10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2004 or

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

Commission file number 033-19694

FirstCity Financial Corporation

(Exact name of Registrant as Specified in Its Charter)

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

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

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

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

     The number of shares of common stock, par value $.01 per share, outstanding at May 6, 2004 was 11,224,937.

TABLE OF CONTENTS

PART I
	Item 1. Financial Statements
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WAMCO PARTNERSHIPS
Combined Financial Statements
WAMCO PARTNERSHIPS
COMBINED BALANCE SHEETS
WAMCO PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
WAMCO PARTNERSHIPS
COMBINED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
WAMCO PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
WAMCO PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
5th Amend. to Term Loan & Revolving Credit Agmt.
Separation Agreement - G. Stephen Fillip
Consultant Agreement - G. Stephen Fillip
Certification of CEO pursuant to Section 302
Certification of CFO pursuant to Section 302
Certification of CEO pursuant to Section 906
Certification of CFO pursuant to Section 906

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

	March 31,			December 31,
	2004			2003
	(Unaudited)
ASSETS
Cash and cash equivalents	$	2,753		$	2,745
Portfolio Assets, net		6,998			4,525
Loans receivable from Acquisition Partnerships held for investment		15,849			17,313
Equity investments		75,106			73,146
Deferred tax asset, net		20,101			20,101
Service fees receivable from affiliates		1,320			1,390
Other assets, net		9,056			6,769
Net assets of discontinued operations		5,882			6,150
Total Assets	$	137,065		$	132,139
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Notes payable to affiliates	$	82,994		$	88,628
Notes payable other		4,912			2,432
Preferred stock subject to mandatory redemption, including accumulated dividends in arrears of $1,260 and $1,193 at March 31, 2004 and December 31, 2003, respectively, (par value $.01; redemption value of $21 per share; 2,000,000 shares authorized; 126,291 shares issued and outstanding		3,912			3,846
Minority interest		4,958			3,972
Other liabilities		7,391			4,292
Total Liabilities		104,167			103,170
Commitments and contingencies (note 10) Stockholders’ equity:
Optional preferred stock (par value $.01 per share; 98,000,000 shares authorized; no shares issued or outstanding)		—			—
Common stock (par value $.01 per share; 100,000,000 shares authorized; shares issued and outstanding: 11,224,937 and 11,193,687, respectively)		112			112
Paid in capital		99,260			99,168
Accumulated deficit		(69,074	)		(73,923	)
Accumulated other comprehensive income		2,600			3,612
Total Stockholders’ Equity		32,898			28,969
Total Liabilities and Stockholders’ Equity	$	137,065		$	132,139

See accompanying notes to consolidated financial statements.

2

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)
(Unaudited)

	Three Months Ended
	March 31,
	2004			2003
Revenues:
Servicing fees from affiliates	$	3,032		$	3,507
Gain on resolution of Portfolio Assets		75			695
Equity in earnings of investments		9,212			2,091
Interest income from affiliates		444			915
Interest income — other		85			188
Other income		1,338			362
Total revenues		14,186			7,758
Expenses:
Interest and fees on notes payable to affiliates		2,529			1,891
Interest and fees on notes payable — other		69			62
Interest on shares subject to mandatory redemption		66			—
Salaries and benefits		4,077			3,496
Provision for loan and impairment losses		—			34
Occupancy, data processing, communication and other		1,452			1,994
Total expenses		8,193			7,477
Earnings from continuing operations before income taxes and minority interest		5,993			281
Provision for income taxes		(112	)		(121	)
Earnings from continuing operations before minority interest		5,881			160
Minority interest		(1,032	)		(179	)
Earnings (loss) from continuing operations		4,849			(19	)
Loss from discontinued operations		—			—
Net earnings (loss)		4,849			(19	)
Accumulated preferred dividends in arrears		—			(66	)
Net earnings (loss) to common stockholders	$	4,849		$	(85	)
Basic earnings (loss) per common share are as follows:
Earnings (loss) from continuing operations	$	.43		$	(0.01	)
Discontinued operations		—			—
Net earnings (loss) to common stockholders	$	.43		$	(0.01	)
Weighted average common shares outstanding		11,198			11,202
Diluted earnings (loss) per common share are as follows:
Earnings (loss) from continuing operations	$	.41		$	(0.01	)
Discontinued operations		—			—
Net earnings (loss) to common stockholders	$	.41		$	(0.01	)
Weighted average common shares outstanding		11,792			11,202

See accompanying notes to consolidated financial statements.

3

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME

(Dollars in thousands)
(Unaudited)

											Accumulated
	Number of										Other			Total
	Common			Common		Paid in		Accumulated			Comprehensive			Stockholders'
	Shares			Stock		Capital		Deficit			Income			Equity
Balances, December 31, 2002		11,195,076		$	112	$	98,934	$	(82,977	)	$	2,683		$	18,752
Issuance of common stock in exchange for redeemable preferred stock		8,200			—		75		—			—			75
Issuance of shares through employee stock purchase plan		1,395			—		3		—			—			3
Exercise of common stock options		6,250			—		12		—			—			12
Refund of unconverted common stock		(17,234	)		—		144		—			—			144
Comprehensive income:
Net earnings for 2003		—			—		—		9,187			—			9,187
Foreign currency items		—			—		—		—			2,157			2,157
Unrealized net loss on securitization		—			—		—		—			(1,228	)		(1,228	)
Total comprehensive income															10,116
Preferred dividends		—			—		—		(133	)		—			(133	)
Balances, December 31, 2003		11,193,687			112		99,168		(73,923	)		3,612			28,969
Exercise of common stock options		31,250			—		92		—			—			92
Comprehensive income:
Net earnings for the first three months of 2004		—			—		—		4,849			—			4,849
Foreign currency items		—			—		—		—			(1,034	)		(1,034	)
Unrealized net gain on securitization		—			—		—		—			22			22
Total comprehensive income															3,837
Balances, March 31, 2004		11,224,937		$	112	$	99,260	$	(69,074	)	$	2,600		$	32,898

See accompanying notes to consolidated financial statements.

4

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)
(Unaudited)

	Three Months Ended
	March 31,
	2004			2003
Cash flows from operating activities:
Net earnings (loss)	$	4,849		$	(19	)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Proceeds from resolution of Portfolio Assets		249			3,003
Gain on resolution of Portfolio Assets		(75	)		(695	)
Purchase of Portfolio Assets and loans receivable, net		(2,717	)		—
Provision for loan and impairment losses		—			34
Equity in earnings of investments		(9,212	)		(2,091	)
Proceeds from performing Portfolio Assets and loans receivable, net		1,909			971
Capitalized interest and costs on Portfolio Assets and loans receivable		(48	)		(84	)
Depreciation and amortization		205			192
(Increase) decrease in service fees receivable from affiliate		70			(289	)
(Increase) decrease in other assets		(175	)		31
Change in estimated notes payable to affiliates		(759	)		—
Increase in other liabilities		1,263			157
Net cash provided by (used in) operating activities		(4,441	)		1,210
Cash flows from investing activities:
Property and equipment, net		(106	)		(441	)
Contributions to Acquisition Partnerships and Servicing Entities		(397	)		(75	)
Distributions from Acquisition Partnerships and Servicing Entities		6,987			4,892
Net cash provided by investing activities		6,484			4,376
Cash flows from financing activities:
Borrowings under notes payable to affiliates		1,395			500
Borrowing under notes payable — other		2,664			—
Payments of notes payable to affiliates		(6,270	)		(6,493	)
Payments of notes payable — other		(184	)		(609	)
Payments for tender of redeemable preferred stock		—			(50	)
Proceeds from issuance of common stock		92			1
Net cash used in financing activities		(2,303	)		(6,651	)
Net cash used in continuing operations		(260	)		(1,065	)
Net cash provided by (used in) discontinued operations		268			(184	)
Net increase (decrease) in cash and cash equivalents	$	8		$	(1,249	)
Cash and cash equivalents, beginning of period		2,745			4,118
Cash and cash equivalents, end of period	$	2,753		$	2,869
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	1,391		$	1,607
Income taxes		79			222
Non-cash financing activities:
Dividends accumulated and not paid on preferred stock		66			66
Balance of redeemable preferred stock and associated dividends relinquished in recapitalization transaction		—			74

See accompanying notes to consolidated financial statements.

5

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004
(Dollars in thousands, except per share data)

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

     FirstCity Financial Corporation (the “Company” or “FirstCity”) is a financial services company with offices throughout the United States and Mexico, with a presence in France. At December 31, 2003, the Company was engaged in two principal reportable segments: (i) portfolio asset acquisition and resolution and (ii) consumer lending through the Company’s minority investment in Drive Financial Services LP (“Drive”).

     The unaudited consolidated financial statements of FirstCity Financial Corporation (“FirstCity” or the “Company”) reflect, in the opinion of management, all adjustments, consisting only of normal and recurring adjustments, necessary to present fairly FirstCity’s consolidated financial position at March 31, 2004, and its results of operations and cash flows for the three-month periods ended March 31, 2004 and 2003.

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

     Basic net earnings (loss) per common share calculations are based upon the weighted average number of common shares outstanding. Earnings (losses) included in the earnings (loss) per common share calculation are reduced by minority interest and increased for preferred stock dividends. Potentially dilutive common share equivalents include warrants and stock options in the diluted loss per common share calculations.

     The effects of any common stock equivalents are antidilutive for the first quarter of 2003 due to the net loss for the period; therefore, diluted loss per common share is reported the same as basic loss per common share for that period.

     At March 31, 2004, the Company has three stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in the consolidated statements of operations, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. As required by FASB Statement No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, the following table represents the effect on net earnings (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

	Three Months
	Ended
	March 31,
	2004			2003
Net earnings (loss) to common stockholders, as reported	$	4,849		$	(85	)
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(21	)		(49	)
Pro forma net earnings (loss) to common stockholders	$	4,828		$	(134	)
Net earnings (loss) per common share:
Basic — as reported	$	0.43		$	(0.01	)
Basic — pro forma	$	0.43		$	(0.01	)
Diluted — as reported	$	0.41		$	(0.01	)
Diluted — pro forma	$	0.41		$	(0.01	)

6

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(2) Restructure, Liquidity and Capital Resources

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

     In December 2002, FirstCity completed a recapitalization in which holders of redeemable preferred stock, par value $.01 per share, (“New Preferred Stock”) exchanged 1,092,210 shares of New Preferred Stock for 2,417,388 shares of common stock and $10.5 million in cash. As a result, common equity was increased by $18.9 million. During the first quarter of 2003, 4,400 shares of New Preferred Stock were redeemed for 8,200 shares of common stock and $50,000 in cash. FirstCity also recorded a $4 million gain in December 2002 from the release of its guaranty of Drive’s indebtedness to BoS(USA) Inc. (“BoS(USA)”). BoS(USA)’s warrant to purchase 1,975,000 shares of non-voting common stock was cancelled. FirstCity also acquired the minority interest in FirstCity Holdings Corporation held by Terry R. DeWitt, G. Stephen Fillip and James C. Holmes, each of whom were Senior Vice Presidents of FirstCity, by issuing 400,000 shares of common stock of the Company and a note payable, to be periodically redeemed by the Company for an aggregate of up to $3.2 million out of certain cash collections from servicing income from Portfolios in Mexico. FirstCity valued the loans at the inception date using an imputed interest rate of 4.56% based on the Company’s cost of funds on that date. During the first quarter of 2004, the Company reduced the estimated carrying value of these loans based on an imputed interest rate of 6.94% and revised cash flow projections. FirstCity recorded the change in estimate of $.8 million to other income. At March 31, 2004, these notes had a combined balance of $.5 million and mature in December 2011. The Company evaluates the contingent amount of these outstanding notes on a quarterly basis and will make adjustments to the estimated liability as changes in estimated cash flows supporting these notes change.

     As a part of the recapitalization, BoS(USA) provided a non-recourse loan in the amount of $16 million to FirstCity, which was used to pay the cash portion of the exchange offer to the holders of the New Preferred Stock, to pay expenses of the exchange offer and recapitalization, and to reduce FirstCity’s debt to the Bank of Scotland (together with BoS(USA), the “Senior Lenders”). The $16 million loan is secured by a 20% interest in Drive (64.51% of FirstCity’s remaining 31% interest in Drive) and other assets of Consumer Lending Corporation (“Consumer Corp.”) as are necessary and only to the extent to allow the Senior Lenders to realize the security interest in the 20% interest in Drive. In connection with the $16 million loan, the Company agreed to pay a contingent fee to BoS (USA) Inc. equal to 20% of all amounts received by the Company upon any sale of the Company’s 20% interest in Drive or any receipt of distributions from Drive related to the 20% ownership interest, once such payments exceed $16 million in the aggregate. During the first quarter of 2004, the Company recorded $.8 million of additional interest expense related to the contingent fee. The Company currently estimates that additional interest expense will be recognized in the amount of $160,000 per quarter through December 2007. This additional interest expense currently has no impact on the Company’s cash flow. The payment of the interest and any gain or income resulting from any sale or distribution will not be recognized until a sale occurs or distribution is received. The Company has no present plans to sell any interest in Drive and does not anticipate that any distributions will be made from Drive in the near future that would result in an obligation to pay a contingent fee.

     In connection with the recapitalization, the Senior Lenders refinanced the remainder of the Company’s debt facilities ($40 million outstanding at March 31, 2004). The Senior Lenders also provided new financing to FirstCity, with a total commitment of up to $59 million, consisting of (a) a $5 million revolving credit loan and (b) an acquisition term loan in an amount up to $54 million. The aggregate amount of outstanding loans under the total commitment by the Senior Lenders for the refinancing and the new financing at any time may not exceed $77 million. Effective as of March 31, 2004, the Company and the Senior Lenders amended the acquisition term loan facility providing for a total amount of term loans to be made up to $54 million in the aggregate to (i) make it into a revolving loan facility providing for a maximum principal balance of loans outstanding at any time of $45 million, (ii) allow loans to be made in Euros up to a maximum amount in Euros that is equivalent to $22.5 million U.S. dollars, (iii) allow loans to be made for acquisition of Portfolio Assets originated outside the United States of up to $22.5 million, (iv) provide for an interest rate of Libor plus 3.75%, (v) provide for the commitment commission to increase from 0.25% to 0.375%, (vi) provide for distribution of 35% of collections from Asset Portfolios to the Company, provided that the aggregate outstanding principal balances of all loans under the facility does not exceed 65% of the total equity interests in Acquisition Partnerships pledged to secure the acquisition facility, and (vii) provide for other modifications that would facilitate the use of the acquisition facility in the United States and other countries. The amended facility continues to provide that the aggregate amount of all outstanding loans under the loan facilities refinanced with the

7

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Senior Lenders in December 2002 ($40 million outstanding at March 31, 2004) and the amended acquisition facility and the related $5 million revolving loan are limited to $77 million.

     BoS(USA) has a warrant to purchase 425,000 shares of the Company’s voting Common Stock at $2.3125 per share. BoS(USA) is entitled to additional warrants in connection with this existing warrant for 425,000 shares under certain specific situations to retain its ability to acquire approximately 4.86% of the Company’s voting Common Stock. The warrant will expire on August 31, 2010, if it is not exercised prior to that date.

     In the third quarter of 1999, dividends on the Company’s New Preferred Stock were suspended. At March 31, 2004, accumulated dividends in arrears on New Preferred Stock totaled $1.3 million, or $9.98 per share. Since the Company failed to pay quarterly dividends for six consecutive quarters, the holders of New Preferred Stock are entitled to exercise their right to elect two directors to the Company’s Board until cumulative dividends have been paid in full. To exercise this right, the holders of the New Preferred Stock must follow certain prescribed actions set forth in the Certificate of Designations of the Company’s New Preferred Stock. To date, the holders of the New Preferred Stock have not exercised this right. Dividends on outstanding shares of New Preferred Stock of FirstCity will be restricted until the Tranche II term loan is paid in full. Given the continued high debt levels of the Company, and management’s priority of assuring adequate levels of liquidity, the Company does not anticipate that dividends on New Preferred Stock will be paid prior to September 30, 2005, the date fixed for redemption of the New Preferred Stock.

     The Company has a $35 million loan facility with CFSC Capital Corp. XXX, a subsidiary of Cargill. This facility is being used exclusively to provide equity in new Portfolio acquisitions in partnerships with Cargill and its affiliates and matures in March 2005. At March 31, 2004, approximately $23 million was outstanding under this facility.

     In September 2003, FirstCity entered into a Portfolio acquisition facility line of credit with Greenwich Capital Financial Products, Inc., which provides borrowings up to $30 million. The facility obligation was zero at March 31, 2004 and matures September 2004.

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

(3) New Accounting Pronouncements

     In November 2003, the FASB issued Staff Position, No. 150-3, Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“Staff Position 150-3”). Staff Position 150-3 defers the application of various provisions of SFAS 150 for specified mandatorily redeemable noncontrolling interests in consolidated limited-life entities. FirstCity has minority interests in various limited-life partnerships with a carrying value of $.8 million at March 31, 2004. The estimated amount that would be paid to the minority interest holder if the instruments were to be settled at March 31, 2004 is $.8 million.

     In December 2003, the Accounting Standards Executive Committee issued Statement of Position No. 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (“SOP 03-3”). SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3 limits the yield that may be accreted on a loan portfolio to the excess of undiscounted expected cash flows over the initial investment in the loan portfolio. FirstCity will be required to account for all loans acquired after 2004 in accordance with SOP 03-3. For loans acquired prior to January 1, 2005, FirstCity will adopt the provisions of SOP 03-3 on a prospective basis.

     In December 2003, the FASB issued a revision to Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46R”), which was originally issued in January 2003. FIN 46R provides guidance on the consolidation of certain entities when control exists through other than voting (or similar) interests and was effective immediately with respect to entities created after January 31, 2003. For certain special purpose entities created prior to February 1, 2003, FIN 46R became effective for financial statements issued after December 15, 2003. For all other entities created prior to February 1, 2003 FIN 46R became effective January 1, 2004.

     FIN 46R requires consolidation by the majority holder of expected residual gains and losses of the activities of a variable interest entity (“VIE”). FirstCity holds significant variable interests in certain domestic Acquisition Partnerships and all of the French and

8

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Mexico partnerships, which would be characterized as VIE’s. However, FirstCity is not deemed to be the primary beneficiary of any of these entities. At March 31, 2004, FirstCity’s maximum exposure to loss as a result of its involvement with the VIE’s is $32 million.

(4) Discontinued Operations

     The net assets related to the resolution of activity from the Company’s investment in discontinued operations was $5,882 at March 31, 2004. No provisions were recorded during the first quarter of 2004 and 2003. The net assets from discontinued operations consist of the following:

	March 31,			December 31,
	2004			2003
Estimated future gross cash receipts on residual interests in securitizations	$	6,150		$	6,399
Accrual for loss on operations and disposal of discontinued operations, net		(268	)		(249	)
Net assets of discontinued operations	$	5,882		$	6,150

     The only assets remaining from discontinued operations are the investment securities resulting from the retention of residual interests in securitization transactions. Although the liquidation or run-off of these investment securities will last longer than one year, the Company is contractually obligated to service the securitized assets. The Company has considered the estimated future gross cash receipts for such investment securities in the computation of the value of such investment securities. The cash flows are collected over a period of time and are valued using prepayment assumptions of 33% for fixed rate loans and 23% to 25% for variable rate loans. Overall loss rates are estimated from 3% to 13% of collateral.

(5) Portfolio Assets

     Portfolio Assets are summarized as follows:

	March 31,			December 31,
	2004			2003
Non-performing Portfolio Assets	$	30,344		$	27,071
Performing Portfolio Assets		2,636			2,682
Real estate Portfolios		283			283
Total Portfolio Assets		33,263			30,036
Adjusted purchase discount required to reflect Portfolio Assets at carrying value		(26,265	)		(25,511	)
Portfolio Assets, net	$	6,998		$	4,525

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

(6) Loans Receivable from Acquisition Partnerships Held for Investment

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

	March 31,		December 31,
	2004		2003
Mexico	$	12,723	$	13,351
France		1,689		2,604
Domestic		1,399		1,358
Chile		38		—
	$	15,849	$	17,313

     There were no provisions recorded on these loans during the first three months of 2004 and 2003. The loans receivable from Acquisition Partnerships are secured by the assets/loans acquired by the partnerships with purchase money loans provided by affiliates of the investors to the partnerships to purchase the asset pools held in those entities. These loans are evaluated for impairment by analyzing the expected future cash flows from the underlying assets within each pool to determine that the cash flows were sufficient to repay these notes. The Company applies the asset valuation methodology consistently in all venues and uses the same proprietary asset management system to evaluate impairment on all asset pools. The results of this evaluation indicated that cash flows from the pools will be sufficient to repay the loans and no allowances for impairment were necessary.

9

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Equity method earnings (losses) which were recorded to increase (reduce) the loans and interest receivable from the Mexican partnerships were $.1 million and $(1.9) million during the first three months of 2004 and 2003, respectively, in compliance with EITF 98-13, Accounting by an Equity Method Investor for Investee Losses When the Investor Has Loans to and Investments in Other Securities of the Investee.

(7) Equity Investments

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

Condensed Combined Balance Sheets

	March 31,		December 31,
	2004		2003
Assets	$	484,959	$	525,493
Liabilities	$	406,323	$	441,677
Net equity		78,636		83,816
	$	484,959	$	525,493
Equity investment in Acquisition Partnerships	$	49,787	$	53,098
Equity investment in servicing entities		4,587		4,381
	$	54,374	$	57,479

Condensed Combined Summary of Operations

	Three Months Ended
	March 31,
	2004		2003
Proceeds from resolution of Portfolio Assets	$	62,335	$	57,582
Gain on resolution of Portfolio Assets		20,569		20,989
Interest income on performing Portfolio Assets		2,899		2,145
Net earnings (loss)		16,044		(21,038	)
Equity in earnings of Acquisition Partnerships	$	3,845	$	1,014
Equity in earnings of servicing entities		330		216
	$	4,175	$	1,230

     The assets and equity of the Acquisition Partnerships and equity investments in the Acquisition Partnerships are summarized by geographic region below. The WAMCO Partnerships represent limited partnerships and limited liability companies in which the Company has a common ownership with Cargill. MinnTex Investment Partners LP is considered to be a significant subsidiary of FirstCity.

