FIRSTCITY FINANCIAL CORP, 10-Q, 2000-05-22

FIRSTCITY FINANCIAL CORP
10-Q, 2000-05-22
STATE COMMERCIAL BANKS

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<PAGE> 1

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 OR

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

COMMISSION FILE NUMBER 0-26500

FIRSTCITY FINANCIAL CORPORATION
(Exact name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C>
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)
</TABLE>

(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 has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]

The number of shares of common stock, par value $.01 per share, outstanding
at May 19, 2000 was 8,347,677.

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<PAGE> 2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS

Cash and cash equivalents................................... $ 12,977 $ 11,263
Portfolio Assets, net....................................... 35,505 39,437
Loans receivable, net....................................... 42,286 30,144
Residual interests in securitizations....................... 58,271 55,661
Equity investments in Acquisition Partnerships and Servicing
Entities.................................................. 32,648 31,104
Deferred tax benefit, net................................... 27,101 27,101
Other assets, net........................................... 19,148 15,786
Net assets of discontinued operations....................... 21,258 20,126
-------- --------
Total Assets...................................... $249,194 $230,622
======== ========

LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY

Liabilities:
Notes payable............................................. $184,313 $169,792
Other liabilities......................................... 11,598 7,278
-------- --------
Total Liabilities................................. 195,911 177,070
Commitments and contingencies............................... -- --
Redeemable preferred stock:
Adjusting rate preferred stock, including accumulated
dividends in arrears of $1,926 and $1,284, respectively
(par value $.01; redemption value of $21 per share;
2,000,000 shares authorized; 1,222,901 shares issued
and outstanding)....................................... 27,607 26,965
Shareholders' equity:
Optional preferred stock (par value $.01 per share;
98,000,000 shares authorized; no shares issued or
outstanding)........................................... -- --
Common stock (par value $.01 per share; 100,000,000 shares
authorized; issued and outstanding: 8,347,677 and
8,333,300 shares, respectively)........................ 83 83
Paid in capital........................................... 79,596 79,562
Accumulated deficit....................................... (53,434) (52,663)
Accumulated other comprehensive loss...................... (569) (395)
-------- --------
Total Shareholders' Equity........................ 25,676 26,587
-------- --------
Total Liabilities, Redeemable Preferred Stock and
Shareholders' Equity............................ $249,194 $230,622
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

1
<PAGE> 3

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Gain on sales of automobile loans......................... $ 2,836 $ --
Servicing fees............................................ 3,296 2,113
Gain on resolution of Portfolio Assets.................... 1,081 1,302
Equity in earnings of Acquisition Partnerships and
Servicing Entities..................................... 2,613 2,644
Interest income........................................... 5,005 4,349
Other income.............................................. 845 569
------- -------
Total revenues.................................... 15,676 10,977
Expenses:
Interest and fees on notes payable........................ 5,509 4,357
Salaries and benefits..................................... 4,670 3,897
Provision for loan losses and impairment of residual
interests.............................................. 1,105 23
Occupancy, data processing, communication and other....... 4,262 4,009
------- -------
Total expenses.................................... 15,546 12,286
Earnings (loss) from continuing operations before income
taxes, minority interest and accounting change......... 130 (1,309)
Provision for income taxes.................................. (19) (22)
------- -------
Earnings (loss) from continuing operations before minority
interest and accounting change......................... 111 (1,331)
Minority interest........................................... (240) 69
Cumulative effect of accounting change...................... -- (765)
------- -------
Loss from continuing operations........................... (129) (2,027)
Earnings from discontinued operations, net of income
taxes..................................................... -- 525
------- -------
Net loss.................................................. (129) (1,502)
Preferred dividends(1)...................................... (642) (642)
------- -------
Net loss to common shareholders................... $ (771) $(2,144)
======= =======
Basic and diluted earnings (loss) per common share are as
follows:
Loss from continuing operations before accounting change
per common share....................................... $ (0.09) $ (0.23)
Discontinued operations per common share.................... -- $ 0.06
Cumulative effect of accounting change...................... -- $ (0.09)
Net loss per common share................................... $ (0.09) $ (0.26)
Weighted average common shares outstanding.................. 8,333 8,288
</TABLE>

- ---------------

(1) Includes accumulated dividends in arrears in 2000.

See accompanying notes to consolidated financial statements.

2
<PAGE> 4

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER
NUMBER OF EARNINGS COMPREHENSIVE TOTAL
COMMON COMMON PAID IN (ACCUMULATED INCOME SHAREHOLDERS'
SHARES STOCK CAPITAL DEFICIT) (LOSS) EQUITY
--------- ------ ------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31,
1998................... 8,287,959 $ 83 $78,456 $ 58,061 $ 355 $ 136,955
Purchase of shares
through employee stock
purchase plan.......... 45,341 -- 231 -- -- 231
Issuance of common stock
warrant................ -- -- 875 -- -- 875
Comprehensive loss:
Net loss for 1999...... -- -- -- (108,156) -- (108,156)
Foreign currency
items............... -- -- -- -- (750) (750)
---------
Total comprehensive
loss................... (108,906)
---------
Preferred dividends...... -- -- -- (2,568) -- (2,568)
--------- ------ ------- --------- ----- ---------
BALANCES, DECEMBER 31,
1999................... 8,333,300 83 79,562 (52,663) (395) 26,587
Purchase of shares
through employee stock
purchase plan.......... 14,377 -- 34 -- -- 34
Comprehensive loss:
Net loss for the first
quarter of 2000..... -- -- -- (129) -- (129)
Foreign currency
items............... -- -- -- -- (174) (174)
---------
Total comprehensive
loss................... (303)
---------
Preferred dividends...... -- -- -- (642) -- (642)
--------- ------ ------- --------- ----- ---------
BALANCES, MARCH 31,
2000................... 8,347,677 $ 83 $79,596 $ (53,434) $(569) $ 25,676
========= ====== ======= ========= ===== =========
</TABLE>

See accompanying notes to consolidated financial statements.

3
<PAGE> 5

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (129) $ (1,502)
Adjustments to reconcile net loss to net cash used in
operating activities:
Earnings from discontinued operations.................. -- (525)
Proceeds from resolution of Portfolio Assets........... 4,286 5,035
Gain on resolution of Portfolio Assets................. (1,081) (1,302)
Purchase of Portfolio Assets and loans receivable,
net................................................... (334) (172)
Origination of automobile receivables, net of purchase
discount.............................................. (51,660) (46,123)
Provision for loan losses and impairment of residual
interests............................................. 1,105 23
Equity in earnings of Acquisition Partnerships and
Servicing Entities.................................... (2,613) (2,644)
Proceeds from performing Portfolio Assets and loans
receivable, net....................................... 40,379 12,289
Decrease in net deferred tax asset..................... -- 49
Depreciation and amortization.......................... 693 1,133
(Increase) decrease in other assets.................... (7,674) 4,030
Increase in other liabilities.......................... 4,135 85
-------- --------
Net cash used in operating activities............. (12,893) (29,624)
Cash flows from investing activities:
Property and equipment, net............................... 481 (1,211)
Contributions to Acquisition Partnerships and Servicing
Entities............................................... (1,659) (831)
Distributions from Acquisition Partnerships and Servicing
Entities............................................... 2,418 3,732
-------- --------
Net cash provided by investing activities......... 1,240 1,690
-------- --------
Cash flows from financing activities:
Borrowings under notes payable............................ 55,894 67,289
Payments of notes payable................................. (41,428) (33,543)
Proceeds from issuance of common stock.................... 34 112
Preferred dividends paid.................................. -- (642)
-------- --------
Net cash provided by financing activities......... 14,500 33,216
-------- --------
Net cash provided by continuing operations........ 2,847 5,282
Net cash provided by (used by) discontinued
operations....................................... (1,133) 357
-------- --------
Net increase in cash and cash equivalents................... 1,714 5,639
Cash and cash equivalents, beginning of period.............. 11,263 5,955
-------- --------
Cash and cash equivalents, end of period.................... $ 12,977 $ 11,594
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 4,638 $ 2,740
Income taxes........................................... $ 18 $ 21
Non-cash investing activities:
Residual interests received as a result of sales of
loans through securitizations......................... $ 5,713 $ --
Non-cash financing activities:
Dividends accumulated and not paid on preferred
stock................................................. $ 642 $ 642
</TABLE>

See accompanying notes to consolidated financial statements.

