit for income taxes was $171,000 in the third quarter
of 2003 and primarily related to state income taxes on FirstCitys operations
in Minnesota, which began in April 2002. Federal income taxes are provided at
a 35% rate applied to taxable income or loss and are offset by NOLs that the
Company believes are available. The tax benefit of the NOLs is recorded in the
period during which the benefit is realized. The Company recorded no deferred
tax provision in the third quarters of 2003 and 2002.

Discontinued Operations.The Company recorded a provision of $5.7 million
in the third quarter of 2002 for additional losses from discontinued
operations. No provision was required in the third quarter 2003. The provision
in 2002 primarily related 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 was partially a result of the actual losses exceeding the losses
projected by the valuation model. In addition, prepayment assumptions increased
to take into consideration the lower market rates and higher than predicted
actual prepayments over the past quarter. As the securities run off,
assumptions are reviewed in light of historical evidence in revising the
prospective results of the model. These revised assumptions could potentially
result in either an increase or decrease in the estimated cash receipts. An
additional provision is booked based on the output of the valuation model if
deemed necessary.

First Nine Months of 2003 Compared to First Nine Months of 2002

The Company reported earnings from continuing operations of $6.1 million
in the first nine months of 2003. Net earnings to common stockholders were $5.5
million in the first nine months of 2003 compared to a loss of $7.4 million in
the first nine months of 2002. On a per share basis, basic and diluted net
earnings attributable to common stockholders were $.49 in the first nine months
of 2003 compared to a loss of $.88 in the first nine months of 2002.

Portfolio Asset Acquisition and Resolution

The operating contribution was $9.4 million in the first nine months of
2003 and 2002. FirstCity purchased $72 million of Portfolio Assets during the
first nine months of 2003 through the Acquisition Partnerships, compared to
$121 million in acquisitions in the first nine months of 2002. FirstCitys
investment in these acquisitions was $15.3 million and $11.7 million in the
first nine months of 2003 and 2002, respectively. There were no purchases of
wholly owned Portfolio Assets during either period. FirstCitys quarter end
investment in wholly owned Portfolio Assets decreased to $4.1 million from
$10.5 million at September 30, 2003 and 2002, respectively, with regular
collections from those Portfolios.

Servicing fee revenues.Servicing fee revenues increased 16% from $9.7
million in the first nine months of 2002 to $11.2 million in 2003. Service
fees from the Mexican partnerships (including incentive service fees) increased
$2.2 million or 42% with increased servicing responsibilities in Mexico as a
result of bringing the majority of the servicing responsibilities in-house and
not using third party servicers to provide the servicing function for the
Mexican partnerships. For the Mexican Acquisition Partnerships, FirstCity earns
a servicing fee based on costs of servicing plus a profit margin. Service fees
from the domestic Acquisition Partnerships decreased from $4.4 million in the
first nine months of 2002 to $3.7 million in 2003. 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, FirstCity recorded servicing
fee revenues of $.9 million. In June 2003, FirstCity and several Acquisition
Partnerships completed another loan sale of performing and non-performing
Portfolio Assets with a carrying value of $8.3 million for proceeds of $10.0
million, resulting in $.3 million of service fees.

Gain on resolution of Portfolio Assets.The net gain on resolution of
Portfolio Assets increased from $.9 million in the first nine months of 2002 to
$1.1 million in the first nine months of 2003. The gross profit percentage on
the resolution of Portfolio Assets in the first nine months of 2003 was 17% as
compared to 31% in the first nine months of 2002 as a result of a payoff of
five performing loans generating proceeds of $1.5 million and no gain.

Equity in earnings of investments.Equity in earnings of Acquisition
Partnerships increased 25% to $8.1 million in the first nine months of 2003
compared to $6.5 million in the first nine months of 2002. The Acquisition
Partnerships reflected a net loss of $11.8 million in the first nine months of
2003 compared to $6.7 million in the first nine months of 2002. Following is a
discussion of equity earnings by geographic region.



| |  |  | Domestic Equity in earnings of domestic Acquisition Partnerships
was $8.1 million in the first nine months of 2003 compared to $7.8
million in 2002. Equity in earnings in MinnTex Investment Partners LP,
which began operations in April 2002, was $2.9 million in the first nine
months of 2003 compared to $.8 million in 2002. Also, equity in
earnings in the
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32



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##### 





| |   |  | WAMCO partnerships declined $1.5 million or 22%
primarily due a bulk loan sale of performing and non-performing
Portfolio Assets with a carrying value of $59 million for proceeds of
$71 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Mexico Equity in loss of Mexican Acquisition Partnerships was $2.8
million in the first nine months of 2003 compared to $2.7 million in
2002. These partnerships reflected a loss of $51.1 million in the first
nine months of 2003 compared to $40.9 million in 2002. The partnerships
recorded foreign exchange losses of $20.4 million in the first nine
months of 2003 compared to $17.9 million in 2002. Interest expense of
$37.0 million and $41.6 million were recorded during the first nine
months of 2003 and 2002, respectively. This interest is owed to the
investors of these partnerships, of which FirstCity recorded $2.1
million and $3.0 million, respectively, as interest income. Excluding
effects of foreign currency transactions and interest expense, these
partnerships reflected adjusted net earnings of $6.3 million in the
first nine months of 2003 compared to $18.6 million in 2002, which is
primarily due to the Mexican partnerships receiving $22.9 million or 33%
less collections in the first nine months of 2003 compared to 2002. The
Company continues to see opportunities to invest in Mexico that are
favorable taking into consideration the currency risk and continues to
monitor the foreign currency exposure on a daily basis and evaluate the
advisability of hedging these investments through analysis of currency
forecasts, the cost of hedging those investments and the available
liquidity to do so.
|
| |  |  | France Equity in earnings of Acquisition Partnerships located in
France increased 100% to $2.8 million in the first nine months of 2003
compared to $1.4 million in 2002. This increase is principally due to
the addition of three French Partnerships during 2002 and two in 2003,
which accounted for $1.6 million in equity in earnings in the first nine
months of 2003. In addition, the Company sold in June 2002 its
investment in eight French Partnerships, which accounted for $.4 million
in equity in earnings in the first nine months of 2002. During the
first nine months of 2003, FirstCity also recorded $.8 million in
foreign currency transaction gains (included in other expenses) relating
to investments in France as the euro relative to the dollar appreciated
from 1.05 at December 31, 2002 to 1.16 at September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Interest income.Interest income decreased 29% from $3.9 million in the
first nine months of 2002 to $2.8 million in the first nine months of 2003
primarily due to the Company amending three loan agreements from Acquisition
Partnerships located in Mexico to provide for no interest to be payable with
respect to periods after the effective date of the amendment.. This change had
no impact on the consolidated net earnings as the effect is offset through
equity earnings in these Partnerships.