	March 31,		December 31,
	2004		2003
Assets:
Domestic:
WAMCO Partnerships	$	189,821	$	205,134
MinnTex Investment Partners LP		1,446		1,530
Other		10,153		10,164
Mexico		177,656		186,431
France		105,883		122,234
	$	484,959	$	525,493

10

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	March 31,			December 31,
	2004			2003
Equity (deficit):
Domestic:
WAMCO Partnerships	$	82,242		$	84,589
MinnTex Investment Partners LP		1,334			1,418
Other		6,130			6,218
Mexico		(83,462	)		(86,412	)
France		72,392			78,003
	$	78,636		$	83,816
Equity investment in Acquisition Partnerships:
Domestic:
WAMCO Partnerships	$	32,902		$	33,413
MinnTex Investment Partners LP		440			514
Other		3,024			3,037
Mexico		944			1,021
France		12,477			15,113
	$	49,787		$	53,098

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

	Three Months Ended
	March 31,
	2004			2003
Revenues:
Domestic:
WAMCO Partnerships	$	6,435		$	6,352
MinnTex Investment Partners LP		2,530			3,255
Other		43			10
Mexico		4,238			7,006
France		10,466			7,026
	$	23,712		$	23,649
Net earnings (loss):
Domestic:
WAMCO Partnerships	$	2,569		$	3,367
MinnTex Investment Partners LP		2,253			2,859
Other		(182	)		(136	)
Mexico		3,700			(31,518	)
France		7,704			4,390
	$	16,044		$	(21,038	)
Equity in earnings (loss) of Acquisition Partnerships:
Domestic:
WAMCO Partnerships	$	1,267		$	1,434
MinnTex Investment Partners LP		743			944
Other		(61	)		(30	)
Mexico		112			(2,061	)
France		1,784			727
	$	3,845		$	1,014

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

11

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidated Balance Sheets

	March 31,			December 31,
	2004			2003
Cash	$	31,825		$	19,013
Restricted cash		60,931			47,623
Retail installment contracts, net		770,042			623,389
Residual interests in securitizations		30,087			29,094
Other assets		22,243			19,711
Total assets	$	915,128		$	738,830
Notes payable	$	836,342		$	683,758
Other liabilities		25,272			14,631
Total liabilities		861,614			698,389
Net equity		53,514			40,441
	$	915,128		$	738,830
Equity investment in Drive	$	20,732		$	15,667
Minority interest		(4,143	)		(3,131	)
Net investment in Drive	$	16,589		$	12,536

Condensed Consolidated Summary Of Operations

	Three Months Ended March 31,
	2004			2003
Finance and other interest income	$	60,443		$	39,303
Interest expense		9,208			6,193
Net interest margin		51,235			33,110
Provision for credit losses on retail installment contracts		24,500			14,164
Impairment of residual interests in securitizations, including servicing asset		—			1,217
Net interest margin after provision for credit losses and impairments		26,735			17,729
Other revenues:
Servicing income		7,185			5,592
Other income		941			554
Total other revenues		8,126			6,146
Costs and expenses:
Salaries and benefits		9,716			12,480
Servicing expense		8,656			6,434
Occupancy, data processing, communication, and other		3,488			2,471
Total costs and expenses		21,860			21,385
Net income	$	13,001		$	2,490
Equity in earnings of Drive	$	5,037		$	861
Minority interest		(1,007	)		(172	)
Net equity in earnings of Drive	$	4,030		$	689

(8) Segment Reporting

     The Company is engaged in two reportable segments: (i) Portfolio Asset acquisition and resolution; and (ii) consumer lending. These segments have been segregated based on products and services offered. The Portfolio Asset acquisition and resolution business involves acquiring Portfolio Assets at a discount to face value and servicing and resolving such Portfolios in an effort to maximize the present value of the ultimate cash recoveries. The consumer lending business is conducted through the Company’s equity investment in Drive. Drive is a specialized consumer finance company engaged in the purchase, securitization and servicing of retail installment

12

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

contracts originated by automobile dealers. The following is a summary of results of operations for each of the segments and reconciliation to earnings (loss) from continuing operations for the three months ended March 31, 2004 and 2003.

	Three Months Ended
	March 31,
	2004		2003
Portfolio Asset Acquisition and Resolution:
Revenues:
Servicing fees	$	3,032	$	3,507
Gain on resolution of Portfolio Assets		75		695
Equity in earnings of investments		4,175		1,230
Interest income		529		1,102
Other		1,131		302
Total		8,942		6,836
Expenses:
Interest and fees on notes payable		779		686
Salaries and benefits		3,041		2,842
Provision for loan and impairment losses		—		34
Occupancy, data processing, communication and other		999		1,381
Minority interest		26		7
Total		4,845		4,950
Operating contribution before direct taxes	$	4,097	$	1,886
Operating contributiong, net of direct taxes	$	4,043	$	1,777
Consumer Lending:
Revenues:
Equity in earnings of investment	$	5,037	$	861
Other		3		—
Total		5,040		861
Expenses:
Interest and fees on notes payable		885		95
Occupancy, data processing, communication and other		3		5
Minority interest		1,006		172
Total		1,894		272
Operating contribution before direct taxes	$	3,146	$	589
Operating contribution, net of direct taxes	$	3,118	$	576
Total operating contribution, net of direct taxes	$	7,161	$	2,353
Corporate Overhead:
Corporate interest expense		1,000		1,172
Salaries and benefits, occupancy, professional and other income and expenses, net		1,312		1,200
Earnings (loss) from continuing operations	$	4,849	$	(19	)

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

	Three Months
	Ended
	March 31,
	2004		2003
Domestic	$	4,143	$	4,407
Mexico		2,588		1,425
France		2,202		1,004
Other foreign		9		—
Total	$	8,942	$	6,836

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:

	March 31,		December 31,
	2004		2003
Cash	$	2,753	$	2,745
Portfolio acquisition and resolution assets Domestic		44,776		42,872
Mexico		13,699		14,468
France		19,598		23,088
Other foreign		49		—
Consumer assets		20,732		15,685
Deferred tax asset, net		20,101		20,101
Other assets, net		9,475		7,041
Net assets of discontinued operations		5,882		6,150
Total assets	$	137,065	$	132,139

(9) Income Taxes

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

(10) Commitments and Contingencies

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

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

     In addition, in the Securities Purchase Agreement, the Company, Consumer Corp., Funding LP and Funding GP made various representations and warranties concerning (i) their respective organizations, (ii) the automobile finance operation conducted by Consumer Corp. and Funding LP, and (iii) the assets transferred by Consumer Corp. and Funding LP to Drive. The Company, Consumer Corp., Funding LP and Funding GP also agreed to indemnify BoS(USA), IFA-GP and IFA-LP from damages resulting from a breach of any representation or warranty contained in the Securities Purchase Agreement or otherwise made by the Company, Consumer Corp. or Funding LP in connection with the transaction. The indemnity obligation under the Securities Purchase Agreement survives for a period of seven (7) years from August 25, 2000 (the “Closing Date”) with respect to tax-related representations and warranties and for thirty months from the Closing Date with respect to all other representations and warranties. Neither the Company, Consumer Corp., Funding LP, or Funding GP is required to make any payments as a result of the indemnity provided under the Securities Purchase Agreement until the aggregate amount payable exceeds $.25 million, and then only for the amount in excess of $.25 million in the aggregate; however certain representations and warranties are not subject to this $.25 million threshold. Pursuant to

14

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the terms of the Contribution Agreements, Consumer Corp. and Funding LP have agreed to indemnify Drive from any damages resulting in a material adverse effect on Drive resulting from breaches of representations or warranties, failure to perform, pay or discharge liabilities other than the assumed liabilities, or claims, lawsuits or proceedings resulting from the transactions contemplated by the Contribution Agreements. Pursuant to the terms of the Contribution Agreements, Drive has agreed to indemnify Consumer Corp. and Funding LP for any breach of any representation or warranty by Drive, the failure of Drive to discharge any assumed liability, or any claims arising out of any failure by Drive to properly service receivables after August 1, 2000. Liability for indemnification pursuant to the terms of the Contribution Agreements will not arise until the total of all losses with respect to such matters exceeds $.25 million and then only for the amount by which such losses exceed $.25 million; however this limitation will not apply to any breach of which the party had knowledge at the time of the Closing Date or any intentional breach by a party of any covenant or obligation under the Contribution Agreements.

     The Company has agreed to indemnify BoS(USA) for up to 31% of losses, which might arise as a result of agreements BoS(USA) executed as a sponsor in connection with the securitizations completed by Drive. The Company also agreed to provide support in connection with securitizations by Consumer Corp. and Drive prior to the acquisition by BoS(USA) of the interest in Drive in August 2000. Management of the Company currently does not believe it is likely that FirstCity will be required to make payments on these indemnification agreements.

     FirstCity is obligated to pay BoS(USA) an arrangement fee related to the $16 million loan equal to 20% of all proceeds and other amounts paid to FirstCity from any sale or other disposition (regardless of when such sale or other disposition occurs) of, and of all dividends and other distributions paid to FirstCity by Drive or its general partner (regardless of when such dividend or other distribution occurs) on, its 20% interest in Drive, in each case in excess of $16 million in the aggregate. As of March 31, 2004 the Company has accrued $.8 million of additional interest expense related to this contingent fee. The Company currently estimates that additional interest expense will be recognized in the amount of $160,000 per quarter through December 2007. This additional interest expense currently has no impact on the Company’s cash flow. The payment of the interest and any gain or income resulting from any sale or distribution will not be recognized until a sale occurs or distribution is received. The Company has no present plans to sell any interest in Drive and does not anticipate that any distributions will be made from Drive in the near future that would result in an obligation to pay a contingent fee.

15

WAMCO PARTNERSHIPS

Combined Financial Statements

March 31, 2004 (Unaudited)

16

WAMCO PARTNERSHIPS

COMBINED BALANCE SHEETS

	March 31,		December 31,
	2004		2003
	(Unaudited)
	(Dollars in thousands)
ASSETS
Cash	$	13,335	$	15,044
Portfolio Assets, net		155,003		168,681
Investments in partnerships		2,361		2,350
Deferred profit sharing		17,933		18,273
Other assets, net		1,189		786
	$	189,821	$	205,134
LIABILITIES AND PARTNERS’ CAPITAL
Notes payable (including $24,712 and $71,224 affiliates in 2004 and 2003, respectively)	$	83,644	$	95,946
Deferred compensation		21,422		21,466
Other liabilities (including $1,512 and $1,603 to affiliates in 2004 and 2003, respectively)		2,513		3,133
Total liabilities		107,579		120,545
Commitments and contingencies (note 9)
Partners’ capital		82,242		84,589
	$	189,821	$	205,134

See accompanying notes to combined financial statements.

17

WAMCO PARTNERSHIPS

COMBINED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended
	March 31,
	2004			2003
	(Dollars in thousands)
Proceeds from resolution of Portfolio Assets	$	20,413		$	15,889
Cost of Portfolio Assets resolved		15,575			11,469
Gain on resolution of Portfolio Assets		4,838			4,420
Interest income on performing Portfolio Assets.		1,587			1,523
Interest and fees on notes payable — affiliates		(614	)		(955	)
Interest and fees on notes payable — other		(629	)		(404	)
Provision for loan losses		(587	)		(444	)
Servicing fees — affiliate		(855	)		(657	)
General, administrative and operating expenses.		(1,180	)		(525	)
Other income, net		9			409
Net earnings	$	2,569		$	3,367

See accompanying notes to combined financial statements.

18

WAMCO PARTNERSHIPS

COMBINED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

(Unaudited)

							Class B
	Class A Equity						Equity
	General			Limited			Limited			General			Limited
	Partners			Partners			Partners			Partners			Partners			Total
							(Dollars in thousands)
Balance at December 31, 2002	$	123		$	6,010		$	1,063		$	939		$	71,924		$	80,059
Contributions		—			—			—			332			29,850			30,182
Distributions		(98	)		(4,788	)		(322	)		(546	)		(38,987	)		(44,741	)
Comprehensive income:
Net earnings		41			1,989			55			280			18,163			20,528
Unrealized net loss on securitization		(21	)		(1,018	)		(5	)		(17	)		(378	)		(1,439	)
Total comprehensive income		20			971			50			263			17,785			19,089
Balance at December 31, 2003		45			2,193			791			988			80,572			84,589
Contributions		—			—			—			5			788			793
Distributions		(4	)		(190	)		(18	)		(70	)		(5,427	)		(5,709	)
Comprehensive income:
Net earnings		5			267			12			32			2,253			2,569
Total comprehensive income		5			267			12			32			2,253			2,569
Balance at March 31, 2004	$	46		$	2,270		$	785		$	955		$	78,186		$	82,242

See accompanying notes to combined financial statements.

19

WAMCO PARTNERSHIPS

COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	March 31,
	2004			2003
	(Dollars in thousands)
Cash flows from operating activities:
Net earnings	$	2,569		$	3,367
Adjustments to reconcile net earnings to net cash provided by operating activities:
Amortization of loan origination and commitment fees		130			96
Amortization of deferred profit sharing		296			—
Accretion of unrealized gain on trust certificates		—			(81	)
Provision for loan losses		587			444
Gain on resolution of Portfolio Assets		(4,838	)		(4,420	)
Purchase of Portfolio Assets		(3,908	)		—
Net receipts on Portfolio Asset lines of credit		117			—
Capitalized costs on Portfolio Assets		(281	)		(458	)
Capitalized interest on Portfolio Assets		(362	)		(184	)
Proceeds from resolution of Portfolio Assets		20,413			15,889
Principal payments on Performing Portfolio Assets		1,950			2,243
Decrease (increase) in deferred profit sharing		44			(1,314	)
Increase in other assets		(533	)		(35	)
Increase (decrease) in deferred compensation		(44	)		1,314
Deferred compensation paid		—			(58	)
Decrease in other liabilities		(620	)		(1,254	)
Net cash provided by operating activities		15,520			15,549
Cash flows from investing activities:
Contribution to subsidiaries		(11	)		(29	)
Change in trust certificates		—			318
Net cash provided by (used in) investing activities		(11	)		289
Cash flows from financing activities:
Borrowing of debt — affiliates		3,126			118
Borrowing of debt		43,900			—
Repayment of debt — affiliates		(43,638	)		(7,394	)
Repayment of debt		(9,690	)		(4,116	)
Repayment of preferred equity		—			(51	)
Capital contributions		793			—
Capital distributions		(5,709	)		(6,267	)
Net cash used in financing activities		(17,218	)		(17,710	)
Net decrease in cash		(1,709	)		(1,872	)
Cash at beginning of period		15,044			13,035
Cash at end of period	$	13,335		$	11,163

     Supplemental disclosure of cash flow information:

     Cash paid for interest was $1,941 and $1,189 for the three months ended March 31, 2004 and 2003, respectively.

     Unrealized net loss on trust certificates recorded in partners’ capital was zero and $331 for the three months ended March 31, 2004 and 2003, respectively.

See accompanying notes to combined financial statements.

20

WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS

March 31, 2004
(Dollars in thousands)
(Unaudited)

(1) Basis of Presentation

     The unaudited combined financial statements of the WAMCO Partnerships reflect, in the opinion of management, all adjustments, consisting only of normal and recurring adjustments, necessary to present fairly the combined financial position at March 31, 2004, and the results of operations and cash flows for the three-month periods ended March 31, 2004 and 2003.

(2) Organization and Partnership Agreements

     The combined financial statements represents domestic Texas limited partnerships and limited liability companies (“Acquisition Partnerships” or “Partnerships”) and include the accounts of WAMCO III, Ltd. (“WAMCO III”); WAMCO IX, Ltd. (“WAMCO IX”); WAMCO XXIV, Ltd. (“WAMCO XXIV”); WAMCO XXV, Ltd. (“WAMCO XXV”); WAMCO XXVI, Ltd.; WAMCO XXVII, Ltd.; WAMCO XXVIII, Ltd. (“WAMCO XXVIII”); WAMCO XXIX, Ltd.; WAMCO XXX, Ltd. (“WAMCO XXX”); WAMCO 31, Ltd. (“WAMCO 31”); WAMCO 32, Ltd. (“WAMCO 32”); WAMCO 33, Ltd. (“WAMCO 33”); SOWAMCO XXIX, Ltd. (“SOWAMCO XXIX”); Calibat Fund, LLC; First B Realty, Ltd.; First Paradee, Ltd.; FirstStreet Investments LLC (“FirstStreet”); FC Properties, Ltd. (“FC Properties”); and Community Development Investment, LLC. FirstCity Financial Corporation or its subsidiaries, FirstCity Commercial Corporation and FirstCity Holdings Corporation (together “FirstCity”), share limited partnership interests and participate as general partners in common with Cargill Financial Services, Inc. in all of the Partnerships. FC Properties, WAMCO XXVII and WAMCO XXX are considered to be significant subsidiaries of FirstCity.

     The Partnerships were formed to acquire, hold and dispose of Portfolio Assets acquired from the Federal Deposit Insurance Corporation, Resolution Trust Corporation and other nongovernmental agency sellers, pursuant to certain purchase agreements or assignments of such purchase agreements. In accordance with the purchase agreements, the Partnerships may retain certain rights of return regarding the assets related to representations and warranties as set forth in and according to the terms and conditions of the purchase agreements.

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

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

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

21

WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

(3) Combining Financial Statements

     FC Properties, WAMCO XXVIII and WAMCO XXX are considered to be significant subsidiaries of FirstCity. The following tables summarize the combining balance sheets and changes in partners’ capital of the WAMCO Partnerships as of March 31, 2004 and December 31, 2003, the related combining statements of operations and combining cash flows for the three months ended March 31, 2004 and 2003.

Combining Balance Sheets
March 31, 2004

	FC		WAMCO		WAMCO		Other
	Properties		XXVIII		XXX		Partnerships		Combined
			(Dollars in thousands)
ASSETS
Cash	$	1,440	$	1,305	$	2,076	$	8,514	$	13,335
Portfolio Assets, net		13,120		15,834		15,799		110,250		155,003
Investments in partnerships		—		—		—		2,361		2,361
Deferred profit sharing		17,933		—		—		—		17,933
Other assets, net		21		54		152		962		1,189
	$	32,514	$	17,193	$	18,027	$	122,087	$	189,821
LIABILITIES AND PARTNERS’ CAPITAL
Notes payable	$	—	$	5,907	$	9,210	$	68,527	$	83,644
Deferred compensation		21,422		—		—		—		21,422
Other liabilities		217		795		170		1,331		2,513
Total liabilities		21,639		6,702		9,380		69,858		107,579
Partners’ capital		10,875		10,491		8,647		52,229		82,242
	$	32,514	$	17,193	$	18,027	$	122,087	$	189,821
Notes payable owed to affiliates included in above balances	$	—	$	—	$	—	$	24,712	$	24,712
Other liabilities owed to affiliates included in above balances		21		577		134		780		1,512

Combining Balance Sheets
December 31, 2003

	FC		WAMCO		WAMCO		Other
	Properties		XXVIII		XXX		Partnerships		Combined
			(Dollars in thousands)
ASSETS
Cash	$	1,526	$	539	$	3,897	$	9,082	$	15,044
Portfolio Assets, net		13,340		17,780		19,086		118,475		168,681
Investments in partnerships		—		—		—		2,350		2,350
Deferred profit sharing		18,273		—		—		—		18,273
Other assets, net		5		101		187		493		786
	$	33,144	$	18,420	$	23,170	$	130,400	$	205,134
LIABILITIES AND PARTNERS’ CAPITAL
Notes payable	$	—	$	6,829	$	13,393	$	75,724	$	95,946
Deferred compensation		21,466		—		—		—		21,466
Other liabilities		533		987		209		1,384		3,133
Total liabilities		22,019		7,816		13,602		77,108		120,545
Partners’ capital		11,125		10,604		9,568		53,292		84,589
	$	33,144	$	18,420	$	23,170	$	130,400	$	205,134
Notes payable owed to affiliates included in above balances	$	—	$	—	$	—	$	71,224	$	71,224
Other liabilities owed to affiliates included in above balances		1		572		163		867		1,603

22

WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

COMBINING STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2004

	FC			WAMCO			WAMCO			Other
	Properties			XXVIII			XXX			Partnerships			Combined
				(Dollars in thousands)
Proceeds from resolution of Portfolio Assets	$	687		$	2,052		$	4,350		$	13,324		$	20,413
Cost of Portfolio Assets resolved		251			1,513			3,370			10,441			15,575
Gain on resolution of Portfolio Assets		436			539			980			2,883			4,838
Interest income on performing Portfolio Assets		—			60			—			1,527			1,587
Interest and fees expense — affiliate		—			(114	)		—			(500	)		(614	)
Interest and fees expense — other		—			(104	)		(133	)		(392	)		(629	)
Provision for loan and impairment losses		—			(35	)		—			(552	)		(587	)
Service fees — affiliate		(21	)		(92	)		(152	)		(590	)		(855	)
General, administrative and operating expenses		(666	)		(38	)		(109	)		(367	)		(1,180	)
Other income, net		1			1			2			5			9
Net earnings	$	(250	)	$	217		$	588		$	2,014		$	2,569

COMBINING STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2003

	FC			WAMCO			WAMCO			Other
	Properties			XXVIII			XXX			Partnerships			Combined
				(Dollars in thousands)
Proceeds from resolution of Portfolio Assets	$	232		$	2,981		$	10,633		$	2,043		$	15,889
Cost of Portfolio Assets resolved		39			2,141			7,813			1,476			11,469
Gain on resolution of Portfolio Assets		193			840			2,820			567			4,420
Interest income on performing Portfolio Assets		—			410			—			1,113			1,523
Interest and fees expense — affiliate		—			(162	)		(476	)		(317	)		(955	)
Interest and fees expense — other		—			(221	)		—			(183	)		(404	)
Provision for loan and impairment losses		—			(112	)		—			(332	)		(444	)
Service fees — affiliate		(7	)		(152	)		(352	)		(146	)		(657	)
General, administrative and operating expenses		(146	)		(73	)		(130	)		(176	)		(525	)
Other income, net		—			2			3			404			409
Net earnings	$	40		$	532		$	1,865		$	930		$	3,367