4
<PAGE> 6

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(1) BASIS OF PRESENTATION

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 financial position at March
31, 2000, the results of operations and the cash flows for the three-month
periods ended March 31, 2000 and 1999.

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

An accounting change due to the adoption of SOP 98-5, which requires
previously capitalized start-up costs including organization costs to be written
off and future costs related to start-up entities be charged to expense as
incurred, resulted in a write-off of $.8 million in previously capitalized
organization costs during the first quarter of 1999 and has been reflected as a
cumulative effect of a change in accounting principle.

(2) DISCONTINUED OPERATIONS

Effective during the third quarter of 1999, management of the Company
adopted formal plans to discontinue the operations of Harbor Financial Group,
Inc. (formerly known as FirstCity Financial Mortgage Corp.) and its subsidiaries
(collectively referred to as "Mortgage Corp."), and FC Capital Corp. ("Capital
Corp."). These entities comprise the operations that were previously reported as
the Company's residential and commercial mortgage banking business. As formal
termination plans were adopted and operations at each entity are expected to
cease in the near future (within 12 months), the results of operations for the
first quarter 1999 have been reflected as discontinued operations in the
accompanying consolidated statement of operations for the three months ended
March 31, 1999. Additionally, a net asset related to the resolution of activity
from the discontinued operations has been reflected in the accompanying
consolidated balance sheets. The following is a summary of activity related to
each of the entity's operations:

Mortgage Corp. -- During the third quarter of 1999, Mortgage Corp. incurred
significant losses from operations and the liquidation of certain assets.
Ultimately, on October 14, 1999, Mortgage Corp. filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Northern District of Texas. On December
14, 1999 the bankruptcy proceedings were converted to liquidations under Chapter
7 of the United States Bankruptcy Code. In the filings, the stated assets of
Mortgage Corp. were approximately $95 million and the stated liabilities were
approximately $98 million. Additionally, it is anticipated that the liquidation
of any remaining assets will yield proceeds which are less than the stated
amount of the assets as listed in the filings. The Company does not guarantee
any of the debt of Mortgage Corp. nor is there any recourse to the Company on
any of Mortgage Corp.'s liabilities. Furthermore, management of the Company was
not involved in the daily operations of Mortgage Corp. during a significant
portion of the third quarter of 1999 and no longer has access to financial
records of Mortgage Corp.

Based on the above, Mortgage Corp. was deemed insolvent and the Company
wrote off its entire investment in and advances to (collectively referred to as
the Net Investment) Mortgage Corp.

5
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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Capital Corp. -- Management of the Company made the decision to completely
exit all mortgage banking activities due to the significant negative impact
realized from Mortgage Corp. The Company ceased acquiring mortgage loans under
Capital Corp.'s platform during the fourth quarter of 1999. At March 31, 2000,
Capital Corp. had loans totaling $126 million remaining in its inventory. A sale
of substantially all of the remaining inventory closed subsequent to quarter
end, and the remainder of the wind-down of operations is expected to be
completed by the end of the second quarter of 2000.

It is projected that the only assets remaining from Capital Corp.'s
operations will be the investment securities resulting from the retention of
residual interests in securitization transactions completed by Capital Corp. The
Company has considered the estimated future income from such investment
securities in the computation of the loss from discontinued operations.

The net assets from discontinued operations consist of the following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Investment securities, net of valuation allowance........... $26,135 $28,602
Accrual for loss on operations and disposal of discontinued
operations................................................ (4,877) (8,476)
------- -------
Net assets of discontinued operations............. $21,258 $20,126
======= =======
</TABLE>

A summary of discontinued operations for the three months ended March 31,
1999 is as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
------------------
<S> <C>
Revenues:
Net mortgage warehouse income............................. $ 5,957
Gain on sale of mortgage loans............................ 26,641
Loss on sale of mortgage servicing rights................. (2,395)
Servicing fees............................................ 6,143
Other..................................................... 2,683
-------
Total............................................. 39,029
-------
Expenses:
Salaries and benefits..................................... 21,896
Amortization of mortgage servicing rights................. 4,723
Credit for valuation of mortgage servicing rights......... (2,344)
Provision for loan losses and residual interests.......... 50
Interest on notes payable................................. 2,202
Occupancy, data processing, communication and other....... 11,977
-------
Total............................................. 38,504
-------
Operating contribution, before and net of direct taxes...... $ 525
=======
</TABLE>

During the third quarter of 1999, the Company wrote-off its investment of
$50,558 in Mortgage Corp. and wrote down its net investment in Capital Corp. by
$12,674.

(3) LIQUIDITY AND CAPITAL RESOURCES

6
<PAGE> 8
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 1999, the Company renewed and restructured its senior lending
facility (the "Senior Facility"). The Senior Facility was renewed at a maximum
available amount of $88 million and provides for a facility fee of $1.65 million
if the loan is paid in full before September 30, 2000, or $2.5 million if paid
thereafter. Defaults at Mortgage Corp. do not constitute defaults under the
Senior Facility. Additionally, the Company issued $25 million in senior
subordinated notes maturing December 2003

At March 31, 2000, the Company was not in compliance with certain financial
and other covenants in the Senior Facility. The Company is working with its
lenders to obtain formal approval or waivers relating to these matters and
funding under the Senior Facility continues uninterrupted. The Senior Facility
also requires the consent of the lenders prior to payment of any common and
preferred dividends. The Company continually evaluates its liquidity position
giving priority to assuring adequate funding levels for its two operating
entities. Secondarily, management will determine when and if it is appropriate
to pay the dividends on the Company's outstanding preferred stock. Currently,
there are approximately 1.2 million preferred shares outstanding with accrued
dividends of approximately $1.9 million.

The Company also issued an option to the holder of the senior subordinated
notes allowing it to acquire an additional warrant for 1,975,000 shares of the
non-voting common stock in the Company (currently no such stock is authorized),
which can be exercised after one year if the notes or any portion thereof
remains outstanding, but not prior thereto. The strike price on these warrants
is $2.3125. In the event that the notes are paid prior to the expiration of such
one-year period through a transaction involving the issuance of warrants, the
note holder is entitled to retain sufficient warrants to allow the note holder
to acquire approximately 4.86% of the Company's common stock. The Company is in
the process of taking the necessary actions to authorize the issuance of the
non-voting common stock covered by the option.

During the first quarter of 2000, the Company completed an automobile
finance receivable securitization containing loans of approximately $41 million.
The ability of the Company to continue securitizations is dependant on numerous
factors including, but not limited to, conditions in the securities market in
general and conditions in the asset-backed securitization market. The Company
does not anticipate a down-turn in market conditions that would have a
significant adverse impact on the Company's ability to securitize its loans.
Additionally, in the first quarter of 2000, the credit enhancement provider for
the automobile warehouse facility has reestablished funding to a maximum
available funding amount of $70 million. The Company continues to work with the
credit enhancement provider on its automobile securitizations to maintain
extensions of the waivers and consents of trigger events occurring from the
Company's failure to meet certain financial covenants.