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

Other income.Other income decreased 44% from $1.6 million in the first
nine months of 2002 to $.9 million in the first nine months of 2003 primarily
due to a $.7 million gain on the early extinguishment of debt recorded in 2002.

Expenses.Operating expenses decreased $.6 million or 4%, primarily due
to reductions in minority interest expense, interest and other expenses, offset
by increases in salaries and benefits in Mexico.

Interest and fees on notes payable decreased 13% to $1.8 million in the
first nine months of 2003 from $2.1 million in 2002. The average debt
decreased to $26.4 million in the first nine months of 2003 from $33.6 million
in the first nine months of 2002. This decrease in debt balances was partially
offset by increased effective interest costs of 9.4% in the first nine months
of 2003 compared to 8.5% in 2002.

Salaries and benefits increased $1.8 million, or 25%, due to increased
servicing personnel in Mexico. Total personnel within the Portfolio Asset
acquisition and resolution segment increased from 172 to 236 at September 30,
2002 and 2003, respectively, with the personnel in Mexico increasing from 97 to
173. FirstCity also recorded additional servicing fee revenues with the
increased servicing responsibilities in Mexico.

The provision for loan and impairment losses was $1,000 in the first nine
months of 2003 and includes a $61,000 recovery on one real estate Portfolio.
The provision for loan and impairment losses totaled $.3 million in the first
nine months of 2002.

Minimal provisions were recorded in the first nine months of 2003 and 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.

33



---



##### 



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

Occupancy, data processing, communication and other expenses declined $.7
million or 15% primarily due to net foreign currency gains of $.7 million in
the first nine months of 2003 compared to $89,000 in 2002.

Minority interest expense was $1.2 million in the first nine months of
2002. In December 2002, FirstCity acquired the minority interest in FirstCity
Holdings as part of a recapitalization, and in April 2003, acquired the
minority interest of MCSFC LP.

Consumer Lending

FirstCitys consumer lending segment consists of the Companys net
investment in Drive. The operating contribution for the first nine months of
2003 was $4.1 million compared to a loss of $.4 million during the first nine
months of 2002. Drive recorded net income of $14.7 million in the first nine
months of 2003 compared to a loss of $1.3 million in the first nine months of
2002. Drives inventory of retail installments contracts has grown from $311
million at September 30, 2002 to $578 million at September 30, 2003.
Consequently, net interest margin after provision for credit losses and
impairments at Drive rose from $33.2 million to $59.8 million during the first
nine months of 2002 and 2003, respectively. The provisions for impairment on
residual assets of $6.3 million for the nine months was related to higher
losses and delinquencies as a result of market and general economic conditions
and are more prevalent in pools of loans originated prior to September 2001.
Recent market conditions do indicate initial signs of improvement but Drive
Management continues to monitor trends in cash flow and performance to
determine the impact upon the need for additional provisions.

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 interest and overhead.Company level interest expense increased
by 39% to $3.6 million in the first nine months of 2003 from $2.6 million in
the first nine months of 2002 due to increased effective interest costs. Other
corporate overhead expenses were flat from period to period.

Income taxes.Provision for income taxes was $83,000 in the first nine
months of 2003 and primarily related to state income taxes on FirstCitys
operations in Minnesota, which began in April 2002. Federal income taxes are
provided at a 35% rate applied to taxable income or loss and are offset by NOLs
that the Company believes are available. The tax benefit of the NOLs is
recorded in the period during which the benefit is realized. The Company
recorded no deferred tax provision in the first nine months of 2003 and 2002.

Discontinued Operations.The Company recorded a provision of $.4 million
in the first nine months of 2003 for additional losses from discontinued
operations compared to $7.7 million in 2002. The additional provisions
primarily relate to a decrease in the estimated future gross cash receipts on
residual interests in securitizations. These securities are in run-off, and
the Company is contractually obligated to service these assets. The assumptions
used in the valuation model consider both industry as well as the Companys
historical experience. The decrease in the estimated future gross cash receipts
is partially a result of the actual losses exceeding the losses projected by
the valuation model. In addition, prepayment assumptions have increased to take
into consideration the lower market rates and higher than predicted actual
prepayments over the past quarter. As the securities run off, assumptions are
reviewed in light of historical evidence in revising the prospective results of
the model. These revised assumptions could potentially result in either an
increase or decrease in the estimated cash receipts. An additional provision is
booked based on the output of the valuation model if deemed necessary.

Portfolio Asset Acquisition and Resolution

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

|                          |  |          |         |            |  |   |        | 
|------------------------- |  | -------- | ------- | ---------- |  | - | ------ | 
|                          |  | Purchase |         | FirstCity 
|                          |  | Price    |         | Investment
|                          |  |          |         |           
|First nine months of 2003 |  | $        | 71,508  |            |  | $ | 15,295 | 
|Total 2002                |  |          | 171,769 |            |  |   | 16,717 | 
|Total 2001                |  |          | 224,927 |            |  |   | 24,319 | 

34



---



##### 



|           |  |          |         |            |  |  |        | 
|---------- |  | -------- | ------- | ---------- |  |  | ------ | 
|           |  | Purchase |         | FirstCity 
|           |  | Price    |         | Investment
|           |  |          |         |           
|Total 2000 |  |          | 394,927 |            |  |  | 22,140 | 
|Total 1999 |  |          | 210,799 |            |  |  | 11,203 | 

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

Analysis of Selected Revenues and Expenses
Portfolio Asset Acquisition and Resolution