COMBINING STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
Year Ended December 31, 2003 and Three Months Ended March 31, 2004

	FC			WAMCO			WAMCO			Other
	Properties			XXVIII			XXX			Partnerships			Combined
				(Dollars in thousands)
Balance at December 31, 2002	$	12,096		$	14,944		$	12,151		$	40,868		$	80,059
Contributions		—			—			—			30,182			30,182
Distributions		(4,880	)		(7,291	)		(7,925	)		(24,645	)		(44,741	)
Net earnings		3,909			2,951			5,342			8,326			20,528
Unrealized net gain on Securitization		—			—			—			(1,439	)		(1,439	)
Total comprehensive income.		3,909			2,951			5,342			6,887			19,089
Balance at December 31, 2003		11,125			10,604			9,568			53,292			84,589
Contributions		—			—			—			793			793
Distributions					(330	)		(1,509	)		(3,870	)		(5,709	)
Net earnings		(250	)		217			588			2,014			2,569
Unrealized net gain on Securitization		—			—			—			—			—
Total comprehensive income.		(250	)		217			588			2,014			2,569
Balance at March 31, 2004	$	10,875		$	10,491		$	8,647		$	52,229		$	82,242

23

WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

COMBINING STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2004

	FC			WAMCO			WAMCO			Other
	Properties			XXVIII			XXX			Partnerships			Combined
	(Dollars in thousands)
	(Unaudited)
Cash flows from operating activities:
Net earnings (loss)	$	(250	)	$	217		$	588		$	2,014		$	2,569
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Amortization of loan origination and commitment fees		—			44			35			51			130
Amortization of deferred profit sharing.		296			—			—			—			296
Provision for loan losses		—			35			—			552			587
Gain on resolution of Portfolio Assets		(436	)		(539	)		(980	)		(2,883	)		(4,838	)
Purchase of Portfolio Assets		—			—			—			(3,908	)		(3,908	)
Net receipts on Portfolio Asset lines of credit		—			—			—			117			117
Capitalized costs on Portfolio Assets		(31	)		—			(83	)		(167	)		(281	)
Capitalized interest on Portfolio Assets		—			(2	)		—			(360	)		(362	)
Proceeds from resolution of Portfolio Assets		687			2,052			4,350			13,324			20,413
Principal payments on Performing Portfolio Assets		—			400			—			1,550			1,950
Increase in deferred profit sharing		44			—			—			—			44
(Increase) decrease in other assets		(16	)		3			—			(520	)		(533	)
Increase in deferred compensation		(44	)		—			—			—			(44	)
Decrease in other liabilities		(336	)		(192	)		(39	)		(53	)		(620	)
Net cash provided by (used in) operating activities		(86	)		2,018			3,871			9,717			15,520
Cash flows from investing activities:
Contribution to subsidiaries		—			—			—			(11	)		(11	)
Net cash used in investing activities		—			—			—			(11	)		(11	)
Cash flows from financing activities:
Borrowing of debt — affiliate		—			—			—			3,126			3,126
Borrowing of debt		—			—			—			43,900			43,900
Repayment of debt — affiliate		—			—			—			(49,638	)		(49,638	)
Repayment of debt		—			(922	)		(4,183	)		(4,585	)		(9,690	)
Capital contributions		—			—			—			793			793
Capital distributions		—			(330	)		(1,509	)		(3,870	)		(5,709	)
Net cash used in financing activities		—			(1,252	)		(5,692	)		(10,274	)		(17,218	)
Net increase (decrease) in cash		(86	)		766			(1,821	)		(568	)		(1,709	)
Cash at beginning of period		1,526			539			3,897			9,082			15,044
Cash at end of period	$	1,440		$	1,305		$	2,076		$	8,514		$	13,335
Supplemental disclosure of cash flow information — Approximate cash paid for interest	$	—		$	195		$	109		$	1,637		$	1,941

24

WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

COMBINING STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2003

	FC			WAMCO			WAMCO			Other
	Properties			XXVIII			XXX			Partnerships			Combined
	(Dollars in thousands) (Unaudited)
Cash flows from operating activities:
Net earnings	$	40		$	532		$	1,865		$	930		$	3,367
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Amortization of loan origination and commitment fees		—			44			—			52			96
Amortization of deferred profit sharing.		—			—			—			—			—
Accretion of unrealized gain on trust Certificates		—			—			—			(81	)		(81	)
Provision for loan losses		—			112			—			332			444
Gain on resolution of Portfolio Assets		(193	)		(840	)		(2,820	)		(567	)		(4,420	)
Purchase of Portfolio Assets		—			—			—			—			—
Net receipts on Portfolio Asset lines of credit		—			—			—			—			—
Capitalized costs on Portfolio Assets		(135	)		(9	)		(12	)		(302	)		(458	)
Capitalized interest on Portfolio Assets		—			(6	)		—			(178	)		(184	)
Proceeds from resolution of Portfolio Assets		232			2,981			10,633			2,043			15,889
Principal payments on Performing Portfolio Assets		—			1,219			—			1,024			2,243
Increase in deferred profit sharing		(1,314	)		—			—			—			(1,314	)
(Increase) decrease in other assets		(21	)		13			(110	)		83			(35	)
Increase in deferred compensation		1,314			—			—			—			1,314
Deferred compensation and profit sharing paid		(58	)		—			—			—			(58	)
Decrease in other liabilities		(431	)		(118	)		(240	)		(465	)		(1,254	)
Net cash provided by (used in) operating Activities		(566	)		3,928			9,316			2,871			15,549
Cash flows from investing activities:
Contribution to subsidiaries		—			—			—			(29	)		(29	)
Change in trust certificates		—			—			—			318			318
Net cash provided by investing activities		—			—			—			289			289
Cash flows from financing activities:
Borrowing of debt — affiliate		—			—			118			—			118
Repayment of debt — affiliate		—			—			(6,798	)		(596	)		(7,394	)
Repayment of debt		—			(2,199	)		—			(1,917	)		(4,116	)
Repayment of preferred equity		—			—			—			(51	)		(51	)
Capital contributions		—			—			—			—			—
Capital distributions		(88	)		(1,525	)		(728	)		(3,926	)		(6,267	)
Net cash used in financing activities		(88	)		(3,724	)		(7,408	)		(6,490	)		(17,710	)
Net increase (decrease) in cash		(654	)		204			1,908			(3,330	)		(1,872	)
Cash at beginning of period		1,484			2,440			3,621			5,490			13,035
Cash at end of period	$	830		$	2,644		$	5,529		$	2,160		$	11,163
Supplemental disclosure of cash flow information — Approximate cash paid for interest	$	—		$	359		$	375		$	455		$	1,189

25

WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

(4) Portfolio Assets

     Portfolio Assets are summarized as follows:

	March 31, 2004
	FC		WAMCO			WAMCO			Other
	Properties		XXVIII			XXX			Partnerships			Combined
Non-performing Portfolio Assets	$	—	$	35,148		$	44,932		$	130,330		$	210,410
Performing Portfolio Assets		—		9,656			—			66,119			75,775
Real estate Portfolios		13,120		—			—			4,063			17,183
Total Portfolio Assets		13,120		44,804			44,932			200,512			303,368
Discount required to reflect Portfolio Assets at carrying value		—		(28,970	)		(29,133	)		(90,262	)		(148,365	)
Portfolio Assets, net	$	13,120	$	15,834		$	15,799		$	110,250		$	155,003

	December 31, 2003
	FC		WAMCO			WAMCO			Other
	Properties		XXVIII			XXX			Partnerships			Combined
Non-performing Portfolio Assets	$	—	$	37,230		$	50,542		$	134,034		$	221,806
Performing Portfolio Assets		—		10,209			—			71,573			81,782
Real estate Portfolios		13,340		—			—			4,214			17,554
Total Portfolio Assets		13,340		47,439			50,542			209,821			321,142
Discount required to reflect Portfolio Assets at carrying value		—		(29,659	)		(31,456	)		(91,346	)		(152,461	)
Portfolio Assets, net	$	13,340	$	17,780		$	19,086		$	118,475		$	168,681

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

(5) Interest Related to Residual Interest in Trust Certificates

     There were no residual certificates held by the Partnerships to which the Partnerships receive all the economic benefits and risks at March 31, 2004 and December 31, 2003. The Partnerships recognized interest income on certificates held utilizing a yield of 21.29% for the three months ended March 31, 2003. During September 2003 the Partnerships purchased the underlying assets from the trust. At the time of this purchase, these assets were included in the Performing Portfolio Assets at their remaining historical cost of $5,902 and the remaining balance for the adjustment to market value of $905 was reversed against its corresponding balance of unrealized net gain on securitizations in the Partnerships’ equity.

(6) Deferred Profit Sharing and Deferred Compensation

     In connection with the formation of FC Properties, an agreement was entered into which provided for potential payments to the project manager based on a percentage of actual sales proceeds. An equal amount of deferred profit participation and deferred compensation is recorded based on estimates of the projected sales with the deferred profit participation being amortized into expense in proportion to actual sales realized. No profit participation was paid until the limited partners recognized a 20% return on their investment. This return threshold was met in 2001. At March 31, 2004 and December 31, 2003, the estimated liability for this profit participation was $21,422 and $21,466, respectively, and was included in deferred compensation in the accompanying combined balance sheets. Additionally, amortization of $296 and $0 was recognized during the three months ended March 31, 2004 and 2003, respectively, and has been included in general, administrative and operating expenses in the accompanying combined statements of operations.

     The achievement of the 20% return on investment resulted in payments of $0 and $58 in deferred profit sharing and commissions during the three months ended March 31, 2004 and 2003, respectively.

(7) Transactions with Affiliates

     Under the terms of the various servicing agreements between the Partnerships and FirstCity, FirstCity receives a servicing fee based on proceeds from resolution of the Portfolio Assets for processing transactions on the Portfolio Assets and for conducting settlement, collection and other resolution activities. Included in the accompanying combined statements of operations is $855 and $657 in servicing fees incurred by the Partnerships during the three months ended March 31, 2004 and 2003, respectively.

26

WAMCO PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

     During January 2004, WAMCO 32, Ltd. purchased a pool of loans from WAMCO 31, Ltd. The purchase price was $3.1 million, which was the pool’s net carrying value less deferred service fees payable associated with the pool.

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

(8) Preferred Equity

     In 1999, CFSC Capital Corp. XXX contributed $3,556 as preferred equity in Community Development Investment, LLC. This preferred equity was converted to a note payable on August 30, 2003. The balance converted was $4,160. The note agreement has terms similar to the preferred equity and a maturity date of August 30, 2006.

     On July 1, 2003, the Partnerships adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS 150”). SFAS establishes standards for how an issuer measures certain financial instruments with characteristics of both liabilities and equity and classifies them in its balance sheets. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) when that financial instrument embodies an obligation of the issuer. At December 31, 2003, SFAS No. 150 had no impact on the combined financial statements since the preferred equity was converted to a note payable.

(9) Commitments and Contingencies

     WAMCO 31 owned a pool of loans that includes two lines of credit with a combined outstanding balance of $2.3 million at December 31, 2003. On January 1, 2004, WAMCO 32 purchased this pool from WAMCO 31 at cost and assumed the related lines of credit. The maximum commitment associated with these lines was $4.4 million at March 31, 2004. After reserves and borrowing base requirements, the total availability was $.3 million at March 31, 2004.

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

27

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

Overview

     FirstCity is a financial services company engaged in the acquisition and resolution of portfolios of assets or single assets (collectively referred to as “Portfolio Assets”). The Portfolio Asset acquisition and resolution business involves acquiring Portfolio Assets at a discount to face value and servicing and resolving such portfolios in an effort to maximize the present value of the ultimate cash recoveries. FirstCity also has an equity investment in Drive Financial Services LP (“Drive”), which is engaged in the acquisition, origination, warehousing, securitization and servicing of sub-prime automobile receivables.

     During the first quarter of 2004 the Company recorded earnings to common shareholders on a diluted basis of $4.8 million or $.41 per common share, a significant increase over the first quarter of 2003. The positive earnings were a result of a strong contribution from the Portfolio Asset Acquisition and Resolution segment of $4.0 million compared with $1.8 million for the same period in 2003 and $3.1 million in earnings contribution from the Consumer segment and its related investment in Drive, an increase of $2.5 million over the first quarter of 2003.

     The increased earnings contribution from the Portfolio Asset Acquisition business of $2.3 million is primarily related to increases in revenues from investments in France and Mexico when compared to 2003. The increase in France is the result of increased equity earnings from Acquisition Partnerships which reflect strong collections from 2003 acquisitions. The Company’s positive equity earnings from investments in Mexico are a result of Mexican Peso exchange gains of $.5 million during the quarter when compared to a $1.6 million Mexican Peso exchange loss in the first quarter of 2003.

     The Company was able to invest $3 million in portfolios acquisitions of $6.7 million during the quarter of which $6.5 million was purchased in the U.S. The Company also invested approximately $.2 million in South America during the quarter and continues to investigate other opportunities to invest in South America.

     The Company’s 31% investment in Drive generated $4.0 million for the quarter and net of interest and other expenses resulted in a contribution of $3.1 million from the Consumer segment of the business. Drive had a record origination quarter of $244 million as a result of seasonal trends and a strengthening economy.

     Although the Company’s primary revenues are generated by the Portfolio Asset Acquisition and resolution business and the Company’s investment in Drive, other items such as interest expense and the effects of discontinued operations may also have a significant impact on net income. During the first quarter 2004 corporate interest and overhead was down slightly when compared to the first quarter 2003 and there were no provisions from discontinued operations. The Company did receive cash flow from the residual interests of $.2 million during the first quarter 2004.

     Overall the Company’s continues to reflect positive growth trends in acquisitions and originations and the resulting increased earnings contribution.

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

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

     The Company reported net earnings for the quarter ended March 31, 2004 of $4.8 million or $.41 per share on a diluted basis. Components of the results for the three months ended March 31, 2004 and 2003, respectively, are detailed below (dollars in thousands):

28

	Three Months Ended
	March 31,
	2004			2003
Portfolio Asset Acquisition and Resolution.	$	4,043		$	1,777
Consumer		3,118			576
Corporate interest		(1,000	)		(1,172	)
Corporate overhead		(1,312	)		(1,200	)
Earnings (loss) from continuing operations		4,849			(19	)
Accrued preferred dividends		—			(66	)
Loss from discontinued operations		—			—
Net earnings (loss) to common stockholders	$	4,849		$	(85	)
Diluted earnings (loss) per common share	$	0.41		$	(0.01	)

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 2004 Compared to First Quarter 2003

     The Company reported net earnings of $4.8 million in the first quarter of 2004 compared to a loss of $85,000 in the first quarter of 2003. On a per share basis, diluted net earnings to common stockholders were $.41 in the first quarter of 2004 compared to a loss of $.01 in the first quarter of 2003.

Portfolio Asset Acquisition and Resolution

     The operating contribution from the Portfolio Asset acquisition and resolution segment was $4.0 million in the first quarter of 2004 compared to $1.8 million in the first quarter of 2003. FirstCity purchased $6.7 million of Portfolio Assets during the first quarter of 2004 ($4.0 million through Acquisition Partnerships), compared to zero purchases in the first quarter of 2003. The quarter end investment in wholly owned Portfolio Assets decreased to $7.0 million from $7.5 million at March 31, 2004 and 2003, respectively.

     Servicing fee revenues. Servicing fee revenues decreased by 14% to $3.0 million in the first quarter of 2004 from $3.5 million in the first quarter of 2003. Service fees from the Mexican partnerships decreased $.5 million or 19% as a result of efforts to reduce operating costs in Mexico. For the Mexican Acquisition Partnerships, FirstCity earns a servicing fee based on costs of servicing plus a profit margin. Service fees from domestic Partnerships were flat from period to period.

     Gain on resolution of Portfolio Assets. The net gain on resolution of Portfolio Assets decreased from $.7 million in the first quarter of 2003 to $75,000 in the first quarter of 2004. The weighted average gross profit percentage on the resolution of Portfolio Assets in the first quarter of 2004 was 30% as compared to 23% in the first quarter of 2003. This change was primarily due to one Portfolio generating proceeds of $2.2 million and a net gain of $.4 million or 18% during 2003.

     Equity in earnings of investments. Equity in earnings of Acquisition Partnerships increased 279% to $3.8 million in the first quarter of 2004 compared to $1.0 million in the first quarter of 2003. The Acquisition Partnerships reflected net earnings of $16.0 million in the first quarter of 2004 compared to a net loss of $21.0 million in the first quarter of 2003. Following is a discussion of equity earnings by geographic region.

• Domestic - Equity in earnings of domestic Acquisition Partnerships decreased 17% to $1.9 million in the first quarter of 2004 from $2.3 million in 2003 primarily due to reduced equity earnings from MinnTex Investment Partners LP.

• Mexico - Equity in earnings of Mexican Acquisition Partnerships were $112,000 in the first quarter of 2004 compared to equity in losses of $2.1 million in 2003. These partnerships reflected net earnings of $3.7 million in the first quarter of 2004 compared to a $31.5 million loss in 2003. Approximately $23 million of the losses in 2003 were due to foreign exchange losses recognized by the partnerships as the Mexican peso fell to historical lows during the first quarter of 2003 (FirstCity’s portion of these losses was $1.5 million in 2003). In the first quarter of 2004, the partnerships recorded $6.5 million of foreign exchange gains. In addition, $2.1 million of interest expense was recorded in the first quarter of 2004 compared to $12 million in 2003.

29

This interest is owed to affiliates of the investors in these partnerships, of which FirstCity recorded $.4 million and $.9 million, respectively, as interest income.

• France - Equity in earnings of Acquisition Partnerships located in France increased 145% to $1.8 million in the first quarter of 2004 from $.7 million in 2003. This increase is principally due to the addition of three French Partnerships during 2003, which accounted for $1.2 million in equity in earnings in 2004. During the first quarter of 2003, FirstCity also recorded $.3 million in foreign currency transactions gains (included in other expenses) relating to investments in France.

     Interest income. Interest income decreased 52% from $1.1 million in the first quarter of 2003 to $.5 million in the first quarter of 2004. This decrease is primarily due to the Acquisition Partnerships and their lenders amending three loan agreements with Acquisition Partnerships located in Mexico in 2003 to provide for no interest to be payable with respect to periods after the effective date of the amendments. This change had no impact on the consolidated net earnings, as the effect is offset through equity earnings in these Partnerships. Also, the average balances in Portfolio Assets and loans receivable decreased from $24.9 million in the first quarter of 2003 to $21.8 million in the first quarter of 2004.

     Expenses. Operating expenses were $4.8 million in the first quarter of 2004 compared to $5.0 million in 2003.

     Interest and fees on notes payable increased 14% from $.7 million in the first quarter of 2003 to $.8 million in 2004. The average debt for the quarter increased from $26.8 million in the first quarter of 2003 to $31.5 million in the first quarter of 2004. The average cost of borrowing decreased from 10.24% in the first quarter of 2003 to 9.90% in the first quarter of 2004.

     Salaries and benefits increased $.2 million, or 7% to $3.0 million in the first quarter of 2004 from $2.8 million in 2003. Total personnel within the Portfolio Asset acquisition and resolution segment were 223 and 219 at March 31 2004 and 2003, respectively.

     The provision for loan and impairment losses was minimal from period to period.

     Impairment on performing Portfolio Assets is measured based on the present value of the expected future cash flows in the aggregate discounted at the loans’ risk adjusted rates, which approximates the effective interest rates, or the fair value of the collateral, less estimated selling costs, if any loans are collateral dependent and foreclosure is probable. Impairment on nonperforming Portfolios is evaluated by analyzing the expected future cash flows from the underlying assets within each Portfolio. The expected future cash flows are reviewed monthly and adjusted as deemed necessary. Changes in various factors including, but not limited to, economic conditions, deterioration of collateral values, deterioration in the borrower’s financial condition and other conditions described in the risk factors discussed later in this document, could have a negative impact on the estimated future cash flows of the Portfolio. Significant decreases in estimated future cash flows can reduce a Portfolio’s present value to below the Company’s carrying value of that Portfolio, causing impairment.

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

     There were no provisions recorded on loans receivable from Acquisition Partnerships during the first quarter of 2004 and 2003. The loans receivable from Acquisition Partnerships are secured by the assets/loans acquired by the partnerships with purchase money loans provided by affiliates of the investors in the partnerships to purchase the asset pools held in those entities. These loans are evaluated for impairment by analyzing the expected future cash flows from the underlying assets within each pool to determine that the cash flows were sufficient to repay these notes. The Company applies the asset valuation methodology consistently in all venues and uses the same proprietary asset management system to evaluate impairment on all asset pools. The results of this evaluation indicated that cash flows from the pools will be sufficient to repay the loans and no allowances for impairment were necessary.

     Occupancy, data processing, communication and other expenses declined 38% from $1.4 million in the first quarter of 2003 to $1.0 million in 2004 primarily due to increased foreign currency gains recorded in 2004.

     Minority interest expense was minimal from period to period.

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Consumer Lending

     FirstCity’s consumer lending segment consists of the Company’s net investment in Drive. The operating contribution for the first quarter of 2004 was $3.1 million compared to $.6 million during the first quarter of 2003.

     Equity in earnings of investment. FirstCity recorded equity in earnings of Drive of $5.0 million in the first quarter of 2004 compared to $.9 million in 2003. Drive recorded net income of $13.0 million in the first quarter of 2004 compared to $2.5 million in the first quarter of 2003. Drive’s inventory of retail installments contracts has grown from $443 million at March 31, 2003 to $770 million at March 31, 2004. Consequently, net interest margin after provision for credit losses and impairments at Drive rose from $17.7 million to $26.7 million during the first quarter of 2003 and 2004, respectively.

     Interest and fees on notes payable. Interest and fees on notes payable increased from $95,000 in the first quarter of 2003 to $.9 million in 2004. During the first quarter of 2004, FirstCity recorded $.8 million of additional interest expense related to the contingent fee arrangement with the Bank of Scotland. See note 10 of the consolidated financial statements for further discussion of this contingent fee.