The Company has received an extension on its automobile finance warehouse
line through June 28, 2000, and is currently in discussions with various
warehouse lenders regarding the potential to structure alternative or additional
funding. Alternatives currently being explored include a whole loan sale
arrangement, and an uninsured warehouse line.

During January 2000, the Company increased its existing residual financing
from $4 million at December 31, 1999 to $7 million. Residual interests securing
this borrowing had a carrying value of $36.4 million at March 31, 2000.
Subsequent to quarter end, additional borrowings after payment reductions
brought the outstanding balance to $5.5 million. Although there is no guarantee,
the Company anticipates additional borrowings against such residuals will be
available in the future.

Subsequent to quarter end, the Company obtained a secured, $17 million
equity acquisition facility for the investment in future Acquisition
Partnerships. This, along with equity distributions (totaling approxi-
7
<PAGE> 9
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

mately $2.4 million for the first quarter of 2000) from existing Acquisition
Partnerships, is expected to be adequate to meet the funding needs of Commercial
Corp.

Although the above transactions enhanced the Company's immediate liquidity
concerns, management has identified the following actions that it believes are
essential to allow the Company to meet all of its financing needs and cover its
obligations during the remainder of 2000:

- continue to obtain warehouse financing for consumer lending operations
and identify alternative sources for such funding;

- identify alternative or additional sources of financing on residual
interests obtained from securitization transactions;

- continue to securitize automobile finance receivables, either with or
without credit enhancement;

- obtain additional financing required by Commercial Corp. for investment
in additional Portfolio Assets;

- realize positive cash flows from existing equity investments in Portfolio
Assets; and

- sell asset and loan portfolios or portions of operating businesses.

Based on the above, management of the Company expects that it will be able
to meet its obligations as they come due during 2000.

(4) PORTFOLIO ASSETS

Portfolio Assets are summarized as follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Non-performing Portfolio Assets............................. $ 67,871 $ 72,396
Performing Portfolio Assets................................. 17,065 17,878
Real estate Portfolios...................................... 6,593 7,663
-------- --------
Total Portfolio Assets............................ 91,529 97,937
Adjusted purchase discount required to reflect Portfolio
Assets at carrying value.................................. (56,024) (58,500)
-------- --------
Portfolio Assets, net............................. $ 35,505 $ 39,437
======== ========
</TABLE>

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

(5) LOANS RECEIVABLE

Loans receivable are summarized as follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Automobile and consumer finance receivables................. $ 52,459 $37,718
Other loans held for investment............................. 870 883
Allowance for loan losses................................... (11,043) (8,457)
-------- -------
Loans receivable, net............................. $ 42,286 $30,144
======== =======
</TABLE>

8
<PAGE> 10
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The activity in the allowance for loan losses is summarized as follows for
the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Balances, beginning of period............................... $ 8,457 $ 5,894
Provision for loan losses................................... 630 23
Discounts acquired.......................................... 9,499 7,621
Allocation of reserves to sold loans........................ (5,605) --
Charge off activity:
Principal balances charged off............................ (2,899) (1,081)
Recoveries................................................ 961 694
------- -------
Net charge offs................................... (1,938) (387)
------- -------
Balances, end of period..................................... $11,043 $13,151
======= =======
</TABLE>

(6) RESIDUAL INTERESTS IN SECURITIZATIONS

The Company has residual interests in securitizations consisting of rated
securities, retained interests, servicing interests and related interest only
strips (collectively referred to as residual interests) which are attributable
to loans sold through securitization transactions by the Company. Residual
interests are comprised of the following as of the dates indicated:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Rated securities............................................ $ 1,221 $ 1,313
Residual interests.......................................... 64,913 62,167
Accrued interest............................................ 996 565
Valuation allowance......................................... (8,859) (8,384)
------- -------
$58,271 $55,661
======= =======
</TABLE>

The activity related to residual interests for 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
--------- -------
<S> <C> <C>
Balance, beginning of period................................ $55,661 $41,849
Cost allocated from securitizations......................... 5,713 --
Interest accreted........................................... 1,762 1,268
Cash received from trusts................................... (4,390) (2,566)
Provision for permanent impairment of value................. (475) --
------- -------
Balance, end of period...................................... $58,271 $40,551
======= =======
</TABLE>

9
<PAGE> 11
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) EQUITY INVESTMENTS IN ACQUISITION PARTNERSHIPS AND SERVICING ENTITIES

The Company has investments in Acquisition Partnerships and their general
partners that are accounted for on the equity method. During 1999, the Company
also acquired investments in Servicing Entities that are accounted for on the
equity method. The condensed combined financial position and results of
operations of the Acquisition Partnerships (excluding Servicing Entities), which
include the domestic and foreign Acquisition Partnerships and their general
partners, are summarized below:

CONDENSED COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Assets...................................................... $309,394 $324,954
======== ========
Liabilities................................................. 202,618 210,967
Net equity.................................................. 106,776 113,987
-------- --------
$309,394 $324,954
======== ========
Equity investment in Acquisition Partnerships............... $ 31,278 $ 29,639
Equity investment in Servicing Entities..................... 1,370 1,465
-------- --------
$ 32,648 $ 31,104
======== ========
</TABLE>

CONDENSED COMBINED SUMMARY OF EARNINGS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Proceeds from resolution of Portfolio Assets................ $29,282 $29,645
Gain on resolution of Portfolio Assets...................... 13,738 10,731
Interest income on performing Portfolio Assets.............. 5,222 3,336
Net earnings................................................ $10,051 $ 6,383
======= =======
Equity in earnings of Acquisition Partnerships.............. $ 2,592 $ 2,644
Equity in earnings of Servicing Entities.................... 21 --
------- -------
$ 2,613 $ 2,644
======= =======
</TABLE>

10
<PAGE> 12
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) SEGMENT REPORTING

The Company is engaged in two reportable segments i) portfolio asset
acquisition and resolution; and ii) consumer lending. These segments have been
segregated based on products and services offered by each. The following is a
summary of results of operations for each of the segments and a reconciliation
to net loss from continuing operations for the quarters ended March 31, 2000 and
1999.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- --------
<S> <C> <C>
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Gain on resolution of Portfolio Assets................. $1,081 $ 1,302
Equity in earnings of Acquisition Partnerships and
Servicing Entities.................................... 2,613 2,644
Servicing fees......................................... 1,623 978
Other.................................................. 1,027 1,464
------ -------
Total............................................. 6,344 6,388
Expenses:
Salaries and benefits.................................. 1,414 1,421
Interest and fees on notes payable..................... 620 1,116
Asset level expenses, occupancy, data processing and
other................................................. 1,454 1,482
------ -------
Total............................................. 3,488 4,019
------ -------
Operating contribution before direct taxes................ $2,856 $ 2,369
====== =======
Operating contribution, net of direct taxes............... $2,840 $ 2,350
====== =======
CONSUMER LENDING:
Revenues:
Gain on sale of automobile loans....................... $2,836 $ --
Interest income........................................ 4,583 3,405
Servicing fees......................................... 1,673 1,135
Other.................................................. 50 29
------ -------
Total............................................. 9,142 4,569
Expenses:
Salaries and benefits.................................. 2,426 1,533
Provision for loan losses and impairment of residual
interests............................................. 1,105 23
Interest and fees on notes payable..................... 1,108 752
Occupancy, data processing and other................... 2,304 2,011
------ -------
Total............................................. 6,943 4,319
------ -------
Operating contribution before direct taxes................ $2,199 $ 250
====== =======
Operating contribution, net of direct taxes............... $2,191 $ 250
====== =======
Total operating contribution, net of direct
taxes........................................... $5,031 $ 2,600
====== =======
CORPORATE OVERHEAD:
Corporate interest and fees expense....................... $3,781 $ 2,489
Salaries and benefits, occupancy, professional and other
income and expenses, net............................... 1,379 2,138
------ -------
Net loss from continuing operations............... $ (129) $(2,027)
====== =======
</TABLE>