|                                                             |                                      |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |        |         |        |  
|------------------------------------------------------------ | ------------------------------------ | ----------------------- | ----- | ------ | ------------------ | ------ | ----------------- | ------ | ------ | ------ | ----- | ------ | ------- | ------ | ----- | ------ | ------- | ------ | -
|                                                             |                                      |                         |       |        | Three Months Ended |        | Nine Months Ended
|                                                             |                                      |                         |       |        | September 30,      |        | September 30,    
|                                                             |                                      |                         |       |        |                    |        |                  
|                                                             |                                      |                         |       |        | 2003               |        | 2002              |        | 2003   |        | 2002 
|                                                             |                                      |                         |       |        |                    |        |                   |        |        |        |      
|Income from Portfolio Assets and Loans Receivable:           |                                      |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |       
|Average investment in Portfolio Assets and loans
receivable: |                                      |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |       
|                                                             |                                      | Domestic                |       | $      | 6,014              |        |                   | $      | 12,347 |        |       | $      | 7,921   |        |       | $      | 13,564  |       
|                                                             |                                      | Mexico                  |       |        | 15,226             |        |                   |        | 18,274 |        |       |        | 15,153  |        |       |        | 19,236  |       
|                                                             |                                      | France                  |       |        | 3,486              |        |                   |        |       |        |       |        | 1,394   |        |       |        |        |       
|                                                             |                                      |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |       
|                                                             |                                      |                         | Total |        | $                  | 24,726 |                   |        | $      | 32,453 |       |        | $       | 24,468 |       |        | $       | 32,800 |  
|                                                             |                                      |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |        |         |       
|Income from Portfolio Assets and loans receivable:           |                                      |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |       
|                                                             |                                      | Domestic                |       | $      | 241                |        |                   | $      | 485    |        |       | $      | 1,616   |        |       | $      | 1,769   |       
|                                                             |                                      | Mexico                  |       |        | 414                |        |                   |        | 947    |        |       |        | 2,147   |        |       |        | 2,953   |       
|                                                             |                                      | France                  |       |        | 47                 |        |                   |        |       |        |       |        | 64      |        |       |        |        |       
|                                                             |                                      |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |       
|                                                             |                                      |                         | Total |        | $                  | 702    |                   |        | $      | 1,432  |       |        | $       | 3,827  |       |        | $       | 4,722  |  
|                                                             |                                      |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |        |         |       
|                                                             | Average return (annualized):         |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |        |        
|                                                             |                                      | Domestic                |       |        | 16.0               | %      |                   |        | 15.7   | %      |       |        | 27.2    | %      |       |        | 17.4    | %     
|                                                             |                                      | Mexico                  |       |        | 10.9               | %      |                   |        | 20.7   | %      |       |        | 18.9    | %      |       |        | 20.5    | %     
|                                                             |                                      | France                  |       |        | 5.4                | %      |                   |        |       |        |       |        | 6.1     | %      |       |        |        |       
|                                                             |                                      |                         | Total |        |                    | 11.4   | %                 |        |        | 17.7   | %     |        |         | 20.9   | %     |        |         | 19.2   | %
|Servicing fee revenues:                                      |                                      |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |       
|                                                             | Domestic partnerships:               |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |        |        
|                                                             |                                      | $ Collected             |       | $      | 23,646             |        |                   | $      | 26,653 |        |       | $      | 88,341  |        |       | $      | 162,864 |       
|                                                             |                                      | Servicing fee revenue   |       |        | 1,121              |        |                   |        | 1,249  |        |       |        | 3,703   |        |       |        | 4,399   |       
|                                                             |                                      | Average servicing fee % |       |        | 4.7                | %      |                   |        | 4.7    | %      |       |        | 4.2     | %      |       |        | 2.7     | %     
|                                                             | Mexico partnerships:                 |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |        |        
|                                                             |                                      | $ Collected             |       | $      | 16,331             |        |                   | $      | 20,895 |        |       | $      | 46,356  |        |       | $      | 69,245  |       
|                                                             |                                      | Servicing fee revenue   |       |        | 2,348              |        |                   |        | 1,792  |        |       |        | 7,227   |        |       |        | 4,778   |       
|                                                             |                                      | Average servicing fee % |       |        | 14.4               | %      |                   |        | 8.6    | %      |       |        | 15.6    | %      |       |        | 6.9     | %     
|                                                             | Incentive service fees               |                         | $     | 105    |                    |        | $                 | 222    |        |        | $     | 237    |         |        | $     | 478    |        
|                                                             | Total Service Fees:                  |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |        |        
|                                                             |                                      | $ Collected             |       | $      | 39,977             |        |                   | $      | 47,548 |        |       | $      | 134,697 |        |       | $      | 232,109 |       
|                                                             |                                      | Servicing fee revenue   |       |        | 3,574              |        |                   |        | 3,263  |        |       |        | 11,167  |        |       |        | 9,655   |       
|                                                             |                                      | Average servicing fee % |       |        | 8.9                | %      |                   |        | 6.9    | %      |       |        | 8.3     | %      |       |        | 4.2     | %     
|Personnel:                                                   |                                      |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |       
|Personnel expenses                                           |                                      | $                       | 2,972 |        |                    | $      | 2,809             |        |        | $      | 9,117 |        |         | $      | 7,298 |       
|                                                             | Number of personnel (at period end): |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |        |        
|                                                             |                                      | Domestic                |       |        | 58                 |        |                   |        | 70     |        |       |        |         |        |       |        |         |       
|                                                             |                                      | Mexico                  |       |        | 178                |        |                   |        | 102    |        |       |        |         |        |       |        |         |       
|Interest expense:                                            |                                      |                         |       |        |                    |        |                   |        |        |        |       |        |         |        |       |       
|                                                             | Average debt                         |                         | $     | 27,076 |                    |        | $                 | 28,617 |        |        | $     | 26,354 |         |        | $     | 33,609 |        
|                                                             | Interest expense                     |                         |       | 587    |                    |        |                   | 628    |        |        |       | 1,848  |         |        |       | 2,132  |        
|                                                             | Average cost (annualized)            |                         |       | 8.7    | %                  |        |                   | 8.8    | %      |        |       | 9.4    | %       |        |       | 8.5    | %      