Other Items Affecting Operations

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

     Corporate interest and overhead. Company level interest expense decreased by 15% to $1.0 million in the first quarter of 2004 from $1.2 million in the first quarter of 2003. Average debt declined to $41.4 million in the first quarter of 2004 from $50.5 million in 2003. Also, beginning with the third quarter of 2003, dividends on the New Preferred Stock are included in Corporate interest expense. Other corporate overhead expenses increased 9% to $1.3 million in the first quarter of 2004 from $1.2 million in 2003 primarily due to increased salaries and benefits.

     Income taxes. Provision for income taxes was $.1 million in the first quarter of 2004 and 2003 and related primarily to state income taxes and federal alternative minimum taxes. Federal income taxes are provided at a 35% rate applied to taxable income or loss and are offset by NOLs that the Company believes are available. The tax benefit of the NOLs is recorded in the period during which the benefit is realized. The Company recorded no deferred tax provision in the first quarters of 2004 and 2003.

     Discontinued Operations. The Company recorded no provision for additional losses from discontinued operations during the first quarter of 2004 and 2003. The only assets remaining from discontinued operations are the investment securities resulting from the retention of residual interests in securitization transactions. These securities are in “run-off,” and the Company is contractually obligated to service these assets. The assumptions used in the valuation model consider both industry as well as the Company’s historical experience. As the securities “run off,” assumptions are reviewed in light of historical evidence in revising the prospective results of the model. These revised assumptions could potentially result in either an increase or decrease in the estimated cash receipts. An additional provision is booked based on the output of the valuation model if deemed necessary.

Portfolio Asset Acquisition and Resolution

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

	Purchase		FirstCity
	Price		Investment
First quarter 2004	$	6,699	$	3,097
Total 2003		129,192		22,944
Total 2002		171,769		16,717
Total 2001		224,927		24,319
Total 2000		394,927		22,140
Total 1999		210,799		11,203

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

Analysis of Selected Revenues and Expenses
Portfolio Asset Acquisition and Resolution

	Three Months Ended
	March 31,
	2004			2003
Income from Portfolio Assets and Loans Receivable:
Average investment in Portfolio Assets and loans receivable:
Domestic	$	6,490		$	9,558
Mexico		13,133			15,354
France		2,155			—
Other foreign		34			—
Total	$	21,812		$	24,912
Income from Portfolio Assets and loans receivable:
Domestic	$	196		$	913
Mexico		376			878
France		26			—
Other foreign		—			—
Total	$	598		$	1,791
Average return (annualized):
Domestic		12.1	%		38.2	%
Mexico		11.5	%		22.9	%
France		4.8	%		—
Other foreign		—			—
Total		11.0	%		28.8	%
Servicing fee revenues:
Domestic partnerships:
$ Collected	$	26,353		$	24,051
Servicing fee revenue		1,038			1,041
Average servicing fee %		3.9	%		4.3	%
Mexico partnerships:
$ Collected	$	14,846		$	16,512
Servicing fee revenue		1,956			2,395
Average servicing fee %		13.2	%		14.5	%
Incentive service fees	$	38		$	71
Total Service Fees:
$ Collected	$	41,199		$	40,563
Servicing fee revenue		3,032			3,507
Average servicing fee %		7.4	%		8.6	%
Personnel:
Personnel expenses	$	3,041		$	2,842
Number of personnel (at period end):
Domestic		61			76
Mexico		162			143
Interest expense:
Average debt	$	31,483		$	26,788
Interest expense		779			686
Average cost (annualized)		9.90	%		10.24	%

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

Analysis of Selected Revenues and Expenses
Acquisition Partnerships

	Three Months Ended
	March 31,
	2004			2003
Revenues:
Gain on resolution of Portfolio Assets	$	20,569		$	20,989
Gross profit percentage on resolution of Portfolio Assets		33.0	%		36.5	%
Interest income	$	2,899		$	2,145
Other income		244			515
Interest expense(1):
Interest expense	$	3,744		$	14,486
Average cost (annualized)		4.2	%		14.2	%
Other expenses:
Service fees		3,933			4,474
Other operating costs		6,372			3,641
Foreign currency loss (gain)		(6,538	)		22,988
Income taxes		157			(902	)
Total other expenses		3,924			30,201
Net earnings (loss)	$	16,044		$	(21,038	)
Equity in earnings of Acquisition Partnerships	$	3,845		$	1,014
Equity in earnings of Servicing Entities		330			216
	$	4,175		$	1,230

(1) Interest expense includes interest on loans to the Acquisition Partnerships located in Mexico from affiliates of the investor groups. The rates on all but three of these loans range from 18% to 20%. The average cost on debt excluding the Mexican Acquisition Partnerships was 5.2% and 5.6% for the three months ended March 31, 2004 and 2003, respectively. As noted above, beginning in 2003, the Acquisition Partnerships and their lenders amended three loan agreements from Mexican Acquisition Partnerships to provide for no interest to be payable with respect to periods after the effective date of the amendment. This change had no impact on the consolidated net earnings as the effect is offset through equity earnings in these Partnerships.

Consumer Lending

     FirstCity owns a 31% interest in Drive Financial Services L.P., a sub prime auto lending company. Drive originated $244 million of receivables during the first quarter of 2004 compared to $126 million in 2003. Defaults and losses were 20.77% and 10.98%, respectively, at March 31, 2004 compared to 21.03% and 10.83%, respectively, at March 31, 2003. These statistics reflect the weakness in the economy in prior periods and the resulting impact on used car prices, although recent indicators reflect an upward trend in used car prices. Delinquencies were 11.52% at March 31, 2004, up from 4.66% for the same period last year as a result of a change in collections strategies, which in some instances will allow Drive to provide borrowers additional time to cure delinquencies rather than pursue immediate repossession.

     Net income from Drive continues to be positive as originations and the volume of portfolio assets grow over time. Based on information provided by Drive, the Company expects that this positive trend will continue.

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     The following table details this trend (dollars in thousands):

							Income (Loss)
			Loan		Total		Before Provisions			Provisions			Net Income		FirstCity's
	Originations		Inventory		Assets		on Residual Assets			on Residual Assets			(Loss)		31% Share
2004
1st Quarter	$	244,121	$	770,042	$	915,128	$	13,001		$	—		$	13,001	$	4,031
2003
4th Quarter		102,228		623,389		738,829		6,308	***		(2,087	)		4,221		1,308
3rd Quarter		128,688		577,974		700,760		9,132			(3,904	)		5,228		1,621
2nd Quarter		127,706		511,212		619,269		8,251			(1,240	)		7,011		2,173
1st Quarter		126,118		443,099		551,412		3,707			(1,217	)		2,490		689

*** Net of $3.7 million of additional provisions related to loans receivable.

Note: As of March 31, 2004 Drive holds on its balance sheet residual interests with a book value of $30.1 million compared with $56.6 million as of March 31, 2003.

     The following table presents selected information regarding consumer lending:

Analysis of Selected Data
Consumer Lending

	Three Months Ended
	March 31,
	2004			2003
Retail installment contracts acquired	$	244,121		$	126,118
Origination characteristics:
Face value to wholesale value		102.40	%		98.86	%
Weighted average coupon		21.10	%		20.91	%
Purchase discount (% of face value)		17.34	%		17.08	%
Servicing portfolio
Owned	$	437,193		$	163,473
Securitized		561,298			559,983
Total	$	998,491		$	723,456
Owned — number of contracts		34,767			14,570
Securitized — number of contracts		48,452			52,233
Total number of contracts		83,219			66,803
Defaults (% of original loan balance at time of default)		20.77	%		21.03	%
Net losses on defaults after recovery		10.98	%		10.83	%
Delinquencies (% of total serviced portfolio)		11.52	%		4.66	%

Provision for Income Taxes

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

Liquidity and Capital Resources

     Generally, the Company requires liquidity to fund its operations, working capital, payment of debt, equity for acquisition of Portfolio Assets, investments in and advances to entities formed to acquire Portfolios (“Acquisition Partnerships”), retirement of and interest on preferred stock, and other investments by FirstCity. The potential sources of liquidity are funds generated from operations,

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equity distributions from the Acquisition Partnerships, interest and principal payments on subordinated intercompany debt and dividends from the Company’s subsidiaries, borrowings from revolving lines of credit and other credit facilities, proceeds from equity market transactions, securitization and other structured finance transactions and other special purpose short-term borrowings.

     In December 2002, FirstCity completed a recapitalization in which holders of redeemable preferred stock, par value $.01 per share, (“New Preferred Stock”) exchanged 1,092,210 shares of New Preferred Stock for 2,417,388 shares of common stock and $10.5 million in cash. As a result, common equity was increased by $18.9 million. During the first quarter of 2003, 4,400 shares of New Preferred Stock were redeemed for 8,200 shares of common stock and $50,000 in cash. FirstCity also recorded a $4 million gain in December 2002 from the release of its guaranty of Drive’s indebtedness to BoS(USA) Inc. (“BoS(USA)”). BoS(USA)’s warrant to purchase 1,975,000 shares of non-voting common stock was cancelled. FirstCity also acquired the minority interest in FirstCity Holdings Corporation held by Terry R. DeWitt, G. Stephen Fillip and James C. Holmes, each of whom were Senior Vice Presidents of FirstCity, by issuing 400,000 shares of common stock of the Company and a note payable, to be periodically redeemed by the Company for an aggregate of up to $3.2 million out of certain cash collections from servicing income from Portfolios in Mexico. FirstCity valued the loans at the inception date using an imputed interest rate of 4.56% based on the Company’s cost of funds on that date. During the first quarter of 2004, the Company reduced the estimated carrying value of these loans based on an imputed interest rate of 6.94% and revised cash flow projections. FirstCity recorded the change in estimate of $.8 million to other income. At March 31, 2004, these notes had a combined balance of $.5 million and mature in December 2011.

     As a part of the recapitalization, BoS(USA) provided a non-recourse loan in the amount of $16 million to FirstCity, which was used to pay the cash portion of the exchange offer to the holders of the New Preferred Stock, to pay expenses of the exchange offer and recapitalization, and to reduce FirstCity’s debt to the Bank of Scotland (together with BoS(USA), the “Senior Lenders”). The $16 million loan is secured by a 20% interest in Drive (64.51% of FirstCity’s remaining 31% interest in Drive) and other assets of Consumer Lending Corporation (“Consumer Corp.”) as are necessary and only to the extent to allow the Senior Lenders to realize the security interest in the 20% interest in Drive. In connection with the $16 million loan, the Company agreed to pay a contingent fee to BoS (USA) Inc. equal to 20% of all amounts received by the Company upon any sale of the Company’s 20% interest in Drive or any receipt of distributions from Drive related to the 20% ownership interest, once such payments exceed $16 million in the aggregate. During the first quarter of 2004, the Company recorded $.8 million of additional interest expense related to the contingent fee. The Company currently estimates that additional interest expense will be recognized in the amount of $160,000 per quarter through December 2007. This additional interest expense currently has no impact on the Company’s cash flow. The payment of the interest and any gain or income resulting from any sale or distribution will not be recognized until a sale occurs or distribution is received. The Company has no present plans to sell any interest in Drive and does not anticipate that any distributions will be made from Drive in the near future that would result in an obligation to pay a contingent fee.

     In connection with the recapitalization, the Senior Lenders refinanced the remainder of the Company’s debt facilities ($40 million outstanding at March 31, 2004). The Senior Lenders also provided new financing to FirstCity, with a total commitment of up to $59 million, consisting of (a) a $5 million revolving credit loan and (b) an acquisition term loan in an amount up to $54 million. The aggregate amount of outstanding loans under the total commitment by the Senior Lenders for the refinancing and the new financing at any time may not exceed $77 million. Effective as of March 31, 2004, the Company and the Senior Lenders amended the acquisition term loan facility providing for a total amount of term loans to be made up to $54 million in the aggregate to (i) make it into a revolving loan facility providing for a maximum principal balance of loans outstanding at any time of $45 million, (ii) allow loans to be made in Euros up to a maximum amount in Euros that is equivalent to $22.5 million U.S. dollars, (iii) allow loans to be made for acquisition of Portfolio Assets originated outside the United States of up to $22.5 million, (iv) provide for an interest rate of Libor plus 3.75%, (v) provide for the commitment commission to increase from 0.25% to 0.375%, (vi) provide for distribution of 35% of collections from Asset Portfolios to the Company, provided that the aggregate outstanding principal balances of all loans under the facility does not exceed 65% of the total equity interests in Acquisition Partnerships pledged to secure the acquisition facility, and (vii) provide for other modifications that would facilitate the use of the acquisition facility in the United States and other countries. The amended facility continues to provide that the aggregate amount of all outstanding loans under the loan facilities refinanced with the Senior Lenders in December 2002 ($40 million outstanding at March 31, 2004) and the amended acquisition facility and the related $5 million revolving loan are limited to $77 million.

     BoS(USA) has a warrant to purchase 425,000 shares of the Company’s voting Common Stock at $2.3125 per share. BoS(USA) is entitled to additional warrants in connection with this existing warrant for 425,000 shares under certain specific situations to retain its ability to acquire approximately 4.86% of the Company’s voting Common Stock. The warrant will expire on August 31, 2010, if it is not exercised prior to that date.

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     In the third quarter of 1999, dividends on the Company’s New Preferred Stock were suspended. At March 31, 2004, accumulated dividends in arrears on New Preferred Stock totaled $1.3 million, or $9.98 per share. Since the Company failed to pay quarterly dividends for six consecutive quarters, the holders of New Preferred Stock are entitled to exercise their right to elect two directors to the Company’s Board until cumulative dividends have been paid in full. To exercise this right, the holders of the New Preferred Stock must follow certain prescribed actions set forth in the Certificate of Designations of the Company’s New Preferred Stock. To date, the holders of the New Preferred Stock have not exercised this right. Dividends on outstanding shares of New Preferred Stock of FirstCity will be restricted until the Tranche II term loan is paid in full. Given the continued high debt levels of the Company, and management’s priority of assuring adequate levels of liquidity, the Company does not anticipate that dividends on New Preferred Stock will be paid prior to September 30, 2005, the date fixed for redemption of the New Preferred Stock.

     The Company has a $35 million loan facility with CFSC Capital Corp. XXX, a subsidiary of Cargill. This facility is being used exclusively to provide equity in new Portfolio acquisitions in partnerships with Cargill and its affiliates and matures in March 2005. At March 31, 2004, approximately $23 million was outstanding under this facility.

     In September 2003, FirstCity entered into a Portfolio acquisition facility line of credit with Greenwich Capital Financial Products, Inc., which provides borrowings up to $30 million. The facility obligation was zero at March 31, 2004 and matures September 2004.

     Drive has a warehouse line of credit with BoS(USA), which provides borrowings up to $300 million. Drive’s obligation under this arrangement at March 31, 2003 was $197 million. The debt is secured by Drive’s retail installment contracts and has been extended to February 2005.

     Drive also has a warehouse line of credit agreement with Variable Funding Capital Corporation, a subsidiary of First Union National Bank, which provides borrowings up to $100 million. During the first quarter of 2004, this facility was amended to increase the borrowing limit to $250 million until the sooner of May 31, 2004 or the close of a secured financing transaction. After that event, the limit returns to $100 million. Drive’s obligation under the arrangement at March 31, 2004 was $172 million. The debt is secured by Drive’s retail installment contracts and terminates September 2004.

     The Company and each of its major operating subsidiaries have entered into one or more credit facilities to finance their respective operations. Each of the operating subsidiary credit facilities is nonrecourse to the Company. The Company has agreed to indemnify BoS(USA) for up to 31% of losses, which might arise as a result of agreements BoS(USA) executed as a sponsor in connection with the securitizations completed by Drive. The Company also agreed to provide support in connection with securitizations by Consumer Corp. and Drive prior to the acquisition by BoS(USA) of the interest in Drive in August 2000. Management of the Company currently does not believe it is likely that FirstCity will be required to make payments on these indemnification agreements.

     Excluding the term acquisition facilities of the unconsolidated Acquisition Partnerships and the term and warehouse facilities of Drive, as of March 31, 2004, the Company and its subsidiaries had credit facilities providing for borrowings in an aggregate principal amount of $163 million and outstanding borrowings of $88 million.

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

     The following table summarizes the material terms of the credit facilities to which the Company, its major operating subsidiaries and the Acquisition Partnerships were parties to as of May 11, 2004 and the outstanding borrowings under such facilities as of March 31, 2004.

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Credit Facilities

	Funded and
	Unfunded		Outstanding
	Commitment		Borrowings
	Amount as of		as of
	May 11,		March 31,
	2004		2004		Interest Rate	Other Terms and Conditions
	(Dollars in millions)
FirstCity
Company Senior Facility:
Revolving Line of Credit	$	5	$	2	LIBOR + 2.75%	Secured by the assets of the Company, matures December 2004
Portfolio Acquisition Loan (Term)		32		2	LIBOR + 3.75%	Secured by the assets of the Company, matures November 2006
Tranche I (Term)		28		28	Prime + 2.5%	Secured by the assets of the Company, matures December 2006
Tranche II (Term)		12		12	Fixed at 8.77%	Secured by the assets of the Company, matures December 2007
Commercial Corp.
Term facility		5		5	Bank prime + 0.50%	Secured by existing Portfolio Assets, matures December 2004
Equity investment facility		35		23	Greater of 8.5% or LIBOR + 4.5%	Acquisition facility for the investment in future Acquisition partnerships, matures March 2005
Portfolio acquisition facility		30		—	LIBOR + 4.0%	Secured by Portfolio Assets purchased with The facility, matures September 2004
Unsecured loans payable to senior management		—		—	Fixed at 4.5% to 7.0%	Matures December 2011
Other unsecured loans		—		—	Fixed at 5.4% to 6.5%	Matures 2004
Consumer Corp.
Term loan		16		16	LIBOR + 1.0%	Secured by 20% equity interest in Drive, matures December 2007, non-recourse
Total	$	163	$	88
Unconsolidated Acquisition Partnerships Term Facilities(1)	$	118	$	118	Various rates	Secured by Portfolio Assets, various maturities ($11 million due in 2004), non-recourse

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Credit Facilities

	Funded and
	Unfunded		Outstanding
	Commitment		Borrowings
	Amount as of		as of
	May 11,		March 31,
	2004		2004		Interest Rate	Other Terms and Conditions
	(Dollars in millions)
Unconsolidated Drive
Warehouse Facility	$	300	$	198	Prime minus .75%	Secured by warehouse inventory, matures February 2005
Warehouse Facility		250		172	Rate based on Commercial paper rates combined with Certain facility fees	Secured by warehouse inventory, matures September 2004
Bonds payable		412		412	Fixed at 1.09% To 4.09%	Secured by retail installment Contracts, various maturities through October 2009
Subordinate capital Facility		65		54	Fixed at 16%	Secured by all assets of Drive, matures February 2006
	$	1,027	$	836

(1) In addition to the term acquisition facilities of the unconsolidated Acquisition Partnerships, the Mexican Acquisition Partnerships also have term debt of approximately $223 million outstanding as of March 31, 2004 owed to affiliates of the investor groups. Of this amount, the Company has recorded approximately $14 million as Loans Receivable on the Consolidated Balance Sheets.

Forward-Looking Statements

     Certain statements contained in this Quarterly Report on Form 10-Q or incorporated by reference from time to time, including, but not limited to, statements relating to the Company’s strategic objectives and future performance, which are not historical facts, may be deemed to be forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, performance or achievements, and may contain the words “expect,” “intend,” “plan,” “estimate,” “believe,” “will be,” “will continue,” “will likely result,” and similar expressions. Such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. There are many important factors that could cause the Company’s actual results to differ materially from those indicated in the forward-looking statements. Such factors include, but are not limited to, the performance of the Company’s subsidiaries and affiliates; the availability of Portfolio Assets; assumptions underlying Portfolio asset performance; risks associated with foreign operations; currency exchange rate fluctuations; interest rate risk; the degree to which the Company is leveraged; the Company’s continued need for financing; availability of the Company’s credit facilities; the impact of certain covenants in loan agreements of the Company and its subsidiaries; risks of declining value of loans, collateral or assets; the ability of the Company to utilize NOLs; uncertainties of any litigation that might arise from discontinued operations; general economic conditions; foreign social and economic conditions; changes (legislative and otherwise) in the asset securitization industry; fluctuations in residential and commercial real estate values; capital market conditions, including the markets for asset-backed securities; factors more fully discussed and identified in the Company’s Annual Report on Form 10-K, filed March 30, 2004 (including those discussed under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”), as well as in other Securities and Exchange Commission filings of the Company. Many of these factors are beyond the Company’s control. In addition, it should be noted that past financial and operational performance of the Company is not necessarily indicative of future financial and operational performance. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. The forward-looking statements in this Form 10-Q speak only as of the date of this Form 10-Q. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based.

38

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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

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

     The Company’s equity investment in Drive is materially impacted by net interest margins and the ability to securitize the loans Drive originates. During 2002, Drive elected not to use gain on sale treatment when assets were securitized. Instead, Drive pursued a strategy to grow the balance sheet and record interest income from loans and interest expense on the related debt as incurred to build an earnings stream over time. Demand from potential investors in Drive’s securitizations is affected by the perception of credit quality and prepayment risk associated with the loans Drive originates and securitizes. The timing and size and interest rates of the bonds issued as a part of the securitizations could also have a material effect on the net income of Drive. Interest rates offered to customers also affect prices paid for loans. These rates are determined by review of competitors’ rate offerings to the public and current prices being paid to Drive for the products. Drive does not hedge these price risks.

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

     In summary, the Company would be negatively impacted by rising interest rates and declining prices of its sub-prime loans. Rising interest rates would negatively impact the value of residual interests in securitizations currently held and costs of borrowings under the warehouse lines and new secured financings. Declining prices of the Company’s sub-prime loans would adversely affect the levels of gains achieved in the event Drive elects to sell those loans. The Company has not entered into any instruments to minimize this market risk of adverse changes in interest rates or declining prices. There have been no material changes in the quantitative and qualitative risks of the Company since December 31, 2003.