11
<PAGE> 13
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Portfolio acquisition and resolution assets................. $ 69,079 $ 71,479
Consumer assets............................................. 100,165 85,261
Deferred tax benefit, net................................... 27,101 27,101
Other assets, net........................................... 31,591 26,655
Net assets of discontinued operations....................... 21,258 20,126
-------- --------
Total assets...................................... $249,194 $230,622
======== ========
</TABLE>

(9) PREFERRED STOCK AND SHAREHOLDERS' EQUITY

In the third quarter of 1999, dividends on the Company's adjusting rate
preferred stock were suspended. At March 31, 2000, accumulated dividends in
arrears on such preferred stock totaled $1.9 million, or $1.575 per share. If
the Company fails to pay quarterly dividends for any six consecutive or
non-consecutive quarters, the holders of adjusting rate preferred stock are
entitled to elect two directors to the Company's Board until cumulative
dividends have been paid in full.

The Company also issued an option to the holder of the senior subordinated
notes allowing it to acquire an additional warrant for 1,975,000 shares of
non-voting common stock in the Company (currently no such stock is authorized),
which can be exercised after one year if the notes or any portion thereof
remains outstanding, but not prior thereto. The strike price on these warrants
is $2.3125. In the event that the notes are paid prior to the expiration of such
one-year period through a transaction involving the issuance of warrants, the
note holder is entitled to retain sufficient warrants to allow the note holder
to acquire approximately 4.86% of the Company's common stock. The Company is in
the process of taking the necessary actions to authorize the issuance of the
non-voting common stock covered by the option.

(10) INCOME TAXES

Federal income taxes are provided at a 35% rate. Net operating loss carry
forwards ("NOLs") are available to FirstCity and are recognized as an offset to
the provision in the period during which the benefit is realized. During the
first three months of 2000 and 1999, FirstCity recognized no deferred tax
benefit from NOLs. Realization of the resulting net deferred tax asset is
dependent upon generating sufficient taxable income prior to expiration of the
net operating loss carry forwards. Although realization is not assured,
management believes it is more likely than not that all of the recorded deferred
tax asset 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 carry forward period change.

(11) COMMITMENTS AND CONTINGENCIES

The Company and Harbor Financial Group, Inc. (formerly known as FirstCity
Financial Mortgage Corporation) filed suit in the Federal District Court for the
Western District of Texas, Waco Division, against Chase Bank of Texas, N.A. and
Chase Securities, Inc. in September 1999 seeking damages resulting from alleged
violations by the defendants of the Bank Holding Company Act and from civil
conspiracy engaged in by the defendants, and injunctive relief, arising from an
engagement letter entered into between the Company and Chase Securities, Inc.
relating to the sale of assets or securities of Harbor Financial Group, Inc.,
Harbor Financial Mortgage Corporation and their subsidiaries (collectively
"Harbor"). The Company alleges that Chase Bank of Texas, N.A. conditioned its
extension of credit to Harbor on the retention of Chase Securities, Inc. by the
Company and Harbor in violation of the Bank Holding Company Act. The Company
has, in its First Amended Original Complaint filed in November 1999, sought a
judicial declaration that the

12
<PAGE> 14
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

plaintiffs are not obligated to pay any commission to Chase Securities, Inc.
under the engagement letter. The actual damages sought by the Company are in
excess of $200 million. The Company also seeks recovery of three times its
damages pursuant to the Bank Holding Company Act and recovery of its costs of
court, including reasonable attorneys fees.

On October 4, 1999, Chase Securities, Inc. filed suit against the Company
before the Supreme Court for the State of New York, County of New York:
Commercial Part seeking recovery of $2.4 million as the balance of a transaction
fee allegedly due it under the terms of the engagement letter, expenses in an
amount in excess of $3,909, and other just and proper relief. The Company denies
that it has any liability to Chase Securities, Inc. and intends to vigorously
defend the suit. The Company has asserted as a defense to this action the
violations of the Bank Holding Company Act asserted in the litigation pending
before the Federal District Court for the Western District of Texas.

On October 14, 1999, Mortgage Corp. filed voluntary petitions under Chapter
11 of the United States Bankruptcy Code before the United States Bankruptcy
Court for the Northern District of Texas, Dallas Division. In a motion filed in
those proceedings requesting the appointment of a Chapter 11 Trustee, the
debtors stated that they were reviewing pre-petition transfers to the Company to
determine if those transfers are avoidable. On December 14, 1999, the bankruptcy
proceedings were converted to liquidations under Chapter 7 of the United States
Bankruptcy Code. The Company believes that it has valid defenses to any
allegations that might be made to avoid any pre-petition transfers in connection
with the Mortgage Corp. bankruptcy proceedings.

The Company is involved in various other 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 consolidated financial condition,
results of operations or liquidity of the Company.

The Company is a 50% owner in an entity that is obligated to advance up to
$2.5 million toward the acquisition of Portfolio Assets from financial
institutions in California. At March 31, 2000, advances of $2 million had been
made under the obligation.

13
<PAGE> 15

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

The Company is a diversified financial services company engaged in
Portfolio Asset acquisition and resolution ("Commercial Corp.") and consumer
lending ("Consumer Corp."). The Portfolio Asset acquisition and resolution
business involves acquiring Portfolio Assets at a discount to Face Value and
servicing and resolving such Portfolios in an effort to maximize the present
value of the ultimate cash recoveries. The Company also seeks opportunities to
originate and retain high yield commercial loans to businesses and to finance
real estate projects that are unable to access traditional lending sources. The
consumer lending business involves the acquisition, origination, warehousing,
securitization and servicing of consumer receivables. The Company's current
consumer lending operations are focused on the acquisition of sub-prime
automobile receivables.

FirstCity Financial Corporation reported a loss of $129,000 for the quarter
ended March 31, 2000. After accrued dividends on the Company's preferred stock,
the loss to common shareholders was $771,000 or $.09 per share on a diluted
basis.

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, and the availability and prices for
loans and assets acquired in all of the Company's businesses. The Company's
business and results of operations are also affected by the availability of
financing with terms acceptable to the Company and the Company's access to
capital markets, including the securitization markets.

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

ANALYSIS OF REVENUES AND EXPENSES

The following table summarizes the revenues and expenses of each of the
Company's business segments and presents the contribution that each business
makes to the Company's operating margin.