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

35



---



##### 



Analysis of Selected Revenues and Expenses
Acquisition Partnerships

|                                               |                                                           |                               |       |                    |        |                   |     |        |        |      |       |        |         |   |       |        |        |  
|---------------------------------------------- | --------------------------------------------------------- | ----------------------------- | ----- | ------------------ | ------ | ----------------- | --- | ------ | ------ | ---- | ----- | ------ | ------- | - | ----- | ------ | ------ | -
|                                               |                                                           |                               |       | Three Months Ended |        | Nine Months Ended
|                                               |                                                           |                               |       | September 30,      |        | September 30,    
|                                               |                                                           |                               |       |                    |        |                  
|                                               |                                                           |                               |       | 2003               |        | 2002              |     | 2003   |        | 2002
|                                               |                                                           |                               |       |                    |        |                   |     |        |        |     
|Revenues:                                      |                                                           |                               |       |                    |        |                   |     |        |        |      |       |        |         |   |       |       
|                                               | Gain on resolution of Portfolio Assets                    |                               | $     | 29,169             |        |                   | $   | 16,849 |        |      | $     | 72,403 |         |   | $     | 69,532 |       
|                                               | Gross profit percentage on resolution of Portfolio Assets |                               |       | 41.97              | %      |                   |     | 36.26  | %      |      |       | 38.57  | %       |   |       | 31.45  | %     
|                                               | Interest income                                           |                               | $     | 1,756              |        |                   | $   | 2,699  |        |      | $     | 5,884  |         |   | $     | 11,961 |       
|                                               | Other income                                              |                               |       | 528                |        |                   |     | 572    |        |      |       | 1,537  |         |   |       | 1,802  |       
|Interest expense(1):                           |                                                           |                               |       |                    |        |                   |     |        |        |      |       |        |         |   |       |       
|                                               | Interest expense                                          |                               | $     | 13,648             |        |                   | $   | 14,322 |        |      | $     | 42,197 |         |   | $     | 48,121 |       
|                                               | Average cost (annualized)                                 |                               |       | 15.22              | %      |                   |     | 14.55  | %      |      |       | 14.74  | %       |   |       | 15.16  | %     
|Other expenses:                                |                                                           |                               |       |                    |        |                   |     |        |        |      |       |        |         |   |       |       
|                                               | Service fees                                              |                               |       | 4,719              |        |                   |     | 3,199  |        |      |       | 14,160 |         |   |       | 14,271 |       
|                                               | Other operating costs                                     |                               |       | 6,838              |        |                   |     | 3,816  |        |      |       | 15,820 |         |   |       | 11,358 |       
|                                               | Foreign currency loss                                     |                               |       | 14,350             |        |                   |     | 7,894  |        |      |       | 20,440 |         |   |       | 17,914 |       
|                                               | Income taxes                                              |                               |       | (222               | )      |                   |     | (4,285 | )      |      |       | (955   | )       |   |       | (1,658 | )     
|                                               |                                                           |                               |       |                    |        |                   |     |        |        |      |       |        |         |   |       |       
|                                               |                                                           | Total other expenses (income) |       |                    | 25,685 |                   |     |        | 10,624 |      |       |        | 49,465  |   |       |        | 41,885 |  
|                                               |                                                           |                               |       |                    |        |                   |     |        |        |      |       |        |         |   |       |       
|                                               |                                                           | Net earnings (loss)           |       | $                  | (7,880 | )                 |     | $      | (4,826 | )    |       | $      | (11,838 | ) |       | $      | (6,711 | )
|                                               |                                                           |                               |       |                    |        |                   |     |        |        |      |       |        |         |   |       |        |       
|Equity in earnings of Acquisition Partnerships |                                                           | $                             | 3,007 |                    |        | $                 | 912 |        |        | $    | 8,135 |        |         | $ | 6,494 |       
|Equity in earnings of Servicing Entities       |                                                           |                               | 155   |                    |        |                   | 12  |        |        |      | 474   |        |         |   | 692   |       
|                                               |                                                           |                               |       |                    |        |                   |     |        |        |      |       |        |         |   |       |       
|                                               |                                                           | $                             | 3,162 |                    |        | $                 | 924 |        |        | $    | 8,609 |        |         | $ | 7,186 |       
|                                               |                                                           |                               |       |                    |        |                   |     |        |        |      |       |        |         |   |       |        |       



---

|(1) |  | Interest expense includes interest on loans to the Acquisition
Partnerships located in Mexico from affiliates of the investor groups. The
rates on these loans range from 19% to 20%. The average cost on debt
excluding the Mexican Acquisition Partnerships was 5.1% and 5.9% for the
three months ended September 30, 2003 and 2002, respectively and 5.4% and
6.2% for the nine months ended September 30, 2003 and 2002, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Consumer Lending

The following table presents selected information regarding consumer
lending:

Analysis of Selected Data
Consumer Lending

|                                                         |                                     |   |                    |         |                   |   |         |         |      |   |         |       |   |   |         |       |  
|-------------------------------------------------------- | ----------------------------------- | - | ------------------ | ------- | ----------------- | - | ------- | ------- | ---- | - | ------- | ----- | - | - | ------- | ----- | -
|                                                         |                                     |   | Three Months Ended |         | Nine Months Ended
|                                                         |                                     |   | September 30,      |         | September 30,    
|                                                         |                                     |   |                    |         |                  
|                                                         |                                     |   | 2003               |         | 2002              |   | 2003    |         | 2002
|                                                         |                                     |   |                    |         |                   |   |         |         |     
|Retail installment contracts acquired                    |                                     | $ | 128,688            |         |                   | $ | 100,430 |         |      | $ | 382,513 |       |   | $ | 314,611 |      
|Origination characteristics:                             |                                     |   |                    |         |                   |   |         |         |      |   |         |       |   |   |         |      
|                                                         | Face value to wholesale value       |   |                    | 96.02   | %                 |   |         | 98.07   | %    |   |         | 97.84 | % |   |         | 99.69 | %
|                                                         | Weighted average coupon             |   |                    | 20.99   | %                 |   |         | 20.93   | %    |   |         | 20.98 | % |   |         | 21.02 | %
|                                                         | Purchase discount (% of face value) |   |                    | 17.72   | %                 |   |         | 15.02   | %    |   |         | 17.43 | % |   |         | 15.41 | %
|Servicing portfolio                                      |                                     |   |                    |         |                   |   |         |         |      |   |         |       |   |   |         |      
|                                                         | Owned                               |   | $                  | 113,046 |                   |   | $       | 170,387 |      |   |         |       |   |   |         |       |  
|                                                         | Securitized                         |   |                    | 695,707 |                   |   |         | 493,371 |      |   |         |       |   |   |         |       |  
|                                                         |                                     |   |                    |         |                   |   |         |         |      |   |         |       |   |   |         |      
|                                                         | Total                               |   | $                  | 808,753 |                   |   | $       | 663,758 |      |   |         |       |   |   |         |       |  
|                                                         |                                     |   |                    |         |                   |   |         |         |      |   |         |       |   |   |         |      
|                                                         | Owned  number of contracts         |   |                    | 9,865   |                   |   |         | 14,568  |      |   |         |       |   |   |         |       |  
|                                                         | Securitized  number of contracts   |   |                    | 65,745  |                   |   |         | 44,497  |      |   |         |       |   |   |         |       |  
|                                                         |                                     |   |                    |         |                   |   |         |         |      |   |         |       |   |   |         |      
|                                                         | Total number of contracts           |   |                    | 75,610  |                   |   |         | 59,065  |      |   |         |       |   |   |         |       |  
|                                                         |                                     |   |                    |         |                   |   |         |         |      |   |         |       |   |   |         |      
|Defaults (% of original loan balance at time
of default) |                                     |   | 22.01              | %       |                   |   | 18.73   | %       |      |   |         |       |   |   |         |      
|Net losses on defaults after recovery                    |                                     |   | 11.47              | %       |                   |   | 9.30    | %       |      |   |         |       |   |   |         |      
|Delinquencies (% of total serviced portfolio)            |                                     |   | 5.92               | %       |                   |   | 7.53    | %       |      |   |         |       |   |   |         |      

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

36



---



##### 



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, 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, securitization and other structured finance
transactions and other special purpose short-term borrowings.