     The Company currently has investments in Mexico and France. In France, the Company’s investments are in the form of equity and represent a significant portion of the Company’s total equity investments. As of March 31, 2004, one U.S. dollar equaled .82 Euros. A sharp change of the Euro relative to the U.S. dollar could materially adversely affect the financial position and results of operations of the Company. A 5% and 10% incremental depreciation of the Euro would result in an estimated decline in the valuation of the Company’s equity investments in France of approximately $.7 million and $1.3 million, respectively. These amounts are estimates of the financial impact of a depreciation of the Euro relative to the U.S. dollar. Consequently, these amounts are not necessarily indicative of the actual effect of such changes with respect to the Company’s consolidated financial position or results of operations. As discussed above, on March 31, 2004, the Company amended its acquisition term loan facility with the Senior Lenders to allow loans to be made in Euros up to a maximum amount in Euros that is equivalent to $22.5 million U.S. dollars. Management of the Company feels that this amended loan agreement will help reduce the risk of adverse effects of currency changes on Euro-denominated investments.

39

     In Mexico, approximately 95% of the Company’s investments in Mexico are made through U.S. dollar denominated loans to the Partnerships located in Mexico. The remaining investment is in the form of equity in these same Partnerships. The loans receivable are required to be repaid in U.S. dollars. Although the U.S. dollar balance of these loans will not change due to a change in the Mexican peso, the future estimated cash flows of the underlying assets in Mexico could become less valuable as a result of a change in the exchange rate for the Mexican peso, and thus could affect the overall total returns to the Company on these investments. As of March 31, 2004, one U.S. dollar equaled 11.1 Mexican pesos. A 5% and 10% incremental depreciation of the peso would result in an estimated decline in the valuation of the Company’s total investments in Mexico of approximately $.9 million and $1.8 million, respectively. These amounts are estimates of the financial impact of a depreciation of the Mexican peso relative to the U.S. dollar. Consequently, these amounts are not necessarily indicative of the actual effect of such changes with respect to the Company’s consolidated financial position or results of operations.

Item 4. Controls and Procedures

     An evaluation was performed under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of March 31, 2004. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of management’s evaluation.

40

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

     FirstCity was not involved in any material legal proceedings as of March 31, 2004.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

     None

Item 3. Defaults Upon Senior Securities

     In the first quarter of 1999, dividends on the Company’s adjusting rate preferred stock were suspended. At March 31, 2004, accumulated dividends in arrears on such preferred stock totaled $1.3 million, or $9.98 per share.

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

     None

Item 5. Other Information

     None

Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits.

Exhibit
Number		Description of Exhibit
2.1	—	Joint Plan of Reorganization by First City Bancorporation of Texas, Inc., Official Committee of Equity Security Holders and J-Hawk Corporation, with the Participation of Cargill Financial Services Corporation, Under Chapter 11 of the United States Bankruptcy Code, Case No. 392-39474-HCA-11 (incorporated herein by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995).
2.2	—	Agreement and Plan of Merger, dated as of July 3, 1995, by and between First City Bancorporation of Texas, Inc. and J-Hawk Corporation (incorporated herein by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995).
3.1	—	Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995).
3.2	—	Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995).
4.1	—	Certificate of Designations of the New Preferred Stock ($0.01 par value) of the Company. (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 10-K dated March 24, 1998 filed with the Commission on March 26, 1998).
9.1	—	Shareholder Voting Agreement, dated as of June 29, 1995, among ATARA I Ltd., James R. Hawkins, James T. Sartain and

41

Exhibit
Number		Description of Exhibit
		Cargill Financial Services Corporation. (incorporated herein by reference to Exhibit 9.1 of the Company’s Form 10-K dated March 24, 1998 filed with the Commission on March 26, 1998).
10.1	—	Note Agreement, dated as of June 6, 1997, among Bosque Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque Investment Realty Partners, L.P. and Bankers Trust Company of California, N.A. (incorporated herein by reference to Exhibit 10.14 of the Company’s Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998).
10.2	—	Loan Agreement, dated April 8, 1998 between Bank of Scotland and the Company (incorporated herein by reference to Exhibit 10.6 of the Company’s Form 10-Q dated August 14, 1998, filed with the Commission on August 18, 1998).
10.3	—	First Amendment to Loan Agreement, dated July 20, 1998, between Bank of Scotland and the Company (incorporated herein by reference to Exhibit 10.7 of the Company’s Form 10-Q dated August 14, 1998, filed with the Commission on August 18, 1998).
10.4	—	Tenth Amendment to Loan Agreement, dated August 11, 1999 between Bank of Scotland and the Company (incorporated herein by reference to Exhibit 10.34 of the Company’s Form 10-Q dated August 16, 1999, filed with the Commission on August 16, 1999).
10.5	—	Amended and Restated Loan Agreement, dated December 20, 1999, by and among FirstCity Financial Corporation as Borrower and the Lenders Named therein, as Lenders and Bank of Scotland as Agent (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K dated December 22, 1999, filed with the Commission on December 28, 1999).
10.6	—	Securities Purchase Agreement, dated as of August 18, 2000, by and among the Company, Consumer Corp., Funding LP, Funding GP, IFA-GP and IFA-LP. (incorporated herein by reference to Exhibit 10.40 of the Company’s Form 8-K dated August 25, 2000, filed with the Commission on September 11, 2000).
10.7	—	Contribution and Assumption Agreement by and between Consumer Corp. and Drive dated as of August 18, 2000. (incorporated herein by reference to Exhibit 10.41 of the Company’s Form 8-K dated August 25, 2000, filed with the Commission on September 11, 2000).
10.8	—	Contribution and Assumption Agreement by and between Funding LP and Drive dated as of August 18, 2000. (incorporated herein by reference to Exhibit 10.42 of the Company’s Form 8-K dated August 25, 2000, filed with the Commission on September 11, 2000).
10.9	—	Second Amendment to Amended and Restated Loan Agreement, dated December 20, 1999, by and among the Company, as borrower, and the Lenders, as lenders, and Bank of Scotland, as Agent. (incorporated herein by reference to Exhibit 10.43 of the Company’s Form 8-K dated August 25, 2000, filed with the Commission on September 11, 2000).
10.10	—	Receivables Financing Agreement, dated August 18, 2000, among Drive BOS LP, Drive Financial Services LP, each Lender, IPA Inc. and Wells Fargo Bank Minnesota, N.A. (incorporated herein by reference to Exhibit 10.44 of the Company’s Form 10-K dated April 13, 2001, filed with the Commission on April 13, 2001).
10.11	—	Amendment to Loan Agreement and extension of Promissory

42

Exhibit
Number		Description of Exhibit
		Note, dated January 12, 2001, by and between FirstCity Holdings Corporation and CFSC Capital Corp. XXX (incorporated herein by reference to Exhibit 10.45 of the Company’s Form 10-K dated April 13, 2001, filed with the Commission on April 13, 2001).
10.12	—	Second Amendment, dated as of February 16, 2001, to the Receivables Financing Agreement, dated as of August 18, 2000, among Drive BOS LP, Drive Financial Services LP the Lenders party thereto, IPA Incorporated and Wells Fargo Bank Minnesota, NA (incorporated herein by reference to Exhibit 10.46 of the Company’s Form 10-K dated April 13, 2001, filed with the Commission on April 13, 2001).
10.13	—	Subordinate Capital Loan Agreement, dated as of February 16, 2001, among Drive Financial Services LP, DRIVE BOS LP, the financial institutions from time to time party hereto and IFA Incorporated (incorporated herein by reference to Exhibit 10.47 of the Company’s Form 10-K dated April 13, 2001, filed with the Commission on April 13, 2001).
10.14	—	Amended and Restated Amendment #4 (Option and Option Warrant), dated as of December 31, 2001, between the Company and BoS(USA) Inc. (incorporated herein by reference to Exhibit 99.1 of the Company’s Form 8-K dated January 18, 2002, filed with the Commission on January 18, 2002).
10.15	—	Letter Agreement, dated November 26, 2002, between FirstCity Consumer Lending Corporation and The Governor and Company of the Bank of Scotland, including Form of Promissory Note to be executed by FirstCity Consumer Lending Corporation, payable to The Governor and Company of the Bank of Scotland. (incorporated herein by reference to Exhibit 99(d)(5) of the Company’s Form SC TO-I/A dated November 27, 2002, filed with the Commission on November 27, 2002).
10.16	—	Amended and Restated Loan Agreement, dated December 12, 2002, by and among FirstCity Financial Corporation as Borrower and the Lenders Named therein, as Lenders and Bank of Scotland as Agent (incorporated herein by reference to Exhibit 10.16 of the Company’s Form 10-K dated April 15, 2003).
10.17	—	Term Loan and Revolving Credit Agreement, dated December 12, 2002, by and among FirstCity Financial Corporation as Borrower and the Lenders Named therein, as Lenders and Bank of Scotland as Agent (incorporated herein by reference to Exhibit 10.17 of the Company’s Form 10-K dated April 15, 2003).
10.18*	—	Fifth amendment, dated March 31, 2004, to the Term Loan and Revolving Credit Agreement, dated December 12, 2002, by and among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders and Bank of Scotland as Agent.
10.19*	—	Separation Agreement and Release, dated March 31, 2004, by and between G. Stephen Fillip, FirstCity Servicing Corporation and FirstCity Financial Corporation.
10.20*	—	Consultant Agreement, dated April 1, 2004, by and between FirstCity Servicing Corporation and G. Stephen Fillip.
31.1*	—	Certification of James T. Sartain, Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	—	Certification of J. Bryan Baker, Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

43

Exhibit
Number		Description of Exhibit
32.1*	—	Certification of James T. Sartain, Chief Executive Officer of the Company, pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and relating to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.
32.2*	—	Certification of J. Bryan Baker, Chief Financial Officer of the Company, pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and relating to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.

* Filed herewith.

     (b) Reports on Form 8-K.

     On January 23, 2004 the Company filed a report on Form 8-K. The report was filed under Item 7 and 11 of Form 8-K in connection with a notice to executive officers and directors of the Company concerning a blackout period under the FirstCity Financial Corporation Employees Profit Sharing and Retirement Plan.

44

SIGNATURES

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

FirstCity Financial Corporation
By:	/s/ James T. Sartain
	James T. Sartain
	President and Chief Executive Officer and Director (Duly authorized officer of the Registrant)

By:	/s/ J. Bryan Baker
	J. Bryan Baker Senior Vice President and Chief Financial Officer (Duly authorized officer and principal financial and accounting officer of the Registrant)

Dated: May 14, 2004

45

INDEX TO EXHIBITS

Exhibit
Number		Description of Exhibit
2.1	-	Joint Plan of Reorganization by First City Bancorporation of Texas, Inc., Official Committee of Equity Security Holders and J-Hawk Corporation, with the Participation of Cargill Financial Services Corporation, Under Chapter 11 of the United States Bankruptcy Code, Case No. 392-39474-HCA-11 (incorporated herein by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995).
2.2	-	Agreement and Plan of Merger, dated as of July 3, 1995, by and between First City Bancorporation of Texas, Inc. and J-Hawk Corporation (incorporated herein by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995).
3.1	-	Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995).
3.2	-	Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995).
4.1	-	Certificate of Designations of the New Preferred Stock ($0.01 par value) of the Company. (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 10-K dated March 24, 1998 filed with the Commission on March 26, 1998).
9.1	-	Shareholder Voting Agreement, dated as of June 29, 1995, among ATARA I Ltd., James R. Hawkins, James T. Sartain and Cargill Financial Services Corporation. (incorporated herein by reference to Exhibit 9.1 of the Company’s Form 10-K dated March 24, 1998 filed with the Commission on March 26, 1998).
10.1	-	Note Agreement, dated as of June 6, 1997, among Bosque Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque Investment Realty Partners, L.P. and Bankers Trust Company of California, N.A. (incorporated herein by reference to Exhibit 10.14 of the Company’s Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998).
10.2	-	Loan Agreement, dated April 8, 1998 between Bank of Scotland and the Company (incorporated herein by reference to Exhibit 10.6 of the Company’s Form 10-Q dated August 14, 1998, filed with the Commission on August 18, 1998).
10.3	-	First Amendment to Loan Agreement, dated July 20, 1998, between Bank of Scotland and the Company (incorporated herein by reference to Exhibit 10.7 of the Company’s Form 10-Q dated August 14, 1998, filed with the Commission on August 18, 1998).
10.4	-	Tenth Amendment to Loan Agreement, dated August 11, 1999 between Bank of Scotland and the Company (incorporated herein by reference to Exhibit 10.34 of the Company’s Form 10-Q dated August 16, 1999, filed with the Commission on August 16, 1999).
10.5	-	Amended and Restated Loan Agreement, dated December 20, 1999, by and among FirstCity Financial Corporation as Borrower and the Lenders Named therein, as Lenders and Bank

Exhibit
Number		Description of Exhibit
		of Scotland as Agent (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K dated December 22, 1999, filed with the Commission on December 28, 1999).
10.6	-	Securities Purchase Agreement, dated as of August 18, 2000, by and among the Company, Consumer Corp., Funding LP, Funding GP, IFA-GP and IFA-LP. (incorporated herein by reference to Exhibit 10.40 of the Company’s Form 8-K dated August 25, 2000, filed with the Commission on September 11, 2000).
10.7	-	Contribution and Assumption Agreement by and between Consumer Corp. and Drive dated as of August 18, 2000. (incorporated herein by reference to Exhibit 10.41 of the Company’s Form 8-K dated August 25, 2000, filed with the Commission on September 11, 2000).
10.8	-	Contribution and Assumption Agreement by and between Funding LP and Drive dated as of August 18, 2000. (incorporated herein by reference to Exhibit 10.42 of the Company’s Form 8-K dated August 25, 2000, filed with the Commission on September 11, 2000).
10.9	-	Second Amendment to Amended and Restated Loan Agreement, dated December 20, 1999, by and among the Company, as borrower, and the Lenders, as lenders, and Bank of Scotland, as Agent. (incorporated herein by reference to Exhibit 10.43 of the Company’s Form 8-K dated August 25, 2000, filed with the Commission on September 11, 2000).
10.10	-	Receivables Financing Agreement, dated August 18, 2000, among Drive BOS LP, Drive Financial Services LP, each Lender, IPA Inc. and Wells Fargo Bank Minnesota, N.A. (incorporated herein by reference to Exhibit 10.44 of the Company’s Form 10-K dated April 13, 2001, filed with the Commission on April 13, 2001).
10.11	-	Amendment to Loan Agreement and extension of Promissory Note, dated January 12, 2001, by and between FirstCity Holdings Corporation and CFSC Capital Corp. XXX (incorporated herein by reference to Exhibit 10.45 of the Company’s Form 10-K dated April 13, 2001, filed with the Commission on April 13, 2001).
10.12	-	Second Amendment, dated as of February 16, 2001, to the Receivables Financing Agreement, dated as of August 18, 2000, among Drive BOS LP, Drive Financial Services LP the Lenders party thereto, IPA Incorporated and Wells Fargo Bank Minnesota, NA (incorporated herein by reference to Exhibit 10.46 of the Company’s Form 10-K dated April 13, 2001, filed with the Commission on April 13, 2001).
10.13	-	Subordinate Capital Loan Agreement, dated as of February 16, 2001, among Drive Financial Services LP, DRIVE BOS LP, the financial institutions from time to time party hereto and IFA Incorporated (incorporated herein by reference to Exhibit 10.47 of the Company’s Form 10-K dated April 13, 2001, filed with the Commission on April 13, 2001).
10.14	-	Amended and Restated Amendment #4 (Option and Option Warrant), dated as of December 31, 2001, between the Company and BoS(USA) Inc. (incorporated herein by reference to Exhibit 99.1 of the Company’s Form 8-K dated January 18, 2002, filed with the Commission on January 18, 2002).
10.15	-	Letter Agreement, dated November 26, 2002, between FirstCity Consumer Lending Corporation and The Governor and Company of the Bank of Scotland, including Form of Promissory Note to be executed by FirstCity Consumer Lending Corporation, payable to The Governor and Company of the Bank of Scotland.

Exhibit
Number		Description of Exhibit
		(incorporated herein by reference to Exhibit 99(d)(5) of the Company’s Form SC TO-I/A dated November 27, 2002, filed with the Commission on November 27, 2002).
10.16	-	Amended and Restated Loan Agreement, dated December 12, 2002, by and among FirstCity Financial Corporation as Borrower and the Lenders Named therein, as Lenders and Bank of Scotland as Agent (incorporated herein by reference to Exhibit 10.16 of the Company’s Form 10-K dated April 15, 2003).
10.17	-	Term Loan and Revolving Credit Agreement, dated December 12, 2002, by and among FirstCity Financial Corporation as Borrower and the Lenders Named therein, as Lenders and Bank of Scotland as Agent (incorporated herein by reference to Exhibit 10.17 of the Company’s Form 10-K dated April 15, 2003).
10.18*	-	Fifth amendment, dated March 31, 2004, to the Term Loan and Revolving Credit Agreement, dated December 12, 2002, by and among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders and Bank of Scotland as Agent.
10.19*	-	Separation Agreement and Release, dated March 31, 2004, by and between G. Stephen Fillip, FirstCity Servicing Corporation and FirstCity Financial Corporation.
10.20*	-	Consultant Agreement, dated April 1, 2004, by and between FirstCity Servicing Corporation and G. Stephen Fillip.
31.1*	-	Certification of James T. Sartain, Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	-	Certification of J. Bryan Baker, Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	-	Certification of James T. Sartain, Chief Executive Officer of the Company, pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and relating to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.
32.2*	-	Certification of J. Bryan Baker, Chief Financial Officer of the Company, pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and relating to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.

EX-10.18

EXHIBIT 10.18

AMENDMENT NO. 5 (PFAL)

     Amendment (this “Amendment”) dated as of March 31, 2004 among FirstCity Financial Corporation (the “Borrower”), the financial institutions which are party to the Loan Agreement hereinafter referred to (each a “Lender” and collectively, the “Lenders”) and Bank of Scotland acting through its New York branch (“BOS”), as Agent for the Lenders under such Loan Agreement (in such capacity, the “Agent”), to the Term Loan and Revolving Credit Agreement dated as of December 12, 2002, as amended by Amendment No. 1 thereto described in a certain Agreement dated as of March 24, 2003 among the Borrower and BOS in its capacity as the Agent and a Lender under the Loan Agreement, by Amendment No. 2 and Consent No. 2 dated as of April 29, 2003, by Amendment No. 3 and Consent No. 4 thereto dated as of May 2, 2003 and by Amendment No. 4 dated June 30, 2003 (said Term Loan and Revolving Credit Agreement as so amended, the “Loan Agreement”).

W I T N E S S E T H :

     WHEREAS, the parties desire to make the certain amendments to the Loan Agreement set forth herein, including amending the Term Loan facility provided therein to make it into a revolving facility (despite leaving the title of such facility unchanged and leaving the pre-existing Revolving Credit Loan facility in place);

     NOW THEREFORE, it is agreed:

     1. Definitions. All the terms used herein which are defined in the Loan Agreement (including, to the extent any such terms are to be amended by this Amendment, as if such terms were already amended by this Amendment, unless the context shall indicate otherwise) shall have the same meanings when used herein unless otherwise defined herein. All references to Sections in this Amendment shall be deemed references to Sections in the Loan Agreement unless otherwise specified.

     2. Effect of Amendment. As used in the Loan Agreement (including all Schedules and Exhibits thereto), the Notes and the other Loan Documents and all other instruments and documents executed in connection with any of the foregoing, on and subsequent to the Amendment Closing Date (as hereafter defined), any reference to the Loan Agreement shall mean the Loan Agreement as amended hereby.

     3. Amendments. On and subject to the terms hereof, upon the occurrence of the Amendment Closing Date:

     (a) Annex 1 of the Loan Agreement is hereby amended by

          (i) adding a definitions of “Applicable Distribution Percentage”, and “Applicable Portfolio Percentage” and “Tranche Limit” as follows:

“Applicable Distribution Percentage” shall mean, on any date of determination, (i) if the aggregate outstanding principal amount of the Loans on such date as a percentage of the “Total Equities” of all PFAL Portfolio Entities, as set forth in the latest certificate delivered pursuant to Section 7.1(e)(ii), does not exceed 65%, then 65% and (ii) otherwise, 100%. (Each certificate delivered pursuant to Section 7.1(e)(ii) will calculate the “Total Equities” of the PFAL Portfolio Entities separately from any other entities.)

“Applicable Portfolio Percentage” shall mean, with respect to the Acquisition Price of any Asset Pool the percentage of outstanding shares of stock, membership interests, or partnership interests (as the case may be) or, in the case of a non-U.S. entity, similar equity interests, or, in the case of a Greenwich Capital PFAL Portfolio Entity, subordinated notes, issued to FC Commercial by the PFAL Portfolio Entity acquiring such Asset Pool.

“Tranche Limit” — Section 2.1(a).

       (ii) deleting the definitions of “Applicable Borrowing Percentage”, “Asset Pool Prepayment Amount”, “Collection Period” and “Collections” in their entireties and substituting, in lieu thereof, respectively, the following:

“Applicable Borrowing Percentage” shall mean (x) 90% until June 30, 2004; (y) 85% from July 1, 2004 until June 30, 2005 and (z) 80% from and after July 1, 2005.

“Asset Pool Prepayment Amount” for any Asset Pool in respect of any Payment Date shall mean the sum of (I) the Applicable Distribution Percentage of the FC Percentage of the amount by which (A) Collections in respect of that Asset Pool (including amounts received in respect of any asset that constituted part of such Asset Pool which was sold to an REO Affiliate) during the most recently ended calendar month exceeds (B) the amount of Permitted Portfolio Expenses in respect of such Asset Pool which during such period were expended or retained (excluding any such Permitted Portfolio Expenses expended or retained during any previous month) and, in the case of Leveraged Asset Pool, excluding any such Permitted Portfolio Expenses which were excluded from the computation, in clause (y) of the definition of “Collections”, of the gross aggregate amount received during such period by such Asset Pool, plus (II) to the extent not constituting Extraordinary Transaction Proceeds, any proceeds of transfer of any Equity Interests issued by the PFAL Portfolio Entity owning such Asset Pool to FC Commercial and the FC Percentage of any proceeds of transfer of any Equity Interests issued by any REO Affiliate thereof formed in respect of such Asset Pool or otherwise holding any assets which at any time were part of such Asset Pool or collateral for any such assets (it being understood that no reference to any transfer of Equity Interests issued by any PFAL Portfolio Entity or REO Affiliate shall be construed to affect or modify any prohibition thereof or requirement for the obtaining of any consent relating thereto) or, in the case of the sale of any Equity Interests issued to FC Commercial by any PFAL Portfolio Entity with more than one Asset Pool, the share of such proceeds of the sale of such Equity Interests allocable to such Asset Pool (such share as among

2

different Asset Pools as determined by the Agent in its discretion, whether on the basis of the relative sizes of different Asset Pools, the relative amounts of Tranches of Term Loans made in respect of different Asset Pools, the relative Asset Pool NPV Percentages of different Asset Pools or otherwise ); plus (III) to the extent not constituting Extraordinary Transaction Proceeds, the Applicable Distribution Percentage of any other amounts received by or on behalf of such PFAL Portfolio Entity or any REO Affiliate thereof or, if such PFAL Portfolio Entity owns more than one Asset Pool, such portion of such other amounts which the Agent determines is allocable to such Asset Pool (such share as among different Asset Pools as determined by the Agent in its discretion, whether on the basis of the relative sizes of different Asset Pools, the relative amounts of Tranches of Term Loans made in respect of different Asset Pools, the relative Asset Pool NPV Percentages or otherwise).