ANALYSIS OF REVENUES AND EXPENSES

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Gain on resolution of Portfolio Assets................. $ 1,081 $ 1,302
Servicing fees......................................... 1,623 978
Equity in earnings of Acquisition Partnerships and
Servicing Entities.................................... 2,613 2,644
Other.................................................. 1,027 1,464
------- -------
Total............................................. 6,344 6,388
Expenses:
Interest and fees on notes payable..................... 620 1,116
Salaries and benefits.................................. 1,414 1,421
Asset level expenses, occupancy, data processing and
other................................................. 1,454 1,482
------- -------
Total............................................. 3,488 4,019
------- -------
Operating contribution before direct taxes................ $ 2,856 $ 2,369
======= =======
Operating contribution, net of direct taxes............... $ 2,840 $ 2,350
======= =======
</TABLE>

14
<PAGE> 16

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
CONSUMER LENDING:
Revenues:
Gain on sale of automobile loans....................... $ 2,836 $ --
Servicing fees......................................... 1,673 1,135
Interest income........................................ 4,583 3,405
Other.................................................. 50 29
------- -------
Total............................................. 9,142 4,569
Expenses:
Interest and fees on notes payable..................... 1,108 752
Salaries and benefits.................................. 2,426 1,533
Provision for loan losses and impairment of residual
interests............................................. 1,105 23
Occupancy, data processing and other................... 2,304 2,011
------- -------
Total............................................. 6,943 4,319
------- -------
Operating contribution before direct taxes................ $ 2,199 $ 250
======= =======
Operating contribution, net of direct taxes............... $ 2,191 $ 250
======= =======
Total operating contribution, net of direct taxes......... $ 5,031 $ 2,600
======= =======
CORPORATE OVERHEAD:
Interest and fees on notes payable........................ $ 3,781 $ 2,489
Salaries and benefits, occupancy, professional and other
income and expenses, net............................... 1,379 2,138
------- -------
Loss from continuing operations........................... (129) (2,027)
Earnings from discontinued operations..................... -- 525
------- -------
Net loss.................................................. (129) (1,502)
Preferred dividends....................................... (642) (642)
------- -------
Net loss to common shareholders................... $ (771) $(2,144)
======= =======
SHARE DATA:
Basic and diluted earnings (loss) per common share are as
follows:
Loss from continuing operations before accounting
change per common share............................... $ (0.09) $ (0.23)
Discontinued operations per common share............... -- 0.06
Cumulative effect of accounting change................. -- (0.09)
Net loss per common share.............................. $ (0.09) $ (0.26)
Weighted average common shares outstanding............. 8,333 8,288
ORIGINATION AND OTHER FINANCIAL DATA:
Commercial Corp.:
Aggregate purchase price of assets acquired............ $13,629 $ 9,817
Proceeds from resolution............................... 33,568 34,680
Consumer Corp.:
Aggregate acquisition of automobile and other consumer
receivables........................................... 61,160 53,736
</TABLE>

PORTFOLIO ASSET ACQUISITION AND RESOLUTION

The Portfolio Acquisition unit acquired three domestic portfolios during
the quarter totaling $13.6 million. During the quarter, collections were $33.6
million, principally coming from Acquisition partnerships. Subsequent to quarter
end the Company participated in the purchase of a portfolio in Mexico consisting
of approximately 20,000 commercial and industrial loans. The acquired portfolio,
the largest transaction by the

15
<PAGE> 17

Company in its history, will be managed by the previously established servicing
platform headquartered in Guadalajara, Mexico. The outlook for investment and
servicing opportunities worldwide continues to be very positive, as the Company
continues to expand its platform into foreign markets. Correspondingly, the
European investments continue to perform well with prospects for future
expansion and investment remaining strong.

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
GAIN ON RESOLUTION OF PORTFOLIO ASSETS:
Average investment:
Nonperforming Portfolios............................... $21,043 $32,870
Performing Portfolios.................................. 9,497 21,357
Real estate Portfolios................................. 7,198 12,175
Gain on resolution of Portfolio Assets:
Nonperforming Portfolios............................... $ 722 $ 894
Real estate Portfolios................................. 359 408
------- -------
Total............................................. $ 1,081 $ 1,302
Interest income on performing Portfolios.................. $ 394 $ 890
Gross profit percentage on resolution of Portfolio Assets:
Nonperforming Portfolios............................... 25.24% 25.73%
Real estate Portfolios................................. 25.20% 31.48%
Weighted average gross profit percentage............... 25.22% 25.86%
Interest yield on performing Portfolios (annualized)...... 16.58% 16.67%
SERVICING FEE REVENUES...................................... $ 1,623 $ 978
PERSONNEL:
Personnel expenses........................................ $ 1,414 $ 1,421
Number of personnel (at period end):
Production............................................. 13 10
Servicing.............................................. 58 62
INTEREST EXPENSE:
Average debt.............................................. $29,813 $59,970
Interest expense.......................................... 620 1,116
Average cost (annualized)................................. 8.32% 7.44%
</TABLE>

16
<PAGE> 18

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

ANALYSIS OF SELECTED REVENUES AND EXPENSES
ACQUISITION PARTNERSHIPS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
REVENUES:
Gain on resolution of Portfolio Assets.................... $13,738 $10,731
Gross profit percentage on resolution of Portfolio
Assets................................................. 46.92% 36.20%
Interest income........................................... $ 5,222 $ 3,336
Other income.............................................. 428 161
INTEREST EXPENSE:
Interest expense.......................................... $ 3,965 $ 3,161
Average cost (annualized)................................. 8.74% 8.15%
OTHER EXPENSES:
Servicing fees............................................ $ 1,857 $ 1,438
Legal..................................................... 889 557
Property protection....................................... 1,335 1,385
Other..................................................... 1,291 1,304
------- -------
Total other expenses.............................. 5,372 4,684
------- -------
Net earnings...................................... $10,051 $ 6,383
======= =======
Equity in earnings of Acquisition Partnerships.............. $ 2,592 $ 2,644
Equity in earnings of Servicing Entities.................... 21 --
------- -------
$ 2,613 $ 2,644
======= =======
</TABLE>

CONSUMER LENDING

During the quarter FirstCity Funding, the Company's automobile finance
business unit, completed a securitization of $41 million of face value of
automobile receivables resulting in a gain of $2.8 million. The transaction was
structured with $35.7 million in senior bonds, with the balance held by the
Company in a residual interest. Production increased to $61 million in purchased
auto receivables during the quarter because of improved liquidity and funding.
The loans purchased during the quarter were purchased at an average discount to
face value of 15.58% and carry a weighted average coupon of 19.9%. Delinquencies
at quarter-end were 3.00% of the total serviced portfolio. At the end of the
period the Company's consolidated balance sheet reflected $58.3 million of auto
finance residuals. Additionally, during the quarter, the warehouse provider in
conjunction with the credit enhancement provider increased warehouse capacity
from $50 million to $70 million.

17
<PAGE> 19

The following chart presents selected information regarding the revenues
and expenses of Consumer Corp.'s consumer lending business.

ANALYSIS OF SELECTED REVENUES AND EXPENSES
CONSUMER LENDING

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INTEREST INCOME:
Average loans and investments:
Auto................................................... $47,767 $32,639
Investments............................................ 54,433 39,930
Interest income:
Auto................................................... 2,688 1,998
Investments............................................ 1,762 1,269
Average yield (annualized):
Auto................................................... 22.51% 24.48%
Investments............................................ 12.95% 12.71%
SERVICING FEE REVENUES...................................... $ 1,673 $ 1,135
PERSONNEL:
Personnel expenses........................................ $ 2,426 $ 1,533
Number of personnel (at period end):
Production............................................. 134 133
Servicing.............................................. 222 123
INTEREST EXPENSE:
Average debt.............................................. $40,126 $33,101
Interest expense.......................................... 1,108 752
Average cost (annualized)................................. 11.05% 9.09%
</TABLE>

PROVISION FOR INCOME TAXES

The Company has substantial federal net operating loss carryforwards
("NOLs"), which can be used to offset the tax liability associated with the
Company's pre-tax earnings until the earlier of the expiration or utilization of
such NOLs. The Company accounts for the benefit of the NOLs by recording the
benefit as an asset and then establishing an allowance to value the net deferred
tax asset at a value commensurate with the Company's expectation of being able
to utilize the recognized benefit in the foreseeable future. Such estimates are
reevaluated on a quarterly basis with the adjustment to the allowance recorded
as an adjustment to the income tax expense generated by the quarterly operating
results. Significant events that change the Company's view of its currently
estimated ability to utilize the tax benefits result in substantial changes to
the estimated allowance required to value the deferred tax benefits recognized
in the Company's periodic financial statements. Such events could occur in the
future, and would impact the quarterly recognition of the Company's estimate of
the required valuation allowance associated with its NOLs.