In December 2002, FirstCity completed a recapitalization in which holders
of New Preferred Stock exchanged 1,092,210 shares of New Preferred Stock for
2,417,388 shares of common stock and $10.5 million in cash. As a result, common
equity was increased by $18.9 million. During the first quarter of 2003, 4,400
shares of New Preferred Stock were redeemed for 8,200 shares of common stock
and $50,000 in cash. FirstCity also recorded a $4 million gain from the
release of its guaranty of Drives indebtedness to BoS(USA). BoS(USA)s warrant
to purchase 1,975,000 shares of non-voting common stock was cancelled.
FirstCity also acquired the minority interest in FirstCity Holdings held by
Terry R. DeWitt, G. Stephen Fillip and James C. Holmes, each of whom are Senior
Vice Presidents of FirstCity, by issuing 400,000 shares of common stock of the
Company and a note payable, to be periodically redeemed
by the Company for an aggregate of up to $3.2 million in accordance with
certain cash collections from servicing income from Portfolio asset
acquisitions in Mexico.

As a part of the recapitalization, BoS(USA) provided a non-recourse loan
in the amount of $16 million to FirstCity which was used to pay the cash
portion of the exchange offer to the holders of the New Preferred Stock, to pay
expenses of the exchange offer and recapitalization, and to reduce FirstCitys
debt to the Senior Lenders. The $16 million loan is secured by a 20% interest
in Drive (64.51% of FirstCitys remaining 31% interest in Drive) and other
assets of Consumer Corp. In connection with the $16 million loan, FirstCity is
obligated to pay an arrangement fee to BoS(USA) equal to 20% of all amounts
received by FirstCity in excess of $16 million from any sale or other
disposition of FirstCitys 20% interest in Drive and all dividends and other
distributions paid by Drive or its general partner on FirstCitys 20% interest
in Drive. Management of the Company believes the value of FirstCitys 20%
ownership interest of Drive does not exceed $16 million as of September 30,
2003.

In connection with the recapitalization, the Senior Lenders refinanced the
remainder of the Companys debt facilities ($44 million outstanding at
September 30, 2003). The Senior Lenders also provided new financing to
FirstCity, with a total commitment of up to $59 million, consisting of (a) a $5
million revolving credit loan and (b) an acquisition term loan in an amount up
to $54 million ($20 million available at September 30, 2003). The aggregate
amount of outstanding loans under the total commitment by the Senior Lenders
for the refinancing and the new financing at any time may not exceed $77
million.

BoS(USA) has a warrant to purchase 425,000 shares of the Companys voting
Common Stock at $2.3125 per share. 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.

Currently, the Company has approximately 126,291 shares of New Preferred
Stock outstanding with accrued and unpaid dividends of approximately $1.1
million. The Companys loan agreement with the Senior Lenders restricts the
payment of dividends on these shares until it is repaid in full. Given the
continued high debt levels of the Company, and managements priority of
assuring adequate levels of liquidity, the Company does not anticipate that
dividends on shares of New Preferred Stock will be paid in the foreseeable
future.

FirstCity has a $35 million loan facility 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 and matures in March 2005. At September 30, 2003, approximately $25
million was outstanding under this facility.

37



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##### 



In June 2003, James R. Hawkins, Chairman of the Board and James T.
Sartain, President and Chief Executive Officer executed a note purchase
agreement with a wholly-owned subsidiary, which obligates them to purchase a
note executed by the subsidiary to a bank in the principal amount of $2.7
million ($1.1 million outstanding at September 30, 2003) if a default occurs
under the note within thirty days of written request by the bank.

Drive has a warehouse line of credit with BoS(USA), which provides
borrowings up to $250 million (increased from $200 million in February 2003).
Drives obligation under this arrangement at September 30, 2003 was $97
million. The debt is secured by Drives retail installment contracts and has
been extended to February 2004.

Drive also has a warehouse line of credit agreement with Variable Funding
Capital Corporation, a subsidiary of First Union National Bank, which provides
borrowings up to $100 million. Drives obligation under the arrangement at
September 30, 2003 was zero. The debt will be secured by Drives retail
installment contracts and terminates September 2004.

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.
Management of the Company currently does not believe it is likely that
FirstCity will be required to make payments on these indemnification
agreements.

Excluding the term acquisition facilities of the unconsolidated
Acquisition Partnerships and the term and warehouse facilities of Drive, as of
September 30, 2003, the Company and its subsidiaries had credit facilities
providing for borrowings in an aggregate principal amount of $122 million and
outstanding borrowings of $92 million.

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

The following table summarizes the material terms of the credit facilities
to which the Company, its major operating subsidiaries and the Acquisition
Partnerships were parties to as of November 12, 2003 and the outstanding
borrowings under such facilities as of September 30, 2003.

Credit Facilities

|                         |                          |             |   |                       |    |               |   |               |   |                |                |               |                       |                       |  |  |  | 
|------------------------ | ------------------------ | ----------- | - | --------------------- | -- | ------------- | - | ------------- | - | -------------- | -------------- | ------------- | --------------------- | --------------------- |  |  |  | 
|                         |                          |             |   | Funded and            |    |               |   |               |   |                |                |               |                       |                       |  | 
|                         |                          |             |   | Unfunded              |    | Outstanding   |   |               |   |                |                |               |                       |                      
|                         |                          |             |   | Commitment            |    | Borrowings    |   |               |   |                |                |               |                       |                      
|                         |                          |             |   | Amount as of          |    | as of         |   |               |   |                |                |               |                       |                      
|                         |                          |             |   | November 12,          |    | September 30, |   |               |   |                |                | Other Terms  
|                         |                          |             |   | 2003                  |    | 2003          |   | Interest Rate |   | and Conditions
|                         |                          |             |   |                       |    |               |   |               |   |               
|                         |                          |             |   | (Dollars in millions) |    |               |   |               |   |                |                |              
|FirstCity                |                          |             |   |                       |    |               |   |               |   |                |                |               |                       |                       |  | 
|Company Senior Facility: |                          |             |   |                       |    |               |   |               |   |                |                |               |                       |                       |  | 
|                         | Revolving Line of Credit |             | $ | 5                     |    |               | $ | 1             |   |                | LIBOR + 2.75%  |               | Secured by the assets
|                         |                          |             |   |                       |    |               |   |               |   |                |                |               |                       | of the Company,      
|                         |                          |             |   |                       |    |               |   |               |   |                |                |               |                       | matures December 2003
|                         | Portfolio Acquisition    |             |   |                       |    |               |   |               |   |                |                |               |                       |                       |  |  | 
|                         |                          | Loan (Term) |   |                       | 20 |               |   |               | 4 |                |                | LIBOR + 2.75% |                       | Secured by the assets
|                         |                          |             |   |                       |    |               |   |               |   |                |                |               |                       | of the Company,      
|                         |                          |             |   |                       |    |               |   |               |   |                |                |               |                       | matures November 2006
|                         | Tranche I (Term)         |             |   | 32                    |    |               |   | 32            |   |                | Prime + 2.5%   |               | Secured by the assets
|                         |                          |             |   |                       |    |               |   |               |   |                |                |               |                       | of the Company,      
|                         |                          |             |   |                       |    |               |   |               |   |                |                |               |                       | matures December 2006
|                         | Tranche II (Term)        |             |   | 12                    |    |               |   | 12            |   |                | Fixed at 8.77% |               | Secured by the assets