“Collection Period”, with respect to a Payment Date, shall mean the calendar month preceding the month in which such Payment Date occurs.

“Collections” of an Asset Pool for any applicable period shall mean (x) in the case of an Asset Pool other than a Leveraged Asset Pool, the gross aggregate amount received during such period on account of such Asset Pool by or on behalf of the PFAL Portfolio Entity owning such Asset Pool (including, in addition, amounts received by any REO Affiliate of such PFAL Portfolio Entity formed in respect of such Asset Pool and any amounts otherwise received by any REO Affiliate of such PFAL Portfolio Entity on account of assets which at any time were part of such Asset Pool or collateral therefor ) and (y) in the case of a Leveraged Asset Pool, the gross aggregate amount received during such period on account of such Asset Pool by or on behalf of the PFAL Portfolio Entity owning such Asset Pool (including, in addition, amounts received by any REO Affiliate of such PFAL Portfolio Entity formed in respect of such Asset Pool and any amounts otherwise received by any REO Affiliate of such PFAL Portfolio Entity on account of assets which at any time were part of such Asset Pool or collateral therefor, and including amounts received on account of such Asset Pool prior to the commencement of such period which were paid to or for the benefit of such PFAL Portfolio Entity during such period), excluding (in the case of this clause (y)) amounts which were paid directly to the Permitted Portfolio Company Creditor of such PFAL Portfolio Entity under an Approved Portfolio Leverage Arrangement with respect to such Asset Pool or amounts which were remitted to such Creditor, in either case pursuant to the requirements of such Approved Portfolio Leverage Arrangement, which, in any such case, have not been released by such Creditor to (or for the benefit of) such PFAL Portfolio Entity (and/or any REO-PFAL Affiliate thereof), plus such additional amount (if any) which was available to be released to or for the benefit of such PFAL Portfolio Entity (and/or REO-PFAL Affiliate thereof) during such period under such arrangements (whether or not such additional amount was in fact so released) minus, in each case, the amounts received during such period by or on behalf of such PFAL Portfolio Entity constituting Extraordinary Transaction Proceeds allocable to such Asset Pool (as reasonably determined by Agent based on information provided by Borrower or, if the Agent determines that no such allocation

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would be supported by such information, as reasonably allocated (whether on a ratable basis or otherwise) by the Agent).

          (iii) adding a definition “Dollar Equivalent” as follows:

“Dollar Equivalent” shall mean, on any date of determination, with respect to any amount in any Euros, the equivalent in Dollars of such amount, determined by the Agent using the Exchange Rate with respect to such Euros then in effect.

          (iv) adding to the end of clause (i) of the definition of “Eligible PFAL Entity”, the following:

provided that, notwithstanding the foregoing, in the case of a Greenwich Capital PFAL Portfolio Entity, FC Commercial may own 100% of the Subject PFAL Entity’s capital so long as Greenwich Capital Financial Products Inc. makes subordinated loans to such entity in an amount equal to the subordinated loans made to such entity by FC Commercial and provided further that, notwithstanding the foregoing, in the case of an Asset Pool consisting of assets originated in France, FC Commercial may indirectly own such Equity Interests through a United Kingdom trust.

          (v) deleting the definition of “Eurodollar Interest Determination Date” in its entirety and substituting, in lieu thereof, the following:

“Eurocurrency Interest Determination Date” shall mean the date as of which LIBOR is determined, which shall be two Business Days prior to the commencement of a Eurocurrency Interest Period.

          (vi) deleting the definition of “Eurodollar Interest Period” and substituting, in lieu thereof, the following:

“Eurocurrency Interest Period” shall mean, with respect to each Eurocurrency Loan, the interest period applicable pursuant to Section 3.10 hereof.

          (vii) deleting the definition of “Eurodollar Loan” and substituting, in lieu thereof, the following:

“Eurocurrency Loan” shall mean a Loan during any period that it bears interest determined by reference to LIBOR.

          (viii) adding a definition of “Euros” as follows:

“Euros” shall mean the single currency of the European Union as constituted by the Treaty on the European Union.

          (ix) adding a definition of “Eurosublimit” as follows:

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“Eurosublimit” shall mean, as to each Lender, the amount of Euros equivalent to the amount set forth opposite its name on Schedule 2.1 under the heading “Eurosublimit” as such may from time to time be reduced or terminated pursuant to Section 2.8(b), Section 9 or any other Section of the Agreement.

          (x) adding a definition of “Exchange Rate” as follows:

“Exchange Rate” shall mean with respect to Euros on a particular date, the rate at which Euros may be exchanged into Dollars in London on a spot basis, as set forth on the display page of the Reuters System applicable to Euros two Business Days prior to such date as reasonably determined by the Agent. In the event that such rate does not appear on any Reuters display page, the Exchange Rate with respect to Euros shall be determined by reference to such other publicly available service for displaying exchange rates as may be agreed upon by the Agent and the Borrower or, in the absence of such agreement, such Exchange Rate shall instead be determined by reference to the Agent’s spot rate of exchange quoted to prime banks in London in the London interbank market where its foreign currency exchange operations in respect of Euros are then being conducted, at or about noon, local time, two Business Days prior to such date for the purchase of Dollars with Euros, for delivery on a spot basis; provided, however, that if at the time of any such determination, for any reason, no such spot rate is being quoted and no other methods for determining the Exchange Rate can be determined as set forth above, the Agent may use any reasonable method it deems applicable to determine such rate, and such determination shall be conclusive absent manifest error.

(xi) adding a definition of “Greenwich Capital PFAL Portfolio Entity” as follows:

“Greenwich Capital PFAL Portfolio Entity” – Section 2.1(a).

          (xii) deleting the definition of “LIBOR” and substituting, in lieu thereof, the following:

“LIBOR” shall mean, for each Eurocurrency Interest Period, (x) the per annum rate of interest at which U.S. Dollar or Euro deposits in the amount of the outstanding principal balance of the Loan are or would be offered for such Eurocurrency Interest Period in the London interbank market at 11:00 A.M. London time two Business Days prior to the start of such Eurocurrency Interest Period as published by the British Bankers’ Association as the “Interest Settlement Rate” for such period by (y) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including without limitation any marginal, emergency, supplemental, special or other reserves required by applicable law) applicable to any member bank of the Federal Reserve System in the United States in respect of Eurocurrency funding or liabilities.

          (xiii) deleting the definition of “Permitted Portfolio Expenses” and substituting, in lieu thereof, the following:

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“Permitted Portfolio Expenses” with respect to an Asset Pool during any calendar month or Collection Period shall mean the Portfolio Protection Expenses which are currently budgeted (pursuant to a budget previously provided to the Agent) for such Asset Pool and described in the most recently delivered Portfolio Protection Expense Report to the extent that such Portfolio Protection Expenses do not constitute Challenged Portfolio Protection Expenses and only if such Portfolio Protection Expenses do not constitute Excess Portfolio Protection Expenses and there are no other Excess Portfolio Protection Expenses.

          (xiv) deleting the definition of “PFAL Portfolio Entity” and substituting, in lieu thereof, the following:

“PFAL Portfolio Entity” shall mean (x) any Portfolio Entity-Post AE formed after the Effective Date for the purpose of investing in notes, bonds or other evidences of indebtedness and in connection with the acquisition by which of an Asset Pool Term Loans have been made to Borrower or requested to be made to Borrower and (y) any Secondary Obligor listed on Schedule I to Amendment No. 5 to this Agreement .

          (xv) adding a definition of “Step-Up Percentage” as follows:

“Step-Up Percentage” shall mean, (a) in the event that (i) the Lenders shall have temporarily waived any condition set forth in Section 6B to the making of Term Loan and required the Borrower to satisfy such condition within a certain period of time after the advance of such Term Loan (such period of time not to exceed fifteen (15) days with respect to an Asset Pool consisting of US assets or thirty (30) days with respect to an Asset Pool consisting of European assets) and (ii) the Borrower shall not have satisfied such condition within such time period, 1% until all such conditions are satisfied and (b) at any other time, 0%.

          (xvi) adding the words “and Euros” after the word “Dollars” in the definition of “Business Day”.

          (xvi) adding the words “and Euros” after the word “Dollars” in the definition of “CFCCA-P Business Day”.

     (b) Schedule 2.1 of the Loan Agreement is hereby amended and restated in its entirety to read as set forth on Exhibit A hereto.

     (c) Section 2.1 of the Loan Agreement is hereby amended by deleting clause (a) thereof and substituting, in lieu thereof, the following:

               (a) Subject to the terms and conditions set forth herein, each Lender severally agrees, at any time and from time to time during the Commitment Period (Term) to make one or more loans in Dollars or Euros to the Borrower (each a “Term Loan” and collectively, the “Term Loans”) in an aggregate outstanding principal amount for all such Term Loans not exceeding the amount of its Term Loan Commitment, provided that the aggregate outstanding principal amount in Euros of Term Loans made by such Lender in Euros shall not exceed the Eurosublimit set forth opposite the name of such

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Lender on Schedule 2.1. Subject to the terms of this Agreement, during the Commitment Period (Term), the Borrower may borrow, repay and reborrow the Term Loans. Unless otherwise provided herein, all Term Loans denominated in Euros shall be made, maintained and continued as Eurocurrency Loans. The borrowings from the Lenders pursuant to this Section 2.1(a) shall be (1) in an aggregate outstanding principal amount (aggregating Term Loans then being requested with Term Loans currently outstanding) not to exceed the Total Term Loan Commitment then in effect; (2) made from each Lender pro rata on the basis of the Term Loan Commitment of such Lender; provided, that in no event shall the aggregate principal amount of Term Loans (or the Dollar Equivalent thereof) made in respect of the acquisition by a PFAL Portfolio Entity of any Asset Pool exceed the lowest (such lowest amount, with respect to any Tranche, being herein referred to as the “Tranche Limit”) of (x) the Total Term Loan Commitment then in effect minus the aggregate principal amount of Term Loans then outstanding; (y) the Applicable Portfolio Percentage of the Acquisition Price for such Asset Pool and (z) (i) the product of the Applicable Borrowing Percentage of the “Total Equities” of all PFAL Portfolio Entities, as set forth in the certificate delivered pursuant to Section 7.1(e)(ii) and Section 6B.4(d) minus (ii) the aggregate principal amount of Term Loans then outstanding; and (3) used by Borrower solely (x) to make advances to FC Commercial evidenced by the FC Commercial (PFAL) Pledged Note, the full amount of which advances are used by FC Commercial (as more fully set forth in other portions of this Section 2, in Section 6B and in other Sections of this Agreement) to make a contribution to the capital of a PFAL Portfolio Entity in connection with such PFAL Portfolio Entity’s acquisition of an Asset Pool and (y) if requested by Borrower in the Notice of Borrowing for such Term Loans, to pay the Utilization Fee in respect of the Term Loans made pursuant to clause (x) (the Term Loans included in each such borrowing by Borrower in respect of an Asset Pool, together with any borrowing of the Utilization Fee in respect thereof, being referred to herein as a “Tranche” of Term Loans, each borrowing of Term Loans in respect of an Asset Pool (and related Utilization Fee) constituting a different Tranche of Term Loans distinct from each other Tranche (or borrowing) of Term Loans (and any related Utilization Fee) borrowed in respect of any other Asset Pool), and provided further that, notwithstanding the provisions of clause (3) of the foregoing proviso, FC Commercial may use the proceeds of borrowings to make subordinated loans to any PFAL Portfolio Entity which is limited partnership to which Greenwich Capital Financial Products Inc. will be providing senior debt (a “Greenwich Capital PFAL Portfolio Entity”) so long as Greenwich Capital Financial Products Inc. makes subordinated loans in an equal amount to such Greenwich Capital PFAL Portfolio Entity and the rights to payment of such subordinated loans by FC Commercial are pledged as security for the Loans hereunder, and provided further that, notwithstanding the provisions of clause (3) of the foregoing proviso, in the case of an Asset Pool consisting of assets originated in France, FC Commercial may use the proceeds of borrowings to make a contribution to a United Kingdom trust which will in turn make a contribution to the capital of a PFAL Portfolio Entity in connection with such PFAL Portfolio Entity’s acquisition of such Asset Pool, and provided further that

                         (i) [reserved];

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                         (ii) in no event shall the aggregate outstanding principal amount of Term Loans (or the Dollar Equivalent thereof) under this Agreement (after giving effect to all pending requests for Loans) exceed the amount by which $77 million exceeds the aggregate principal amount of loans outstanding under the Amended and Restated Agreement;

                         (iii) the aggregate outstanding principal amount (after giving effect to all pending requests for Term Loans) of Term Loans (or the Dollar Equivalent thereof) in respect of Asset Pools-NL shall not exceed $11,250,000; and

                         (iv) the aggregate outstanding principal amount of Term Loans (or the Dollar Equivalent thereof) in respect of Asset Pools acquired from Non-US Sellers shall not exceed $22,500,000.

     (d) Section 2.2 of the Loan Agreement is hereby amended by deleting clause (a) thereof and substituting, in lieu thereof, the following:

          (a) Whenever the Borrower desires to utilize the Term Loan Commitments hereunder, it shall deliver to the Agent a Notice of Borrowing not later than 11:00 a.m., Closing Office Time, on the third Business Day preceding the date of the proposed borrowing of Term Loans, which Notice of Borrowing shall, among other items, (A) specify (i) the Portfolio Entity-Post AE to whose capital FC Commercial will contribute the proceeds of the Loans; (ii) the Asset Pool to be acquired by such PFAL Portfolio Entity; (iii) the date of the proposed borrowing (which shall be a Business Day during the Commitment Period (Term) (each, a “Borrowing Date”); (iv) if such Borrowing Date is a Payment Date, whether such Loans shall constitute Base Rate Loans or Eurodollar Loans (if not specified or if such date is not a Payment Date, Base Rate Loans shall be deemed to have been requested); (v) the currency in which the Term Loan will be borrowed; (vi)the total amount of such borrowing (which shall be in a minimum amount of 100,000 units of the relevant currency equal to or greater than an amount the Dollar Equivalent of which is $100,000 and integral multiples of 100,000 units of relevant currency in excess thereof and shall not exceed the Tranche Limit for the related Asset Pool (rounded downward to the nearest 100,000 units of relevant currency); and (vii) the amount, if any, of the Utilization Fee in respect of such Borrowing requested to be borrowed, and (B) certify that (x) the Borrower delivered the Final Asset Pool Acquisition Certificate in respect of such Asset Pool not later than ten Business Days before the Borrowing Date specified in such notice and that all information set forth in Asset Pool Acquisition Certificate (as revised through the Final Asset Pool Acquisition Certificate and as further revised to the extent permitted by Section 6B.4) remains true and correct and (y) on or prior to the date of such Notice of Borrowing, Borrower has delivered to the Agent a Final NPV Pool Certificate in respect of such Asset Pool, provided that, notwithstanding the provisions of clause (A)(i), FC Commercial may use the proceeds of borrowings to make subordinated loans to a Greenwich Capital PFAL Portfolio Entity so long as Greenwich Capital Financial Products Inc. makes like subordinated loans to such Greenwich Capital PFAL Portfolio Entity and the rights to payment of such subordinated loans by FC Commercial are pledged as security for the Loans hereunder, and provided further that, notwithstanding the provisions of clause (A)(i), in the case of an Asset Pool consisting of assets originated in France, FC Commercial may

8

use the proceeds of borrowings to a make contribution to a United Kingdom trust which will in turn make a contribution to the capital of a PFAL Portfolio Entity in connection with such PFAL Portfolio Entity’s acquisition of such Asset Pool. Without the consent of the Agent, Borrower shall not be entitled to make borrowings under the Term Loan Commitments more than twice in any calendar month and not more than once during any ten Business Day period.

     (e) Section 2.4 of the Loan Agreement is hereby amended by deleting paragraph (h) thereof in its entirety and substituting “Reserved” therefore .

     (f) Section 2.6 of the Loan Agreement is hereby amended by deleting such Section and substituting, in lieu thereof, the following:

          2.6 Voluntary Prepayments of Term Loans. Borrower may, upon not less than three CFCCA-P Business Days prior written notice to the Agent (which notice the Agent shall promptly transmit to the Lenders in writing or by telephone, confirmed as soon as possible thereafter in writing) prepay the Term Loans in whole at any time, or from time to time in part in amounts of 250,000 units of the relevant currency equal to or greater than an amount the Dollar Equivalent of which is $250,000 (and, if greater, in integral multiples of 50,000 units of the relevant currency), and without premium (subject to Section 3.9) or penalty; provided that at the time of any such prepayment of the Term Loans, Borrower shall pay all interest accrued on the principal amount of such prepayment. Prepayments pursuant to this Section 2.6 shall be applied (ratably as among Lenders holding the Loans to which applied) to such Tranches of Term Loans and in such order as the Borrower may at the time in writing direct or, if no such direction is given, as determined by the Agent. All notices pursuant to this Section 2.6 and Section 2.7 shall be irrevocable and result in the principal amount of Loans specified therein becoming due and payable on the prepayment date specified therein.

     (g) Section 2.8 of the Loan Agreement is hereby amended by adding to the end of clause (b) thereof the following sentence:

          If the Term Loan Commitment of any Lender is reduced pursuant to this Section 2.8(b), there shall be a proportionate reduction of the Eurosublimit of such Lender.

     (h) A new Section 2.10 shall be added as follows:

          2.10 Currency of Payments

     Except to the extent otherwise provided herein, all payments of principal and interest on (i) Eurocurrency Loans, (ii) Base Rate Loans and (iii) under corresponding Notes to be made by any Borrower shall be made in the currency of the applicable Loan for which payment is being made, in immediately available funds, to the Agent.

(i) A new Section 2.11 shall be added as follows:

          2.11 Currency Fluctuations, etc.

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                    (a) Not later than 1:00 p.m., New York City time, on each Borrowing Date and each Payment Date, the Agent shall (i) determine the Exchange Rate as of such Borrowing Date if at such time there are outstanding Eurocurrency Loans denominated in Euros and (ii) give notice thereof to the Lenders and to the Borrower. The Exchange Rate so determined shall become effective on the first Business Day immediately following the relevant Borrowing Date or Payment Date (a “Reset Date”) and shall remain effective until the next succeeding Reset Date.

                    (b) Not later than 5:00 p.m., New York City time, on each Reset Date, the Agent shall (i) determine the Dollar Equivalent of the Eurocurrency Loans in Euros then outstanding (after giving effect to any Eurocurrency Loans to be made or repaid on such date) and (ii) notify the Lenders and the Borrower of the results of such determination.

                    (c) If on any Reset Date, the Dollar Equivalent of the aggregate principal amount of Term Loans outstanding exceeds the aggregate principal amount of the Term Loan Commitment, then the Borrower shall, within three Business Days after notice thereof from the Agent, prepay (in either Euros or Dollars as selected by the Borrower) Term Loans in an aggregate amount such that, after giving effect thereto, the Dollar Equivalent of all such Term Loans shall be equal to or less than such aggregate amount of Term Loan Commitment.

     (j) Section 3.1 of the Loan Agreement is hereby amended by deleting such Section and substituting, in lieu thereof, the following:

          3.1 Rate of Interest

          (a) Subject to the provisions of Section 3.3 hereof, the Borrower agrees to pay interest in respect of the unpaid principal amount of the Loans from the date such Loans are made until maturity (whether by acceleration or otherwise) at the following rates of interest: (i) Eurocurrency Loans, at a rate per annum equal to the sum of 3.5% plus the Step-Up Percentage in excess of LIBOR for the Eurocurrency Interests Period then in effect and (ii) Base Rate Loans, at a rate per annum equal to the sum of 1% plus the Step-Up Percentage in excess of the Base Rate, such rate to change as and when the Base Rate shall change.

          (b) Loans (provided that such Loan was made in Dollars) which are made on a date other than a Payment Date shall constitute Base Rate Loans until converted in accordance with Section 3.11.

     (k) Section 3.10 of the Loan Agreement is hereby amended by deleting clause (f) thereof and substituting, in lieu thereof, the following:

          (f) The Borrower shall not be permitted to maintain as Eurocurrency Loans any Tranche of Loans or for Revolving Credit Loans if the outstanding amount of such Tranche or of the Revolving Credit Loans to be maintained as Eurocurrency Loans is less than 1,000,000 units of the relevant currency equal to or greater than an amount the Dollar Equivalent of which is $100,000 or an integral multiple of 100,000 units of the relevant currency in excess thereof.

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     (l) Section 3.11 of the Loan Agreement is hereby amended by deleting such Section and substituting, in lieu thereof, the following:

          3.11 Conversions. Borrower shall have the option to convert, on any Payment Date, all or any portion of a Tranche of Term Loans (provided that such Term Loan was made in Dollars) or Revolving Credit Loans from Base Rate Loans to Eurocurrency Loans or from Eurocurrency Loans to Base Rate Loans; provided that (i) after giving effect to any such conversion the amount of such Tranche outstanding as a Eurocurrency Loans shall be an amount equal to $1,000,000 or an integral multiple of $100,000 in excess thereof and the amount thereof outstanding as Base Rate Loans shall be an amount equal to not less than $20,000; and (ii) unless the Majority Lenders specifically agree in writing, no conversion to Eurocurrency Loans shall be permitted at any time that a Default or Event of Default exists. Each such conversion shall be effected by Borrower giving the Agent written notice thereof (a “Notice of Conversion”) on or prior to 11:00 a.m. (Closing Office time) at least three Business Days prior to a Payment Date, specifying the amount of Loans to be converted, whether the Loans to be converted are Term Loans or Revolving Credit Loans and, if Term Loans, the Tranche of Loans to which such conversion relates.