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.

FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999

The Company reported a net loss from continuing operations of $0.1 million
in 2000 compared to a net loss of $2.0 million in 1999. Earnings from
discontinued operations totaled $0.5 million in 1999. Net loss to

18
<PAGE> 20

common shareholders was $0.8 million in 2000 compared to $2.1 million in 1999.
On a per share basis, basic and diluted net loss attributable to common
shareholders was $.09 in 2000 compared to $.26 in 1999. An accounting change
related to SOP 98-5 resulted in a loss of $.8 million in the first quarter of
1999 or $0.09 per share.

Portfolio Asset Acquisition and Resolution

Commercial Corp. purchased $13.6 million of Portfolio Assets during 2000
through the Acquisition Partnerships compared to $9.8 million in acquisitions in
1999. Commercial Corp.'s quarter end investment in Portfolio Assets decreased to
$35.5 million in 2000 from $39.4 million in 1999. Commercial Corp. invested $1.8
million in equity in Portfolio Assets in 2000 compared to $2.5 million in 1999.

Gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets decreased by 15% to $4.3 million in 2000 from $5.0 million in
1999. The net gain on resolution of Portfolio Assets decreased by 17% to $1.1
million in 2000 from $1.3 million in 1999 as the result of lower collections.
The gross profit percentage on the resolution of Portfolio Assets in 2000 was
25.2% as compared to 25.9% in 1999.

Equity in earnings of Acquisition Partnerships and Servicing Entities.
Proceeds from the resolution of Portfolio Assets for the Acquisition
Partnerships decreased by 1% to $29.3 million in 2000 from $29.6 million in 1999
while the gross profit percentage increased to 46.9% in 2000 from 36.2% in 1999.
The net result was an overall increase in the net income of the Acquisition
Partnerships of 57% to $10.1 million in 2000 from $6.4 million in 1999. However,
Commercial Corp.'s equity earnings from Acquisition Partnerships were relatively
level from period to period due to smaller equity investments in recent
partnership acquisitions.

Servicing fee revenues. Servicing fees increased by 66% to $1.6 million in
2000 from $1.0 million in 1999 primarily as a result of significant collections
from acquisition partnerships formed during 1999 .

Other revenues. Other revenues decreased by 30% to $1.0 million in 2000
compared to $1.5 million in 1999 principally as a result of lower interest
income on performing portfolios.

Operating expenses. Operating expenses declined by 13% to $3.5 million in
2000 from $4.0 million in 1999 primarily as a result of reduced interest
expense.

Salaries and benefits were relatively level from period to period.

Interest on notes payable declined $.5 million or 44% due to lower debt
levels.

Asset level expenses, occupancy, data processing and other expenses were
relatively level from period to period.

Consumer Lending

Gain on sale of automobile loans. A gain of $2.8 million resulted from the
securitization of automobile loans totaling $41 million.

Interest income. Interest income on consumer loans increased by 35% to $4.6
million in 2000 from $3.4 million in 1999, reflecting increased levels of loan
origination activity and an increase in the average balance of aggregate loans
and investments held by Consumer Corp. during 2000.

Service fees. Service fee income increased $.5 million or 47% as a result
of average non-portfolio servicing increasing from $147 million to $224 million.

Operating expenses. Operating expenses increased by 61% to $6.9 million in
2000 from $4.3 million in 1999 primarily as a result of a significant increase
in the provision for loan losses and impairment of residual interests and
increased operating activity.

Provision for loan losses on automobile receivables and impairment of
residual interests increased by $1.1 million from 1999.

19
<PAGE> 21

Salaries and benefits increased by $.9 million or 58% and other expenses
increased $.3 million or 15% as a result of the increased levels of operating
activity.

Interest expense increased by 47% to $1.1 million in 2000 from $0.8 million
in 1999 as a result of higher levels of debt.

Other Items Affecting Net Earnings

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

Corporate overhead. Company level interest expense increased by 52% to $3.8
million in 2000 from $2.5 million in 1999 as a result of higher volumes of debt
associated with the equity required to purchase Portfolio Assets, equity
interests in Acquisition Partnerships and capital support to operating
subsidiaries. Salary and benefits decreased 12% to $.8 million in 2000.

Income taxes. Federal income taxes are provided at a 35% rate applied to
taxable income 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 benefit from NOLs in 2000 and
1999.

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, investments in
expanding businesses to support their growth, 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.

At March 31, 2000, the Company was not in compliance with certain financial
and other covenants in its Senior Facility. The Company is working with its
lenders to obtain formal approval or waivers relating to these matters and
funding under the Senior Facility continues uninterrupted. The Senior Facility
also requires the consent of the lenders prior to payment of any common and
preferred dividends. The Company continually evaluates its liquidity position
giving priority to assuring adequate funding levels for its two operating
entities. Secondarily, management will determine when and if it is appropriate
to pay the dividends on the Company's outstanding preferred stock. Currently,
there are approximately 1.2 million preferred shares outstanding with accrued
dividends of approximately $1.9 million.

20
<PAGE> 22

Subsequent to quarter end, the Company obtained a secured, $17 million
equity acquisition facility for the investment in future Acquisition
Partnerships. This, along with equity distributions (totaling approximately $2.4
million for the first quarter of 2000) from existing Acquisition Partnerships,
is expected to be adequate to meet the funding needs of Commercial Corp.

Although the above transactions enhanced the Company's immediate liquidity
concerns, management has identified the following areas that it believes are
essential to allow the Company to meet all of its financing needs and cover its
obligations during the remainder of 2000:

- continue to obtain warehouse financing for consumer lending operations
and identify alternative sources for such funding;

- identify alternative or additional sources of financing on residual
interests obtained from securitization transactions;

- continue to securitize automobile finance receivables, either with or
without credit enhancement;

- obtain additional financing required by Commercial Corp. for investment
in additional Portfolio Assets; and

- realize positive cash flows from existing equity investments in Portfolio
Assets

- sell asset and loan portfolios or portions of operating businesses.

Based on the above, management of the Company expects that it will be able
to meet its obligations as they come due during 2000.

The Company and each of its major operating subsidiaries have entered into
one or more credit facilities to finance its respective operations. Each of the
operating subsidiary credit facilities is nonrecourse to the Company, except as
to the following agreements. The Company has guaranteed obligations of FC
Capital Corp. to Lehman Commercial Paper, Inc., limited to an amount of up to $1
million plus interest accruing after demand and collection costs under the
guaranty, which arise out of or are related to a certain Master Repurchase
Agreement Governing Purchases and Sales of Mortgage Loans dated as of March 31,
1998 between Lehman and Client, including the September 29, 1999 and December 8,
1999 letter agreements. The Company and FirstCity Funding L.P. are parties to an
Insurance Agreement and Letter Agreement related to the FCAR LLC Retail
Automobile Installment Loan Agreement Financing Facility

21
<PAGE> 23

provided by Enterprise Funding Corporation. These agreements require the Company
and FirstCity Funding L.P., as servicer and seller, to (i) purchase
nonconforming contracts in the event that the seller, the servicer, or the
related originator fails to repurchase any contract which is required to be
repurchased, (ii) pay certain premiums and other expenses, and (iii) indemnify
Enterprise Funding Corporation, the collateral agent, and the insurance provider
for losses related to breaches of certain representations and warranties.
Additionally, the Company, pursuant to the terms of the Letter Agreement, agrees
to make certain secondary servicer advances.