38



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##### 



|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  |  |  | 
|-------------------------- | ----------------- | ----- | --- | ------------ | --- | ------------- | --- | ------------- | -- | ---------------------- | ------------- | --------------------- | ---------------------- | ---------------------- |  |  |  | 
|                           |                   |       |     | Funded and   |     |               |     |               |    |                        |               |                       |                        |                        |  | 
|                           |                   |       |     | Unfunded     |     | Outstanding   |     |               |    |                        |               |                       |                        |                       
|                           |                   |       |     | Commitment   |     | Borrowings    |     |               |    |                        |               |                       |                        |                       
|                           |                   |       |     | Amount as of |     | as of         |     |               |    |                        |               |                       |                        |                       
|                           |                   |       |     | November 12, |     | September 30, |     |               |    |                        |               | Other Terms          
|                           |                   |       |     | 2003         |     | 2003          |     | Interest Rate |    | and Conditions        
|                           |                   |       |     |              |     |               |     |               |    |                       
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | of the Company,       
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | matures December 2007 
|Commercial Corp.           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  | 
|Term facility              |                   |       | 1   |              |     |               | 1   |               |    | LIBOR + 1.0%           |               | Secured by existing  
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | Portfolio Assets,     
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | matures January 2004  
|Equity investment facility |                   |       | 35  |              |     |               | 25  |               |    | Maximum of Fixed at    |               | Acquisition facility 
|                           |                   |       |     |              |     |               |     |               |    | 8.5% or LIBOR + 4.5%   |               | for the investment in
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | future Acquisition    
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | partnerships, matures 
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | March 2005            
|Unsecured loans            |                   |       | 1   |              |     |               | 1   |               |    | Fixed at 4.5% to 7.0%  |               |                       |                        |                       
|Consumer Corp.             |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  | 
|Term loan                  |                   |       | 16  |              |     |               | 16  |               |    | LIBOR + 1.0%           |               | Secured by equity    
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | interest in Drive,    
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | matures December 2007,
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | non-recourse          
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  | 
|                           |                   | Total |     | $            | 122 |               |     | $             | 92 |                        |               |                       |                        |                        |  |  |  | 
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  | 
|Unconsolidated             |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  | 
|                           | Acquisition       |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  |  | 
|                           | Partnerships term |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  |  | 
|                           | Facilities(1)     |       | $   | 135          |     |               | $   | 135           |    |                        | Various rates |                       | Secured by Portfolio  
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | Assets, various       
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | maturities            
|Unconsolidated             |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  | 
|                           | Drive             |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  |  | 
|Warehouse Facility         |                   | $     | 250 |              |     | $             | 97  |               |    | Prime - .75%           |               | Secured by warehouse 
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | inventory, matures    
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | February 2004         
|Warehouse Facility         |                   |       | 100 |              |     |               |    |               |    | Rate based on          |               | Secured by warehouse 
|                           |                   |       |     |              |     |               |     |               |    | Commercial paper rates |               | inventory, matures   
|                           |                   |       |     |              |     |               |     |               |    | combined with Certain  |               | September 2004       
|                           |                   |       |     |              |     |               |     |               |    | facility fees          |               |                       |                        |                       
|Bonds payable              |                   |       | 492 |              |     |               | 492 |               |    | Fixed at 1.09% To      |               | Secured by retail    
|                           |                   |       |     |              |     |               |     |               |    | 4.09%                  |               |                       | installment Contracts,
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | various maturities    
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | through October 2009  
|Subordinate capital        |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  | 
|                           | Facility          |       |     | 65           |     |               |     | 54            |    |                        | Fixed at 16%  |                       | Secured by all assets 
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | of Drive, matures     
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | February 2006         
|Term Facility              |                   |       | 6   |              |     |               | 6   |               |    | LIBOR + 1%;            |               | Secured by residual  
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | interests, matures    
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        | February 2004         
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  | 
|                           |                   | $     | 913 |              |     | $             | 649 |               |    |                        |               |                       |                        |                        |  | 
|                           |                   |       |     |              |     |               |     |               |    |                        |               |                       |                        |                        |  | 

39



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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 $237 million outstanding as of September 30,
2003 owed to affiliates of the investor groups. Of this amount, the
Company has recorded approximately $14 million as Loans Receivable on the
Consolidated Balance Sheets.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q or
incorporated by reference from time to time, including, but not limited to,
statements relating to the Companys strategic objectives and future
performance, which are not historical facts, may be deemed to be
forward-looking statements under the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include, without limitation, any statement
that may project, indicate or imply future results, performance or
achievements, and may contain the words expect, intend, plan, estimate,
believe, will be, will continue, will likely result, and similar
expressions. Such statements inherently are subject to a variety of risks and
uncertainties that could cause actual results to differ materially from those
projected. There are many important factors that could cause the Companys
actual results to differ materially from those indicated in the forward-looking
statements. Such factors include, but are not limited to, the performance of
the Companys subsidiaries and affiliates; the availability of Portfolio
Assets; assumptions underlying Portfolio Asset performance; risks associated
with foreign operations; currency exchange rate fluctuations; interest rate
risk; the degree to which the Company is leveraged; FirstCitys continued need
for financing; availability of the Companys credit facilities; the impact of
certain covenants in loan agreements of FirstCity and its subsidiaries; risks
of declining value of loans, collateral or assets; the ability of the Company
to utilize NOLs; uncertainties of any litigation that might arise from
discontinued operations; general economic conditions; foreign social and
economic conditions; changes (legislative and otherwise) in the asset
securitization industry; fluctuations in residential and commercial real estate
values; capital market conditions, including the markets for asset-backed
securities; factors more fully discussed and identified in the Companys Annual
Report on Form 10-K, filed April 15, 2003 (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 ability to maintain the spread or
interest differential between the interest it charges the customer for loans
and the interest the Company is charged for the financing of those loans. The
following describes each component of interest bearing assets held by the
Company and how each could be affected by changes in interest rates.

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

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

40



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##### 



The Companys equity investment in Drive is materially impacted by net
interest margins and the ability to securitize the loans Drive originates.
During 2002, Drive elected not to use gain on sale treatment when assets were
securitized. Instead, Drive pursued a strategy to grow the balance sheet and
record interest income from loans and interest expense on the related debt as
incurred to build an earnings stream over time. Demand from potential investors
in Drives securitizations is affected by the perception of credit quality and
prepayment risk associated with the loans Drive originates and securitizes. The
timing and size and interest rates of the bonds issued as a part 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.