     (m) Section 4.2(b) of the Loan Agreement is hereby amended by deleting “1/4” in the fourth line and substituting, in lieu thereof, “3/8.”

     (n) Section 6B.2(a) of the Loan Agreement is hereby amended by adding the following at the end thereof:

          provided that, notwithstanding the foregoing, in the case of a Greenwich Capital PFAL Portfolio Entity, FC Commercial may own 100% of the Subject PFAL Entity’s capital so long as Greenwich Capital Financial Products Inc. makes subordinated loans to such entity in an amount equal to the subordinated loans made to such entity by FC Commercial, and provided further that, notwithstanding the foregoing, in the case of an Asset Pool consisting of assets originated in France, FC Commercial [and any such Third Party Investor] may make contributions to a United Kingdom trust which will in turn make a contribution to the capital of the Subject PFAL Entity.

     (o) Section 6B.3 of the Loan Agreement is hereby amended by adding the following at the end thereof:

          provided that, notwithstanding the foregoing, in the case of a Greenwich Capital PFAL Portfolio Entity, FC Commercial may use the proceeds of such loans to make subordinated loans to such entity in an amount equal to the subordinated loans made to such entity by Greenwich Capital Financial Products Inc., and provided further that, notwithstanding the foregoing, in the case of an Asset Pool consisting of assets originated in France, FC Commercial may use the proceeds of such loans to make a contribution to a United Kingdom trust which will in turn make a contribution to the capital of a Subject PFAL Entity in connection with such Subject PFAL Entity’s acquisition of such Asset Pool.

     (p) Section 6B.4 of the Loan Agreement is hereby amended by adding the following at the end thereof:

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          (d) A certificate of the type delivered pursuant to Section 7.1(e)(ii) showing, on a pro forma basis, the “Total Equities” of all PFAL Portfolio Entities after giving effect to the acquisition of the related Asset Pool shall have been delivered to the Agent not less than 10 Business Days prior to the Borrowing Date of such Term Loans.

     (q) Section 8.3 of the Loan Agreement is hereby amended by deleting paragraph (iv) thereof and substituting, in lieu thereof, the following:

          (iv) (A) subordinated debt of a Greenwich Capital PFAL Portfolio Entity to FC Commercial and Greenwich Capital Financial Products Inc. and (B) Indebtedness of a PFAL Portfolio Entity, incurred under Approved Portfolio Leverage Arrangements on the day that such PFAL Portfolio Entity acquires an Asset Pool, in a principal amount not in excess of (x) 75% (or, such higher percentage, if any, approved by the Agent in writing with respect to a particular Asset Pool) of the lower of (i) the Acquisition Price of such Asset Pool and (ii) the Net Present Value of such Asset Pool, or (y) such principal amount which, when added to the principal amount of the Tranche of Term Loans made in respect of the acquisition of such Asset Pool (less any Utilization Fee amount included therein) plus the full amount then or thereafter contributed to the capital of such PFAL Portfolio Entity by any holder of Equity Interests therein other than FC Commercial (and other than any such amount thereafter contributed to the capital of such PFAL Portfolio Entity in respect of the subsequent acquisition of a different Asset Pool and, in the case of a Greenwich Capital PFAL Portfolio Entity, the amount of any subordinated loans made to such entity by Greenwich Capital Financial Products Inc.), would not result in the sum of such principal amount of Indebtedness of such PFAL Portfolio Entity plus the principal amount of such Tranche of Term Loans and the amount of such contributions to capital (or such subordinated loans) exceeding the lower of (i) the Acquisition Price of such Asset Pool and (ii) the Net Present Value of such Asset Pool (it being agreed that a PFAL Portfolio Entity shall not contract, create, incur, assume or suffer to exist any Indebtedness other than Indebtedness under Approved Portfolio Leverage Arrangements incurred in respect of the acquisition by it of any Asset Pool on the AP Funding Date for such Asset Pool in accordance with the above provisions of this clause (iv) and, in the case of a Greenwich Capital PFAL Portfolio Entity, subordinated debt to Greenwich Capital Financial Products Inc. and FC Commercial);

     (r) Section 8.10(a) of the Loan Agreement is hereby amended by adding the following at the end of the first sentence thereof:

          and (iii) in the case of an Asset Pool consisting of assets originated in France, investments in a United Kingdom trust which in turn makes a contribution to the capital of a PFAL Portfolio Entity in connection with such PFAL Portfolio Entity’s acquisition of such Asset Pool

     (s) Section 8.13 of the Loan Agreement is hereby amended by adding the following after clause (x):

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          and (xi) for subordinated loans to a Greenwich Capital PFAL Portfolio Entity in an amount equal to the subordinated loans made to such entity by Greenwich Capital Financial Products Inc.

     (t) Section 8.17 of the Loan Agreement is hereby amended by adding the following at the end thereof:

          Notwithstanding any of the provisions of this Section 8.17 to the contrary, (x) in the case of a Greenwich Capital PFAL Portfolio Entity, FC Commercial may use the proceeds of the related Term Loans to make subordinated loans to such entity in an amount equal to the subordinated loans made to such entity by Greenwich Capital Financial Products Inc. and (y) in the case of an Asset Pool consisting of assets originated in France, FC Commercial may use the proceeds of borrowings to a contribution to a United Kingdom trust which will in turn make a contribution to the capital of a PFAL Portfolio Entity in connection with such PFAL Portfolio Entity’s acquisition of such Asset Pool.

     (u) Section 8.29 of the Loan Agreement is hereby amended by deleting paragraph (a) thereof and substituting, in lieu thereof, the following:

          Subject to Section 8.21(b) in the case of Extraordinary Transaction Proceeds, the Borrower shall each calendar month (i) cause each PFAL Portfolio Entity and each REO-PFAL Affiliate to distribute to FC Commercial (as a Dividend in accordance with Section 8.11(a)) on or prior to the 25th day of such calendar month (or, if earlier, on the fourth to last CFCCA-P Business Day of such month, each such 25th day or earlier day, a Calculation Date”) an amount equal to (I) the sum of (x) the Asset Pool Prepayment Amount in respect of the Payment Date occurring on the last Business Day of the preceding month plus (y) interest on all Term Loans payable on such next Payment Date or, if greater, (II) the sum of (x) 75% of the FC Percentage in respect of each such PFAL Portfolio Entity of all Collections of each Asset Pool owned by such PFAL Portfolio Entity and of all amounts received by such REO PFAL Affiliate during the period from the second preceding Calculation Date to the preceding Calculation Date and (y) the amount calculated pursuant to clause (II) of the definition of “Asset Pool Prepayment Amount” and (ii) cause FC Commercial to pay to Borrower, upon receipt, each such Dividend received by FC Commercial under clause (i) above by prepaying the FC Commercial (PFAL) Pledged Note and, if no amount then remains outstanding thereunder, by prepaying any other outstanding Pledged Note from FC Commercial to Borrower and distributing any remaining portion of such Dividend as a Dividend (in accordance with Section 8.11(a)) to the Borrower.

     (v) Section 8.34 of the Loan Agreement is hereby amended by (x) adding the following at the end of clause (i) of paragraph (a) thereof:

          provided, that a PFAL Portfolio Entity doing business outside the United States may own the type of assets an REO Affiliate would own (if it had an REO Affiliate of which it were the REO Owner ).

and (y) deleting clause (ii) of paragraph (a) thereof and substituting, in lieu thereof, the following:

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          (ii) each REO-PFAL Affiliate shall be formed in respect of a specific REO Owner and shall not hold assets other than from such REO Owner.

     (w) Section 9.12 of the Loan Agreement is hereby amended by adding a new clause (c) thereof as follows:

          (c) If for the purpose of obtaining judgment in any court it is necessary to convert a sum due from the Borrower in the currency expressed to be payable herein (the “specified currency”) into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase the specified currency with other such currency at the Agent’s New York branch on the Business Day that is on or immediately following the day on which final judgment is given. The obligations of the Borrower in respect of any sum due to any Lender or the Agent hereunder shall, notwithstanding any judgment in a currency other than the specified currency, be discharged only to the extent that on the Business Day following receipt by such Lender or the Agent, as the case may be, of any sum adjudged to be so due in such other currency such Lender or the Agent as the case may be, may in accordance with normal banking procedures purchase the specified currency with such other currency. If the amount of the specified currency so purchased is less than the sum originally due to such Lender or the Agent, as the case may be, in the specified currency, the Borrower agrees, to the fullest extent it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Lender or the Agent, as the case may be, against such loss, and if the amount of the specified currency so purchased exceeds the sum originally due to any Lender or the Agent, as the case may be, in the specified currency, such Lender or the Agent, as the case may be, agrees to remit such excess to the appropriate Borrower.

     (x) All references to “Eurodollar” in the Loan Agreement shall be hereby amended by deleting such word and substituting, in lieu thereof, “Eurocurrency.”

     (y) The provisions of Sections 6(b) and 6(e) of Amendment No. 3 and Consent No. 4 to this Agreement shall no longer be applicable, and the Lenders hereby waive any prior failure of the Borrower to comply with the terms and conditions of such Sections 6(b) and 6(e).

     4. Representations, Warranties, Covenants and Agreements. To induce the Lenders and the Agent to enter into this Amendment, the Borrower hereby represents and warrants to the Agent and the Lenders (which representations and warranties are made as of the date hereof and as of the Amendment Closing Date) and covenants and agrees for the benefit of the Agent and the Lenders (which representations, warranties, covenants and agreements are in furtherance and not in limitation of the provisions of the Loan Agreement and the other Loan Documents and shall survive the execution, delivery and effectiveness of this Amendment), as follows:

               (a) The execution and delivery by the Borrower and each other Loan Party and other Person (other than the Agent or any Lender) executing and delivering any agreement, acknowledgement or other instrument pursuant hereto (in each case, to the extent such Person is a party thereto) of this Amendment, the Confirming Consent dated as of the date hereof and all other agreements, acknowledgements and instruments being delivered pursuant hereto and each such

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Person’s performance of this Amendment, such Confirming Consent, the Loan Agreement as amended by this Amendment, and the other agreements, acknowledgements and instruments being delivered pursuant hereto and the consummation of the transactions contemplated under this Amendment and the use of proceeds of all Loans have been duly authorized by all necessary limited liability company, corporate, partnership, member, stockholder and partner action and none of such execution, delivery, performance or consummation shall, by lapse of time, the giving of notice or otherwise, constitute a violation of any Legal Requirement or a breach of any provision contained in the Charter Documents of Borrower or any other Loan Party or other such Person or contained in any agreement, instrument or document to which Borrower, any such other Loan Party or other Person is now or hereafter a party or by which Borrower, any such other Loan Party or other Person or any of the assets of Borrower, any such other Loan Party or other Person is or may become bound.

               (b) This Amendment, the Loan Agreement as amended by this Amendment, the Confirming Consents delivered in connection herewith and all other instruments, acknowledgements and agreements delivered or required to be delivered pursuant hereto are and when delivered will be the legal, valid and binding obligations of the Loan Parties and other Persons party thereto, enforceable in accordance with their respective terms subject, as to enforceability, to applicable bankruptcy, insolvency, reorganization and similar laws affecting the enforcement of creditors’ rights generally and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).

               (c) Each of the Security Documents and each Guaranty secures or guarantees, as the case may be, all Loans and other obligations to the Lenders under the Loan Documents, whether such Loans were or are made or such obligations incurred before, on or after the Amendment Closing Date. No amendment needs to be made to any of the Security Documents or Guaranties, nor does any action need to be taken, to effectuate the provisions of the preceding sentence.

               (d) The priority of all Liens in favor of the Agent and the Lenders under the Security Documents (whether in respect of Loans made or obligations incurred before, on or after the Amendment Closing Date) shall be the same as the priority of all Liens immediately prior to the Amendment Closing Date with respect to Loans and obligations outstanding immediately prior to the Amendment Closing Date.

               (e) No Material Adverse Change has occurred since September 30, 2003.

               If any of the foregoing representations or warranties or any other representation or warranty set forth in this Amendment is breached or proves to be untrue in any material respect, the same shall constitute an Event of Default as fully as if the same were listed as an Event of Default in Section 9.2 of the Loan Agreement.

     5. Certain Actions. The Borrower hereby covenants and agrees for the benefit of the Agent and the Lenders (which covenants and agreements are in furtherance and not in limitation of the provisions of the Loan Agreement and the other Loan Documents and shall survive the execution, delivery and effectiveness of this Amendment) that the Borrower shall deliver or caused to be delivered by no later than fifteen (15) days following the Amendment Closing Date (such fifteen (15) day period, the “Grace Period”) all security documents, closing documents and other

15

open items required to be delivered pursuant to Amendment No. 3 and Consent No. 4 (“Amendment No. 3”) dated as of May 2, 2003 to the Loan Agreement. In the event that any of the aforementioned security documents, closing documents or other open items are not so delivered within the Grace Period, each Loan outstanding under the Loan Agreement which Loan was made in connection with Amendment No. 3 (including the PRL Term Loans as such term is defined in Amendment No. 3) shall accrue interest (beginning from the end of the Grace Period through the date on which all of the missing items are delivered to the Agent in form and substance satisfactory to the Agent) at a rate per annum equal to the sum of (i) the rate of interest applicable to such Loan under the terms of the Loan Agreement (including pursuant to Sections 3.1 and 3.3 of the Loan Agreement), plus (ii) one percent (1%). Failure of the Borrower to provide all of the missing items by June 30, 2004 shall constitute an immediate Event of Default under Section 9 of the Loan Agreement.

     6. Effectiveness. This Amendment shall become effective as of the date hereof when each of the following conditions has been fulfilled to the satisfaction of the Agent (or waived by the Agent in its sole discretion). The first date on which all of the following conditions have been so satisfied (or so waived) is herein referred to as the “Amendment Closing Date”. If the Amendment Closing Date shall not have occurred by the close of business (New York time) on April 30, 2004 (or such later date as may be specified by the Agent in writing), this Amendment shall be deemed rescinded, null and void:

               (a) The Borrower, the Lenders and the Agent shall have executed a copy hereof, and each Loan Party listed as a signatory thereto shall have executed a consent in the form of the Confirming Consent attached to this Amendment, and delivered each of the foregoing to the Agent at 565 Fifth Avenue, New York, New York 10017 (Attention: Loans Administration);

               (b) The Borrower shall have paid a fee to the Agent on the Amendment Closing Date in the amount of twenty-five thousand dollars ($25,000) and shall have paid a fee to BoS (USA) Inc. on the Amendment Closing Date in the amount of one hundred thousand dollars ($100,000).

               (c) On the Amendment Closing Date, both before and after giving effect to the transactions contemplated by this Amendment to be effective on the Amendment Closing Date, (i) each representation and warranty made herein is true and correct in all material respects with the same effect as though such representations and warranties have been made at and as of such time; and (ii) no Material Adverse Change shall have occurred since September 30, 2003; and

               (d) The Borrower shall have delivered or caused to be delivered such other agreements, instruments and documents as are reasonably requested by the Agent.

All documents, agreements, certificates, financial statements, legal opinions, and other papers required to be delivered by this Section 5 shall be in form and substance satisfactory to the Agent.

     7. Release. The Borrower does hereby remise, release and forever discharge the Agent, Collateral Agent and the Lenders and each of their respective affiliates, successors, officers, directors, employees, counsel and agents, past and present, and each of them, of and from any and all manner of actions, and causes of action, suits, debts, dues, bonds, covenants, judgments, claims

16

and demands whatsoever in law or in equity, which against the Agent, the Collateral Agent, the Lenders or any of their respective affiliates, successors, officers, directors, employees, counsel or agents, or any one or more of them, the Borrower ever had, now has, or hereafter can, shall or may have for or by reason of any cause, matter or thing that occurred or did not occur on or prior to the Effective Date or the Amendment Closing Date with respect to or in any way relating to the Loan Agreement, this Amendment or any Security Document or other Loan Document or any proposed amendment or waiver of the Loan Agreement, the Amendment or any Security Document or other Loan Document except, in the case of the Agent, the Collateral Agent, any Lender or other Person, for the willful misconduct (if any) or gross negligence (if any) of the Agent, the Collateral Agent, any Lender or other such Person (as the case may be). By execution of a Confirming Consent relating to this Amendment attached hereto, each Loan Party signatory thereto acknowledges and consents to the foregoing and itself remises, releases and forever discharges the Agent, the Collateral Agent, the Lenders and each of their respective affiliates, successors, officers, directors, employees, counsel and agents, past and present, and each of them, from any and all such actions and all manner of actions, causes of action, suits, debts, dues, bonds, covenants, judgments, claims and demands whatsoever in law or equity ,which against the Agent, the Collateral Agent, the Lenders or any of their respective affiliates, successors, officers, directors, employees, counsel or agents, or any one or more of them such Loan Party ever had, now has, or hereafter can, shall or may have for or by reason of any cause, matter or thing that occurred or did not occur on or prior to the Effective Date or the Amendment Closing Date with respect to or in any way relating to the Loan Agreement, this Amendment or any Security Document or other Loan Document or any proposed amendment or waiver of the Loan Agreement, the Amendment or any Security Document or other Loan Document except, in the case of the Agent, the Collateral Agent, any Lender or other Person, for the willful misconduct (if any) or gross negligence (if any) of the Agent, the Collateral Agent, any Lender or other such Person (as the case may be).

     8. Limited Nature of Amendments. The amendments, consents and waivers (if any) set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to any waiver of, or modification of, any other term or condition of the Loan Agreement or any of the other Loan Documents or (b) prejudice any right or rights which the Agent, the Collateral Agent or the Lenders may now have or may have in the future under or in connection with the Loan Agreement or any of the other Loan Documents. Except as expressly amended hereby or consented to herein, the terms and provisions of the Loan Agreement and all other Loan Documents remain in full force and effect.

     9. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.

     10. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE MATTERS COVERED HEREBY AND THEREBY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

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         THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     11. Counterparts. This Amendment may be executed in any number of counterparts by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all the counterparts shall together constitute one and the same instrument. Telecopied signatures hereto shall be of the same force and effect as an original of a manually signed copy.

     12. Headings. The descriptive headings of the various provisions of this Amendment are for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first shown.

BANK OF SCOTLAND, acting through its New York
branch, as Agent and as a Lender
By
	Name:
	Title:
FIRSTCITY FINANCIAL CORPORATION
By
	Name:
	Title:

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CONFIRMING CONSENT

     Reference is hereby made to Amendment No. 5 dated as of March 31, 2004 (the “Amendment Agreement”) to the Term Loan and Revolving Credit Agreement (the “Loan Agreement”) dated as of December 12, 2002 (the Loan Agreement as amended to date and as amended from time to time hereafter, the “Amended Loan Agreement”).

     Each of the undersigned, for itself, hereby consents to the terms and provisions of the Amendment Agreement and to the transactions contemplated thereby and confirms and acknowledges that:

          (a) each pledge agreement, guarantee, security agreement, subordination agreement, collateral assignment agreement or other Loan Document entered into by it in connection with the Loan Agreement remains in full force and effect with respect to the Amended Loan Agreement and the obligations of the Borrower thereunder and under the other Loan Documents after giving effect to the Amendment Agreement and any transaction contemplated thereby as fully as it applied to the Loan Agreement (as amended up to the time immediately date prior to the Amendment Closing Date) and the obligations of the Borrower thereunder and under the other Loan Documents immediately prior to the Amendment Closing Date or the occurrence of any transaction contemplated by the Amendment Agreement; and

          (b) its consent and acknowledgement hereunder is not required under the terms of any such pledge agreement, guarantee, security agreement, subordination agreement, collateral assignment agreement or other Loan Document previously entered into by it and that any failure to obtain its consent or acknowledgment to any subsequent amendment to the Loan Agreement or Amended Loan Agreement or any of the other Loan Documents will not affect the validity of its obligations under such pledge agreement, guarantee, security agreement, subordination agreement, collateral assignment agreement or other Loan Document, and that this consent and acknowledgement is being delivered for purposes of form only.

     This consent may be executed in any number of counterparts by the parties hereto on separate counterparts.

     THIS CONSENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE MATTERS COVERED HEREBY AND THEREBY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

     THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

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     Terms used herein and not otherwise defined have the same meanings as in the Amendment Agreement. This Consent is dated as of March 31, 2004.

FC CAPITAL CORP.		FIRSTCITY COMMERCIAL CORPORATION
By		By
	Name:		Name:
	Title:		Title:
FIRSTCITY CONSUMER LENDING CORPORATION		FIRSTCITY HOLDINGS CORPORATION
By		By
	Name:		Name:
	Title:		Title:
FIRSTCITY INTERNATIONAL CORPORATION		FIRSTCITY MEXICO, INC.
By		By
	Name:		Name:
	Title:		Title:
FIRSTCITY SERVICING CORPORATION		FIRSTCITY FUNDING L.P.
By		By
	Name:		Name:
	Title:		Title:
FIRSTCITY HOLDINGS CORPORATION OF MINNESOTA		FIRSTCITY EUROPE CORPORATION
By		By
	Name:		Name:
	Title:		Title:

Signature Page to Confirming Consent

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EXHIBIT A

Schedule 2.1

	Term Loan					Revolving Credit
Lender	Commitment*		Eurosublimit*			Commitments**
Bank of Scotland acting through its New York branch	$	45,000,000		***	$	5,000,000
Total	$	45,000,000			$	5,000,000

* Subject to reduction pursuant to Sections 2.8(b) and 9.

**Subject to reduction pursuant to Sections 2.8(a) and 9.

***Eurosublimit not to exceed the amount of Euros of which the Dollar Equivalent is $22.5 million.

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SCHEDULE I

Additional PFAL Portfolio Entities

EX-10.19

EXHIBIT 10.19

SEPARATION AGREEMENT AND RELEASE

     This Separation Agreement and Release (“Agreement”) is made and entered into on April 23, 2004 to be effective as of March 31, 2004, by and between G. Stephen Fillip (hereinafter referred to as “Employee”), FirstCity Servicing Corporation. (hereinafter referred to as “FCSC”), and FirstCity Financial Corporation (hereinafter referred to as “FirstCity”).