Excluding the term acquisition facilities of the unconsolidated Acquisition
Partnerships, as of March 31, 2000, the Company and its subsidiaries had credit
facilities providing for borrowings in an aggregate principal amount of $245
million and outstanding borrowings of $184 million. 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 May 19, 2000 and the outstanding borrowings under such facilities as of March
31, 2000.

CREDIT FACILITIES

<TABLE>
<CAPTION>
FUNDED AND
UNFUNDED
COMMITMENT
AMOUNT AS OF OUTSTANDING
MAY 19, BORROWINGS AS OF
2000 MARCH 31, 2000 INTEREST RATE OTHER TERMS AND CONDITIONS
------------ ---------------- ------------- --------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
FIRSTCITY
Company Senior
Facility............... $ 88 $ 83 Libor + 4% Secured by the assets of
the Company, expires June
30, 2001
Company senior
subordinated term
debt................... 25 25 Prime + 3.75% Secured by the assets of
the Company, expires
December 20, 2003
Term credit facilities... 10 10 LIBOR + 5.0% Secured by stock of an
Fixed at 7.25% acquisition partnership
and certain residual
interests, expires June
15, 2000 and January 3,
2001
COMMERCIAL CORP.
Term facility............ 5 5 LIBOR + 4.0% Term facility secured by
existing Portfolio Assets,
expires June 15, 2000
Term acquisition
facilities............. 22 22 Fixed at 7.00% to Acquisition facilities for
7.66% existing Portfolio Assets.
Secured by Portfolio
Assets. Expires June 5,
2002 and November 7, 2002
Equity acquisition
facility............... 17 -- LIBOR + 4.5% Acquisition facility for
the investment in future
acquisition Partnerships.
Expires March 31, 2001
</TABLE>

22
<PAGE> 24

<TABLE>
<CAPTION>
FUNDED AND
UNFUNDED
COMMITMENT
AMOUNT AS OF OUTSTANDING
MAY 19, BORROWINGS AS OF
2000 MARCH 31, 2000 INTEREST RATE OTHER TERMS AND CONDITIONS
------------ ---------------- ------------- --------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
CONSUMER CORP.
Warehouse facility....... 70 33 Rate based on Commercial paper conduit
Commercial paper warehouse facility secured
rates combined with by automobile receivables,
certain facility expires June 28, 2000
fees
Term facility............ 6 4 Prime + 1% Term facility secured by
residual interests in
automobile securitized
loans, expires August 15,
2000.
Term fixed asset
facilities............. 2 2
-------- ---------- Fixed at 9.33% to Secured by certain fixed
9.50% assets, expires July 31,
2002 and 2003
$ 245 $ 184
Total..........
======== ==========
Unconsolidated
Acquisition
Partnerships Term
acquisition
facilities............. $ 179 $ 179
-------- ---------- Fixed at 8.5% Senior and subordinated
to 13%, loans secured by Portfolio
LIBOR + 2% Assets, various maturities
to 4% and
Prime + 1%
</TABLE>

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 fact, 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", "anticipate", "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, general economic
conditions; interest rate risk; prepayment speeds; delinquency and default
rates; credit loss rates; changes (legislative and otherwise) in the asset
securitization industry; demand for the Company's services; residential and
commercial real estate values; the impact of certain covenants in loan
agreements of the Company; the degree to which the Company is leveraged; its
needs for financing; the continued availability of the Company's credit
facilities; capital markets conditions, including the markets for asset-backed
securities; the performance of the Company's subsidiaries and affiliates;
changes in foreign political, social and economic conditions; regulatory
initiatives and compliance with governmental regulations; the ability to attract
and retain qualified personnel; the factors identified under Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations; risk factors, and other risks identified in the Company's Securities
and Exchange Commission filings. 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

23
<PAGE> 25

and operational performance. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements. The
forward-looking statements in this Report speak only as of the date of this
Report. The Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements 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 earnings are materially impacted by net gains on
sales of loans and net interest margins. The level of gains from loan sales the
Company achieves is dependent on demand for the products originated. Net
interest margins are dependent on the Company to maintain the spread or interest
differential between the interest it charges the customer for loans and the
interest the Company is charged for the financing of those loans. The following
describes each component of interest bearing assets held by the Company and how
each could be effected by changes in interest rates.

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 bench-mark 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.

The sub-prime loans the Company sells generally are included in asset
backed securities the investor or purchaser issues. These securities are priced
at spreads over the LIBOR or an equivalent term treasury security. These spreads
are determined by demand for the security. Demand is affected by the perception
of credit quality and prepayment risk associated with the loans the Company
originates and sells. 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 the Company for the
products. The Company does not hedge these price risks.

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

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

In summary, the Company would be negatively impacted by rising interest
rates and declining prices for its sub-prime loans. Rising interest rates would
negatively impact the value of residual interests in securitizations and costs
of borrowings. Declining prices for the Company's sub-prime loans would
adversely effect the levels of gains achieved upon the sale of those loans.
There have been no material changes in the quantitative and qualitative risks of
the Company since December 31, 1999.

24
<PAGE> 26

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

25
<PAGE> 27

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

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

26
<PAGE> 28

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

27
<PAGE> 29

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 -- Revolving Credit Loan Agreement, dated as of March 20,
1998, by and between FC Properties, Ltd. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.12 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.13 -- Revolving Credit Loan Agreement, dated as of February 27,
1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.13 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.14 -- Note Agreement, dated as of June 6, 1997, among Bosque
Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque
Investment Realty Partners, L.P. and Bankers Trust
Company of California, N.A. (incorporated herein by
reference to Exhibit 10.14 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation
in favor of the Bank of Scotland. (incorporated herein by
reference to Exhibit 10.15 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.16 -- Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation. (incorporated herein reference to Exhibit
10.16 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.17 -- Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk (incorporated herein by reference to Exhibit 10.17
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.18 -- Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland. (incorporated herein by reference to Exhibit
10.18 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation. (incorporated
herein by reference to Exhibit 10.19 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
10.20 -- Funding Commitment, dated as of May 17, 1996 by and
between ContiTrade Services L.L.C. and The Company.
(incorporated herein by reference to Exhibit 10.20 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.21 -- Revolving Credit Agreement, dated as of December 29,
1995, by and between the Company and Cargill Financial
Services Corporation, as amended by the Eighth Amendment
to Revolving Credit Agreement dated February 1998.
(incorporated herein by reference to Exhibit 10.21 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.22 -- Master Repurchase Agreement Governing Purchased and Sales
of Mortgage Loans, dated as of July 1998, between Lehman
Commercial Paper Inc. and FHB Funding Corp. (incorporated
herein by reference to Exhibit 10.1 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 18, 1998).
</TABLE>