In summary, the Company would be negatively impacted by rising interest
rates and declining prices of its sub-prime loans. Rising interest rates would
negatively impact the value of residual interests in securitizations currently
held and costs of borrowings under the warehouse lines and new secured
financings. Declining prices of the Companys sub-prime loans would adversely
affect the levels of gains achieved in the event Drive elects to sell those
loans. The Company has not entered into any instruments to minimize this market
risk of adverse changes in interest rates or declining prices. There have been
no material changes in the quantitative and qualitative risks of the Company
since December 31, 2002.

The Company currently has investments in Mexico and France. In France, the
Companys investments are in the form of equity and represent a significant
portion of the Companys total equity investments. As of September 30, 2003,
one U.S. dollar equaled .86 Euros as compared to .95 at December 31, 2002. A
sharp change of the Euro relative to the U.S. dollar could materially adversely
affect the consolidated financial position and results of operations of the
Company. The Company has not entered into any instruments to minimize this
market risk of adverse changes in currency rates. A 5% and 10% incremental
depreciation of the Euro would result in an estimated decline in the valuation
of the Companys equity investments in France of approximately $.7 million and
$1.4 million, respectively. These amounts are estimates of the financial impact
of a depreciation of the Euro relative to the U.S. dollar. Consequently, these
amounts are not necessarily indicative of the actual effect of such changes
with respect to the Companys consolidated financial position or results of
operations.

In Mexico, approximately 95% of the Companys investments in Mexico are
made through U.S. dollar denominated loans to the Partnerships located in
Mexico. The remaining investment is in the form of equity in these same
Partnerships. The loans receivable are required to be repaid in U.S. dollars.
Although the U.S. dollar balance of these loans will not change due to a change
in the Mexican peso, the future estimated cash flows of the underlying assets
in Mexico could become less valuable as a result of a change in the exchange
rate for the Mexican peso, and thus could affect the overall total returns to
the Company on these investments. As of September 30, 2003, one U.S. dollar
equaled 10.93 Mexican pesos as compared to 10.31 at December 31, 2002. A 5% and
10% incremental depreciation of the peso would result in an estimated decline
in the valuation of the Companys total investments in Mexico of approximately
$.7 million and $1.4 million, respectively. These amounts are estimates of the
financial impact of a depreciation of the Mexican peso relative to the U.S.
dollar. Consequently, these amounts are not necessarily indicative of the
actual effect of such changes with respect to the Companys consolidated
financial position or results of operations.

Item 4.Controls and Procedures

An evaluation was performed under the supervision and with the
participation of the Companys management, including the Companys Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934) as of September 30, 2003. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Companys disclosure
controls and procedures were effective, in all material respects, to ensure
that information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and reported
as and when required. There have been no significant changes in the Companys
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of managements evaluation.

PART II

OTHER INFORMATION

41



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##### 



Item 1.Legal Proceedings

FirstCity was not involved in any material legal proceedings as of
September 30, 2003.

Item 2.Changes in Securities and Use of Proceeds

The Company has recently discovered that it has issued more shares of its
Common Stock than it should have under the terms of one of the Companys
employee benefit plans. The FirstCity 1995 Employee Stock Purchase Plan (the
Plan) provides that 100,000 shares of Common Stock were available to
employees of the Company, subject to appropriate adjustment for stock
dividends, stock splits or combination of shares, recapitalization or other
changes in the Companys capitalization. The Company registered 100,000 shares
of Common Stock that were to be issued under the Plan and such additional
shares of Common Stock as would become issuable pursuant to the antidilution
provisions of the Plan pursuant to a registration statement on Form S-8. The
Company has issued a total of 138,578 shares of Common Stock under the Plan.
The additional 38,578 shares of Common Stock were issued during 2000, 2001 and
2003 (including 227 shares during the quarter ended September 30, 2003) as a
result of a misinterpretation of the adjustment provision by the employees
administering the Plan.

The average exercise price of options for the 38,578 additional shares
issued under the Plan was $1.55 and the highest exercise price of options for
such shares was $3.37. The closing price of the Common Stock as of November 11,
2003 was $4.27. The Company is currently evaluating the legal issues involved
with this over-issuance of 38,578 shares of Common Stock in order to determine
whether any securities laws have been violated, and, if so, how it will comply
with such laws.

Item 3.Defaults Upon Senior Securities

In the first quarter of 1999, dividends on the Companys adjusting rate
preferred stock were suspended. At September 30, 2003, accumulated dividends in
arrears on such preferred stock totaled $1.1 million, or $8.92 per share.

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

None

Item 5.Other Information

None

Item 6.Exhibits and Reports on Form 8-K

(a)  Exhibits.

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

42



---



##### 



|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                     
|------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                     
|Number  |  |   |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                              
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                     
|        |  |   |  | 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).                                                                                           
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                     
|9.1     |  |  |  | Shareholder Voting Agreement, dated as of June 29, 1995,
among ATARA I Ltd., James R. Hawkins, James T. Sartain and
Cargill Financial Services Corporation. (incorporated herein
by reference to Exhibit 9.1 of the Companys Form 10-K dated
March 24, 1998 filed with the Commission on March 26, 1998).                                          
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                     
|10.1    |  |  |  | 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).       
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                     
|10.2    |  |  |  | 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)                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                     
|10.3    |  |  |  | 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).                                                                                                 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                     
|10.4    |  |  |  | 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).                                                                                               
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                     
|10.5    |  |  |  | Amended and Restated Loan Agreement, dated December 20,
1999, by and among FirstCity Financial Corporation as
Borrower and the Lenders Named therein, 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).
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                     
|10.6    |  |  |  | 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).                                              

43



---



##### 



|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|Number  |  |   |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|10.7    |  |  |  | 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).                                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|10.8    |  |  |  | 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).                                                                                                                                          
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|10.9    |  |  |  | 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).                                                           
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|10.10   |  |  |  | Receivables Financing Agreement, dated August 18, 2000,
among Drive BOS LP, Drive Financial Services LP, each
Lender, IFA 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).                                                                                 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|10.11   |  |  |  | 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).                                                                                      
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|10.12   |  |  |  | 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).
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|10.13   |  |  |  | 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
IFA 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).                                                  
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|10.14   |  |  |  | Amended and Restated Amendment #4 (Option and Option
Warrant), dated as of December 31, 2001, between the Company
and BoS(USA) Inc. (incorporated herein by reference to
Exhibit 99.1 of the Companys Form 8-K dated January 18,
2002, filed with the Commission on January 18, 2002).                                                                                                               
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|10.15   |  |  |  | Letter Agreement, dated November 26, 2002, between FirstCity
Consumer Lending Corporation and The Governor and Company of
the Bank of Scotland, including Form of Promissory Note to
be executed by FirstCity Consumer Lending Corporation,                                                                                                                                                           