28
<PAGE> 30

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.23 -- Warehouse Credit Agreement, dated as of April 30, 1998
among ContiTrade Services, L.L.C., FirstCity Consumer
Lending Corporation, FirstCity Auto Receivables L.L.C.
and FirstCity Financial Corporation. (incorporated herein
by reference to Exhibit 10.2 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission August
16, 1998).
10.24 -- Servicing Agreement, dated as of April 30, 1998 among
FirstCity Auto Receivables L.L.C., FirstCity Servicing
Corporation of California, FirstCity Consumer Lending
Corporation and ContiTrade Services L.L.C. (incorporated
herein by reference to Exhibit 10.3 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 16, 1998).
10.25 -- Security and Collateral Agreement, dated as of April 30,
1998 among FirstCity Auto Receivables L.L.C., ContiTrade
Services L.L.C. and Chase Bank of Texas, National
Association. (incorporated herein by reference to Exhibit
10.4 of the Company's Form 10-Q dated August 14, 1998,
filed with the Commission August 16, 1998).
10.26 -- Loan Agreement, dated as of July 24, 1998, between
FirstCity Commercial Corporation and CFSC Capital Corp.
XXX (incorporated herein by reference Exhibit 10.5 of the
Company's Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).
10.27 -- Loan Agreement, dated April 8, 1998 between Bank of
Scotland and the Company (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission on
August 18, 1998).
10.28 -- First Amendment to Loan Agreement, dated July 20, 1998,
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.7 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission on
August 18, 1998).
10.29 -- Employment Agreement, dated October 1, 1998, by and
between FirstCity Financial Mortgage Corporation, and
Buddy L. Terrell (incorporated herein by reference to
Exhibit 10.29 of the Company's Form 10-Q dated May 17,
1999, filed with the Commission on May 17, 1999).
10.30 -- Security Agreement, dated as of April 30, 1998 among
Enterprise Funding Corporation, FCAR Receivables L.L.C.,
MBIA Insurance Corporation, FirstCity Funding
Corporation, NationsBank N.A. and CSC Logic/MSA LLP d/b/a
Loan Servicing enterprise (incorporated herein by
reference to Exhibit 10.30 of the Company's Form 10-Q
dated May 17, 1999, filed with the Commission on May 17,
1999).
10.31 -- Note purchase agreement, dated March 30, 1999 among
Enterprise Funding Corporation, FCAR Receivables, L.L.C.
and NationsBank, N.A. (incorporated herein by reference
to Exhibit 10.31 of the Company's Form 10-Q dated May 17,
1999, filed with the Commission on May 17, 1999).
10.32 -- Custodian Agreement, dated March 30, 1999, among FCAR
Receivables L.L.C., FirstCity Funding Corporation,
NationsBank, N.A., Enterprise Funding Corporation and
Chase Bank of Texas, N.A.
10.33 -- 100,000,000 dollar form of note, dated March 30, 1999
among FCAR Receivables LLC, Enterprise Funding
Corporation and Nationsbank, N.A.
</TABLE>

29
<PAGE> 31

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1 -- Financial Data Schedule. (Exhibit 27.1 is being submitted
as an exhibit only in the electronic format of this
Quarterly Report on Form 10-Q being submitted to the
Securities and Exchange Commission. Exhibit 27.1 shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933, Section 18 of the Securities Act
of 1934, as amended, or Section 323 of the Trust
Indenture Act of 1939, as amended, or otherwise be
subject to the liabilities of such sections, nor shall it
be deemed a part of any registration statement to which
it relates.)
</TABLE>

(b) Reports on Form 8-K. No report on Form 8-K was filed by the Registrant
with the Securities Exchange Commission during the quarterly period ended March
31, 2000.

30
<PAGE> 32

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 Operating
Officer and Director
(Duly authorized officer of the
Registrant)

By: /s/ GARY H. MILLER
----------------------------------
Gary H. Miller
Senior Vice President and Chief
Financial Officer
(Duly authorized officer and
principal financial officer of the
Registrant)

By: /s/ JAMES B. BAKER
----------------------------------
James B. Baker
Vice President and Controller
(Duly authorized officer and
principal accounting officer of
the
Registrant)

Dated: May 22, 2000

31
<PAGE> 33

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.24 -- Servicing Agreement, dated as of April 30, 1998 among
FirstCity Auto Receivables L.L.C., FirstCity Servicing
Corporation of California, FirstCity Consumer Lending
Corporation and ContiTrade Services L.L.C. (incorporated
herein by reference to Exhibit 10.3 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 16, 1998).
10.25 -- Security and Collateral Agreement, dated as of April 30,
1998 among FirstCity Auto Receivables L.L.C., ContiTrade
Services L.L.C. and Chase Bank of Texas, National
Association. (incorporated herein by reference to Exhibit
10.4 of the Company's Form 10-Q dated August 14, 1998,
filed with the Commission August 16, 1998).
10.26 -- Loan Agreement, dated as of July 24, 1998, between
FirstCity Commercial Corporation and CFSC Capital Corp.
XXX (incorporated herein by reference Exhibit 10.5 of the
Company's Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).
10.27 -- Loan Agreement, dated April 8, 1998 between Bank of
Scotland and the Company (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission on
August 18, 1998)
10.28 -- First Amendment to Loan Agreement, dated July 20, 1998,
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.7 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission on
August 18, 1998).
10.29 -- Employment Agreement, dated October 1, 1998, by and
between FirstCity Financial Mortgage Corporation, and
Buddy L. Terrell (incorporated herein by reference to
Exhibit 10.29 of the Company's Form 10-Q dated May 17,
1999, filed with the Commission on May 17, 1999).
10.30 -- Security Agreement, dated as of April 30, 1998 among
Enterprise Funding Corporation, FCAR Receivables L.L.C.,
MBIA Insurance Corporation, FirstCity Funding
Corporation, NationsBank N.A. and CSC Logic/MSA LLP d/b/a
Loan Servicing enterprise (incorporated herein by
reference to Exhibit 10.30 of the Company's Form 10-Q
dated May 17, 1999, filed with the Commission on May 17,
1999).
10.31 -- Note purchase agreement, dated March 30, 1999 among
Enterprise Funding Corporation, FCAR Receivables, L.L.C.
and NationsBank, N.A. (incorporated herein by reference
to Exhibit 10.31 of the Company's Form 10-Q dated May 17,
1999, filed with the Commission on May 17, 1999).
10.32 -- Custodian Agreement, dated March 30, 1999, among FCAR
Receivables L.L.C., FirstCity Funding Corporation,
NationsBank, N.A., Enterprise Funding Corporation and
Chase Bank of Texas, N.A.
10.33 -- 100,000,000 dollar form of note, dated March 30, 1999
among FCAR Receivables LLC, Enterprise Funding
Corporation and Nationsbank, N.A.
27.1 -- Financial Data Schedule. (Exhibit 27.1 is being submitted
as an exhibit only in the electronic format of this
Quarterly Report on Form 10-Q being submitted to the
Securities and Exchange Commission. Exhibit 27.1 shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933, Section 18 of the Securities Act
of 1934, as amended, or Section 323 of the Trust
Indenture Act of 1939, as amended, or otherwise be
subject to the liabilities of such sections, nor shall it
be deemed a part of any registration statement to which
it relates.)
</TABLE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 12,977
<SECURITIES> 58,271
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 77,791
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 249,194
<CURRENT-LIABILITIES> 0
<BONDS> 184,313
27,607
0
<COMMON> 83
<OTHER-SE> 25,593
<TOTAL-LIABILITY-AND-EQUITY> 249,194
<SALES> 4,286
<TOTAL-REVENUES> 18,881
<CGS> 3,205
<TOTAL-COSTS> 3,205
<OTHER-EXPENSES> 8,932
<LOSS-PROVISION> 1,105
<INTEREST-EXPENSE> 5,509
<INCOME-PRETAX> 130
<INCOME-TAX> 19
<INCOME-CONTINUING> (129)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (771)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)

</TABLE>