44



---



##### 



|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                       
|------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                       
|Number  |  |   |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                       
|        |  |   |  | payable to The Governor and Company of the Bank of Scotland.
(incorporated herein by reference to Exhibit 99(d)(5) of the
Companys Form SC TO-I/A dated November 27, 2002, filed with
the Commission on November 27, 2002).                                                                                                                          
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                       
|10.16   |  |  |  | Amended and Restated Loan Agreement, dated December 12,
2002, by and among FirstCity Financial Corporation as
Borrower and the Lenders Named therein, as Lenders and Bank
of Scotland as Agent. (incorporated herein by reference to
Exhibit 10.16 of the Companys Form 10-K dated March 28,
2003, filed with the Commission on April 15, 2003).     
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                       
|10.17   |  |  |  | Term Loan and Revolving Credit Agreement, dated December 12,
2002, by and among FirstCity Financial Corporation as
Borrower and the Lenders Named therein, as Lenders and Bank
of Scotland as Agent. (incorporated herein by reference to
Exhibit 10.17 of the Companys Form 10-K dated March 28,
2003, filed with the Commission on April 15, 2003).
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                       
|31.1    |  |  |  | Certification of James T. Sartain, Chief Executive Officer
of the Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                       
|31.2    |  |  |  | Certification of J. Bryan Baker, Chief Financial Officer
of the Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                   
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                       
|32.1    |  |  |  | Certification of James T. Sartain, Chief Executive Officer
of the Company, pursuant to 18 U.S.C Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                    
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                       
|32.2    |  |  |  | Certification of J. Bryan Baker, Chief Financial Officer of
the Company, pursuant to 18 U.S.C Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                      

(b)  Reports on Form 8-K.

On August 14, 2003, the Company filed a Current Report on Form 8-K to
disclose a press release announcing the Companys second quarter 2003 results.

45



---



##### 



SIGNATURES

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

| |  |                                 |  |                                                                 
| |  | ------------------------------- |  | ----------------------------------------------------------------
| |  | Firstcity Financial Corporation
| |  |                                 |  |                                                                 
| |  | By:                             |  | /s/      James T. Sartain                                       
| |  |                                 |  |                                                                 
| |  |                                 |  | James T. Sartain                                                
| |  |                                 |  | President and Chief Executive                                   
| |  |                                 |  | Officer and Director
(Duly authorized officer of the
Registrant)
| |  |                                 |  |                                                                 
| |  | By:                             |  | /s/     J. Bryan Baker                                          
| |  |                                 |  |                                                                 
| |  |                                 |  | J. Bryan Baker                                                  
| |  |                                 |  | Senior Vice President and Chief                                 
| |  |                                 |  | Financial Officer                                               
| |  |                                 |  | (Duly authorized officer and                                    
| |  |                                 |  | principal financial and accounting                              
| |  |                                 |  | officer of the Registrant)                                      

Dated: November 14, 2003

46



---



##### 



INDEX TO EXHIBITS

|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Number  |  |   |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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).                                                                                                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|9.1     |  |  |  | Shareholder Voting Agreement, dated as of June 29, 1995,
among ATARA I Ltd., James R. Hawkins, James T. Sartain and
Cargill Financial Services Corporation. (incorporated herein
by reference to Exhibit 9.1 of the Companys Form 10-K dated
March 24, 1998 filed with the Commission on March 26, 1998).                                                                                                                                                     
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.1    |  |  |  | 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).                                                                                                                  
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.2    |  |  |  | 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)                                                                                                                                                                                                                                 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.3    |  |  |  | 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).                                                                                                                                                                                                            





---



##### 



|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
|Number  |  |   |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                        
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
|10.4    |  |  |  | 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).                                                                                                         
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
|10.5    |  |  |  | Amended and Restated Loan Agreement, dated December 20,
1999, by and among FirstCity Financial Corporation as
Borrower and the Lenders Named therein, 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).          
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
|10.6    |  |  |  | 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).                                                        
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
|10.7    |  |  |  | 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).                                                                                              
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
|10.8    |  |  |  | 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).                                                                                                  
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
|10.9    |  |  |  | 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).                   
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
|10.10   |  |  |  | Receivables Financing Agreement, dated August 18, 2000,
among Drive BOS LP, Drive Financial Services LP, each
Lender, IFA 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).                                         
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
|10.11   |  |  |  | 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).                                              
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
|10.12   |  |  |  | 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





---



##### 



|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Number  |  |   |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |   |  | with the Commission on April 13, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.13   |  |  |  | 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
IFA 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).                                                                                                                    
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.14   |  |  |  | Amended and Restated Amendment #4 (Option and Option
Warrant), dated as of December 31, 2001, between the Company
and BoS(USA) Inc. (incorporated herein by reference to
Exhibit 99.1 of the Companys Form 8-K dated January 18,
2002, filed with the Commission on January 18, 2002).                                                                                                                                                                                 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.15   |  |  |  | Letter Agreement, dated November 26, 2002, between FirstCity
Consumer Lending Corporation and The Governor and Company of
the Bank of Scotland, including Form of Promissory Note to
be executed by FirstCity Consumer Lending Corporation,
payable to The Governor and Company of the Bank of Scotland.
(incorporated herein by reference to Exhibit 99(d)(5) of the
Companys Form SC TO-I/A dated November 27, 2002, filed with
the Commission on November 27, 2002).
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.16   |  |  |  | Amended and Restated Loan Agreement, dated December 12,
2002, by and among FirstCity Financial Corporation as
Borrower and the Lenders Named therein, as Lenders and Bank
of Scotland as Agent. (incorporated herein by reference to
Exhibit 10.16 of the Companys Form 10-K dated March 28,
2003, filed with the Commission on April 15, 2003).                                                                                                                       
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.17   |  |  |  | Term Loan and Revolving Credit Agreement, dated December 12,
2002, by and among FirstCity Financial Corporation as
Borrower and the Lenders Named therein, as Lenders and Bank
of Scotland as Agent. (incorporated herein by reference to
Exhibit 10.17 of the Companys Form 10-K dated March 28,
2003, filed with the Commission on April 15, 2003).                                                                                                                  
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|31.1    |  |  |  | Certification of James T. Sartain, Chief Executive Officer
of the Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                                                                                                                                   
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|31.2    |  |  |  | Certification of J. Bryan Baker, Chief Financial Officer
of the Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                                                                                                                                     
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|32.1    |  |  |  | Certification of James T. Sartain, Chief Executive Officer
of the Company, pursuant to 18 U.S.C Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|32.2    |  |  |  | Certification of J. Bryan Baker, Chief Financial Officer of
the Company, pursuant to 18 U.S.C Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.