     WHEREAS, Employee’s employment with FCSC and/or FCFC will terminate effective March 31, 2004; and

     WHEREAS, Employee, FCSC and FirstCity desire to settle the differences between them relating to all claims and causes of action that could be asserted by Employee including but not limited to those for vacation pay, severance pay or other payments that may be due or asserted to be due to Employee and to set forth their agreement concerning certain matters relating to their relationship following termination of employment and related agreements between them.

     In consideration of the mutual promises, covenants and agreements set forth herein, and in full compromise, release and settlement, accord and satisfaction, and discharge of all claims or causes of action, known or unknown, possessed by or belonging to Employee, the parties covenant and agree as follows:

     1. Each party shall take the following actions, subject to the terms of this Agreement:

               (a) FCSC will, on the later to occur of either (1) seven (7) days after the complete execution of this Agreement or (2) April 1, 2004, begin payment to Employee an amount equal to $10,000.00 per month less payroll deductions and continue payment of such amount to Employee by making two payments per month of $5,000.00 each on the first (1st) and fifteenth (15th) of each month thereafter until and including June 15, 2006. Employee will not be entitled to any other payments or compensation from FCSC or FCFC (as defined herein), except as provided in Sections 1(b), 1(c), 1(e) and 1(f). The payments set forth in this Section 1(a) may be subject to set-off by FCSC under the terms of the Consultant Agreement described in Section 1(f).

               (b) The current insurance carried by FirstCity will not allow Employee to continue coverage after March 31, 2004. FirstCity shall pay a percentage of Employee’s COBRA payments equal to the portion of Employee’s insurance paid by FirstCity as of March 31, 2004 divided by the total insurance premium to insure Employee as of March 31, 2004. After Employee’s COBRA coverage period has expired and until the earlier to occur of June 30, 2006 or when Employee is able to be covered by another group health insurance plan, FirstCity shall pay Employee an amount monthly equal to the dollar amount paid by FirstCity towards Employee’s COBRA payment for the last month of Employee’s COBRA coverage period. Employee shall not be considered an employee of

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FCSC and/or FCFC after March 31, 2004 and shall not be eligible to participate in FirstCity’s benefit plans after March 31, 2004.

               (c) The second paragraph of Section 2 of a Promissory Note dated as of December 12, 2002 in the principal amount of $971,250.00 executed by FirstCity Commercial Corporation payable to the order of Employee (the “Note”) shall be deleted in its entirety and replaced with the following:

“Notwithstanding the payment provisions set forth above, (a) if this Note is not paid in full on or before the Maturity Date, Maker and Payee agree that any amounts remaining unpaid hereunder as of the Maturity Date shall be forgiven, shall be deemed paid in full, and Payee shall not be entitled to any further payment under this Note and (b) if FirstCity Servicing Corporation (“FCSC”) terminates Payee “For Cause” under the terms of a Consultant Agreement dated April 23, 2004 executed by Payee and FCSC, this Note will be deemed paid in full and Payee will no longer be entitled to payments under this Note.”

               The definition of “Incentive Fees” set forth in the Note shall be deleted in its entirety and replaced with the following:

“Incentive Fees” means the aggregate amount, in US dollars, of all incentive servicing fees or consulting fees (i) received by FirstCity Servicing Corporation in any month related to acquisitions made prior to January 1, 2004 in its Mexico operations, and (ii) paid to Maker in such month, net of all taxes and/or other charges that may be assessed by applicable governmental authorities.”

               (d) Employee agrees that any Options (as defined in the Plans) held by Employee under the FirstCity Financial Corporation 1995 Stock Option and Award Plan and the FirstCity Financial Corporation 1996 Stock Option and Award Plan (collectively referred to as the “Plans”) shall be subject to the terms of such Plans including but not limited to the provisions concerning vesting and exercise. Employee further agrees that Employee shall not be considered or treated as an “Employee” (as the term “Employee” is defined in the Plans) under the terms of the Plans after March 31, 2004.

               (e) FCSC shall convey ownership of the Dell Latitude Laptop Computer currently in Employee’s possession to Employee after FCSC has removed all proprietary information and systems from such computer.

               (f) FCSC and Employee shall enter into a Consultant Agreement in the form of the Consultant Agreement set forth at Exhibit A attached hereto.

               (g) Employee, on behalf of himself and his agents, successors, assigns, heirs, executors, administrators, and legal representatives, releases FCSC, FirstCity and all of FirstCity Financial Corporation’s affiliates and subsidiaries (collectively, “FCFC”), their agents, servants, legal representatives, officers, directors, shareholders, partners and employees, and all persons, natural or corporate, in privity with them or any of them (all shall be collectively referred to as the “Released Parties”), from any and all claims or

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causes of action of any kind whatsoever, at common law, statutory, contractual or otherwise, that Employee has or might have, or that could be asserted in an administrative complaint or in a lawsuit, known or unknown, now existing or arising in the future, arising out of or related to employment, termination of employment, operation of FCSC or FCFC, or any other matters between or among Employee and the Released Parties, save and except as to performance of agreements set forth in this Agreement; this release shall include, without limitation, all claims of Employee related to any obligations, responsibilities, or liabilities of FCSC and/or FCFC: (i) under any written or oral employment or compensation agreement between Employee, FCSC and/or FCFC; (ii) under any agreements relating to compensation, reimbursement, or payment of any kind from FCSC or FCFC, save and except any 401K or other benefit obligations as in effect on March 31, 2004, any such obligations being subject to the terms and provisions of such benefit plans; (iii) under any written or oral agreements relating to an ownership of stock or operation of FCSC or FCFC; and (v) any and all claims, demands, suits, damages, losses, wrongs, actions, causes of action, or suits in equity or otherwise of any kind or nature whatsoever regarding his employment, and separation from employment, with FCSC or FCFC, including, but not limited to, any claim arising under the Age Discrimination in Employment Act, the Civil Rights Act of 1964, the Equal Pay Act, the Civil Rights Act of 1991, Americans with Disabilities Act, the Family and Medical Leave Act, the National Labor Relations Act, 42 U.S.C. Section 1981, 42 U.S.C. Section 1988 (including any claims by Employee or his counsel, if any, for attorney fees) the Occupational Safety and Health Act, the Employee Retirement Income Security Act, the Worker Adjustment and Retraining Notification Act, breach of contract, and all federal, state or local law claims, whether statutory or common law.

     2. Employee resigns as a director, officer and/or employee of FCSC, and of all its subsidiaries and affiliates, effective as of March 31, 2004 and shall assist FCSC and FCFC with a smooth transition of Employee’s responsibilities.

     3. In exchange for the payment and release of claims set forth in Section 1 and Employee’s agreement to strictly comply with the obligations set forth in Section 4, FCSC and FirstCity agree as follows:

               (a) FCSC and/or FCFC shall respond to any inquiry as to Employee’s employment status by confirming that he was an employee of FCSC until March 31, 2004.

               (b) FCSC shall report the payment of the amount under Section 1(a) on Employee’s IRS Form W-2 and the fair market value of the computer referenced in Section 1(e) on an IRS From 1099 to Employee. The amounts, if any, paid to Employee under the Note shall be reported to the IRS as such amounts have been previously reported to the IRS.

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     4. Employee agrees that:

               (a) Employee agrees that he shall not initiate any contact or discussions regarding the business interests or activities of FCSC or FCFC with any vendor or customer of FCSC or FCFC, however this should not be construed to prevent communication between the Employee and any other party, whether considered a vendor or customer of FCSC or FCFC, that does not relate to or regard the business interests or activities of FCSC or FCFC; nor shall Employee disclose any confidential information, trade secrets, or proprietary business information of FCSC and/or FCFC with any third parties, unless required by law or court order and only after providing prior written notice to FCSC or FCFC a sufficient amount of time prior to any such disclosure so that FCSC or FCFC would be able to take any protective action it would desire to pursue.

               (b) Employee agrees that until the latter of (i) October 1, 2005 or (ii) one (1) year after the expiration or termination of the Consultant Agreement (the “Non-Competition Period”), Employee will not, directly or indirectly, for himself or for any other person or entity participate in any business involving the acquisition of and/or servicing of portfolios of assets and/or loans (whether secured or unsecured, and whether performing or non-performing), whether acquired through a public auction or a privately negotiated transaction in competition with FCFC or its affiliates. For purposes of this Agreement, the term “participate” shall include any direct or indirect interest, as well as being holder of any equity or membership interest in any enterprise, fund, trust, whether as an officer, director, employee, partner, sole proprietor, agent, representative, independent contractor, consultant, advisor, provider of personal services, creditor, owner (other than by ownership of less than ten percent (10%) of the stock of a publicly-held corporation whose stock is traded on a national securities exchange or in the over-the counter market) or otherwise when FCFC or its affiliates are interested in the acquisition of and/or servicing of the same portfolios of loans or collateral securing such loans. The term “participate” shall not include any direct or indirect interest, as well as being holder of any equity or membership interest in CMC Cityscape II, Ltd. If at the time of enforcement of this sub-paragraph (a), a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope, or geographical area legally permissible under such circumstances will be substituted for the period, scope or area stated herein. To obtain consent to participate in the acquisition of and/or servicing of portfolios of assets and/or loans, Employee may give written notice to FCFC that Employee is interested in a transaction; after which FCFC shall have fifteen (15) business days from FCFC’s receipt of such written notice to consent to Employee’s participation in the transaction. In the event FCFC has not responded to Employee concerning any written notice at the expiration of the fifteen (15) business day period, then FCFC shall be deemed to have consented to Employee’s participation in the transaction described in the notice. Employee shall provide specific detail of the proposed transaction in the written notice.

               (c) Until the expiration of the Non-Competition Period, Employee agrees not to solicit the employment of any officer, director or employee of FCFC and/or FCSC, except with the express written permission of FirstCity.

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               (d) Employee will or shall return any and all property, documents, files, or other paper or electronic media in his possession which is pertinent to FCSC’s or FCFC’s business and copies thereof.

               (e) Employee agrees that FCSC and FCFC have specialized expertise in the acquisition, pricing methodology, servicing and sale of distressed assets and that Employee has knowledge of proprietary, confidential and nonpublic material concerning the business, methodology, models, computer programs and services of FCSC and FCFC and that during the term of the Consultant Agreement, FCSC and FCFC might disclose to Employee other proprietary, confidential and nonpublic material concerning the business and services of FCSC and FCFC (collectively, all such information is herein the “Confidential Information”). Before, during and after the term of this Agreement, Employee shall treat as confidential and not divulge, disclose or communicate any Confidential Information for any reason or in any manner to any person, except to those persons approved in writing by FCSC, who have been advised by Employee of the confidential nature of the information, and who have agreed in writing, a copy of which will be delivered to FCSC and FCFC, to comply with the terms of this Agreement for the benefit of FCSC and FCFC and which writing expressly provides that FCSC and FCFC may rely thereon and directly enforce such agreements against those persons. Further, Employee agrees that during the Non-Competition Period Employee will not knowingly, as a result of knowledge or information obtained from the Confidential Information, divert or attempt to divert any business or customer of FCSC and/or FCFC.

               The parties hereto agree that FCSC and FCFC would suffer irreparable harm from a breach by Employee of any of the covenants or agreements contained in Sections 4 (a), (b), (c), (d) and (e). Therefore, in the event of the actual or threatened breach by Employee of those provisions of this Agreement, FCSC and FCFC or their successors or assigns may, in addition and supplementary to other rights and remedies existing on their favor, apply to any court of law or equity of competent jurisdiction for specific performance, injunctive or other relief in order to enforce compliance with, or prevent any violation of, the provisions hereof (including the extension of the Non-Competition Period by a period equal to the length or proceedings necessary to stop such violation). In the event of an alleged breach or violation by Employee of any of the provisions of this Agreement, the Non-Competition Period will be tolled until such alleged breach or violation is resolved. Employee agrees that these restrictions are reasonable.

               (f) Employee shall not, at any time in the future, make or publish any critical or disparaging statements about FCSC or FCFC or any of their officers, employees, directors or operations to any other person or entity, nor will he do anything to disrupt or detrimentally affect, directly or indirectly, the business, operations or liabilities of FCSC and FCFC.

               (g) Employee acknowledges that he has been paid for all compensation, commission, wages, vacation, sick pay, severance pay, retention pay, and other payments of any kind that he earned for services through March 31, 2004. Employee understands and acknowledges that he shall not be entitled to any payments or benefits from FCSC or FCFC in his capacity as an employee or as an officer of FCSC or FCFC other than those

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expressly set forth in this Agreement, and further acknowledges that he is not entitled to any other payment, monies or benefits, and that FCSC and FCFC by complying with Section 1(a) of this Agreement will have fully complied with any and all obligations they have to Employee and shall not have any further liability to him.

     5. FCSC, FCFC and Employee acknowledge that this Agreement is entered into for the purpose of resolving any and all matters in controversy between them. The parties agree that neither FCSC, FCFC nor Employee will take any action inconsistent with the spirit and intent of this Agreement.

     6. FCSC, FirstCity and Employee each agree that they will keep confidential the existence and terms of this Agreement, except that the terms of this Agreement may be disclosed to Employee’s spouse, the attorney of either of the parties, necessary employees of FCSC or FCFC, or other persons only as required by law.

     7. Nothing contained herein shall be construed as an admission of liability by FCSC, FCFC or Employee, any such liability being expressly denied.

     8. It is understood and agreed that this Agreement contains the entire agreement between the parties and supersedes any and all prior agreements, arrangements, or undertakings between the parties relating to the subject matter. No oral understandings, statements, promises or inducements contrary to the terms of this Agreement exist. This Agreement cannot be changed orally and any changes or amendments must be signed by all parties affected by the change or amendment.

     9. Employee acknowledges and agrees if he breaches any provision of this Agreement then FCSC and/or FCFC may pursue any other relief available to them under applicable law, including appropriate injunctive relief.

     10. If any section, paragraph, sentence, clause, or phrase contained in this Agreement shall become illegal, null, or void, or shall be found to be against public policy, for any reason, or shall be held by any court of competent jurisdiction to be illegal, null, or void, or found to be against public policy, the remaining sections, paragraphs, sentences, clauses, or phrases contained in this Agreement shall not be affected thereby.

     11. One or more waivers of a breach of any provision hereunder by any party to this Agreement shall not be deemed to be a waiver of any proceeding or subsequent breach hereunder.

     12. Employee hereby acknowledges and expressly warrants and represents for himself, his predecessors, successors, assigns, heirs, executors, administrators and legal representatives that Employee (a) is legally competent and authorized to execute this Agreement, (b) has not assigned, pledged, or otherwise in any manner, sold or transferred, either by instrument in writing or otherwise, any rights, title, interest, or claim that he may have by reason of any matter described or released in this Agreement, and (c) has the full right and authority to enter into this Agreement. FCSC and FirstCity hereby acknowledge and expressly warrant and represent for themselves and their agents and successors that they are legally authorized to execute this Agreement, and they have the full right and authority to enter into this Agreement.

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     13. By executing this Agreement, Employee acknowledges that (a) any and all questions regarding the terms of this Agreement have been asked and answered to his complete satisfaction; (b) Employee has read this Agreement and fully understands its terms and their importance; (c) Employee is entering into this Agreement voluntarily, of his own free will, and without any coercion, undue influence, threat or intimidation of any kind or type whatsoever; and (d) Employee acknowledges that he has been advised by FCSC and FCFC that he has the right to consult with an attorney or other advisor prior to executing this Agreement.

     14. This Agreement is made and entered into in the State of Texas, and shall in all respects be interpreted, enforced and governed under the laws of said State. The language of all parts of this Agreement shall in all cased be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties.

     15. The terms of this Agreement are subject to the approval of the Compensation Committee.

     16. YOU ARE HEREBY ADVISED TO CAREFULLY CONSIDER THIS AGREEMENT AND TO CONSULT WITH AN ATTORNEY. IN THIS AGREEMENT YOU ARE BEING ASKED TO WAIVE POTENTIAL LEGAL CLAIMS AND RIGHTS THAT YOU MAY HAVE. YOU ARE FURTHER ADVISED THAT YOU HAVE TWENTY_ONE (21) CALENDAR DAYS TO CONSIDER THIS AGREEMENT AND RELEASE. IF YOU CHOOSE NOT TO SIGN THIS AGREEMENT AND RELEASE WITHIN SUCH PERIOD, IT SHALL BE CONSIDERED WITHDRAWN. FURTHER, YOU HAVE SEVEN (7) CALENDAR DAYS TO REVOKE YOUR ACCEPTANCE OF THIS AGREEMENT AND RELEASE.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date hereinabove written.

Date: April 23, 2004
	G. Stephen Fillip
	FirstCity Servicing Corporation
	By:
	Name:	James T. Sartain
	Title:	Chairman
	FirstCity Financial Corporation
	By:
	Name:	James T. Sartain
	Title:	Chairman

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THE STATE OF TEXAS	§
COUNTY OF MCLENNAN	§

     BEFORE ME, the undersigned, a Notary Public, on this day personally appeared G. Stephen Fillip, known to me to be the person whose name is subscribed to the foregoing instrument and he acknowledged to me that he executed the same for the purposes and consideration therein expressed.

     GIVEN UNDER MY HAND AND SEAL OF OFFICE this 23rd day of April, 2004.

Notary Public

THE STATE OF TEXAS	§
COUNTY OF MCLENNAN	§

     BEFORE ME, the undersigned, a Notary Public in and for said county and state, on this day personally appeared James T. Sartain, who is the Chairman for FirstCity Servicing Corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he/she executed the same for the purposes and consideration therein expressed, as the act and deed of said corporation, and in the capacity therein stated.

     Given under my hand and seal of office this 23rd day of April, 2004.

Notary Public

THE STATE OF TEXAS	§
COUNTY OF McLENNAN	§

     BEFORE ME, the undersigned, a Notary Public in and for said county and state, on this day personally appeared James T. Sartain, who is the Chairman for FirstCity Financial Corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and he acknowledged to me that he executed the same for the purposes and consideration therein expressed, as the act and deed of said corporation, and in the capacity therein stated.

     Given under my hand and seal of office this 23rd day of April, 2004.

Notary Public, State of Texas

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EX-10.20

EXHIBIT 10.20

CONSULTANT AGREEMENT

          This Consultant Agreement (this “Agreement”) is made effective as of April 1, 2004, by and between FirstCity Servicing Corporation, a Texas corporation (the “Company”), and G. Stephen Fillip, an individual (the “Consultant”). The parties, intending to be legally bound, agree as follows:

BACKGROUND

          G. Stephen Fillip was, prior to the Effective Date, employed as an officer and director of the Company and certain of its affiliates and subsidiaries. Prior to or as of the Effective Date, G. Stephen Fillip will resign his positions as an officer and director of the Company and all of its affiliates and subsidiaries.

AGREEMENT

1. DEFINITIONS

          For the purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1.

          “Agreement” means this Consultant Agreement, as amended from time to time.

          “Board of Directors” means the board of directors of the Company.

          “Company” means FirstCity Servicing Corporation.

          “Confidential Information” means any and all of the following, but only to the extent such information or documents were created, learned and/or obtained during the Consulting Period (defined below): (a) trade secrets concerning the business and affairs of the Company; (b) information concerning the business and affairs of the Company (which includes historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, the names and backgrounds of key personnel, personnel training and techniques and materials) however documented; and (c) notes, analysis, compilations, studies, summaries, and other material prepared by or for the Company containing or based, in whole or in part, on any information included in the foregoing.

          “Consulting Fee” has the meaning as defined in Section 3.1(a).

          “Consulting Period” has the meaning as defined in Section 2.3.

          “Effective Date” means April 1, 2004.

          “Consultant Invention” means any invention, technique, modification, process, or improvement (whether patentable or not) and any work of authorship (whether or not copyright protection may be obtained for it) created, conceived, or developed by the Consultant, either solely

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or in conjunction with others, during the Consulting Period, or a period that includes a portion of the Consulting Period, that relates in any way to, the financial services business as now conducted or then being conducted by the Company.

          “Fiscal Year” means the Company’s fiscal year, as it exists on the Effective Date or as changed from time to time.

          “For Cause” has the meaning as defined in Section 6.2.

          “Note” means a Promissory Note dated as of December 12, 2002 in the principal amount of $971,250.00 executed by FirstCity Commercial Corporation payable to the order of Consultant, as amended.

          “Person” means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, or governmental body.

          “Proprietary Items” has the meaning as defined in Section 7.2(a)(iv).

          “Requested Assignments” has the meaning as defined in Section 2.3.

          “Workday” means a day during which Consultant provides requested services to Company and shall not consist of less than eight (8) or more than ten (10) consecutive hours including a one (1) hour lunch break. If Consultant is required to work less than eight (8) or more than the ten (10) consecutive hours during any one day, then the worked or the excess hours shall constitute a fraction of a Workday based on a ten (10) hour day. For example, in the event Consultant is required to work 12 consecutive hours (including the 1 hour lunch break), then Consultant shall be deemed to have worked 1 and 1/10 Workdays. In the event Consultant is required to work only six (6) hours (including the 1 hour lunch break) on a day, then Consultant shall be deemed to have worked 5/10 of a Workday. In the event that the requested services performed by Consultant involve travel of more than four (4) consecutive hours, then (i) in the event Consultant begins the travel prior to or ends the travel after 12:00 noon on any day, then Consultant shall receive credit for a full Workday for that day; and (ii) in the event Consultant begins the travel after or ends the travel prior to 12:00 noon on any day, then Consultant will only receive credit for 1/2 of a Workday. Travel of four (4) or less consecutive hours shall be treated as a fraction of a Workday based on the actual travel hours. To the extent that the requested services require Consultant to remain out of town over a weekend, then any Saturday and/or Sunday of any such weekend on which Consultant does not provide requested services to Company shall be considered a half (1/2) Workday and on any Saturday and/or Sunday of any such weekend on which Consultant does provide requested services to Company, Consultant shall receive credit towards a Workday in proportion to the number of hours worked and credit for a 1/2 of a Workday. For example, if on any Saturday of any such weekend, Consultant works 6 hours, Consultant shall receive credit for 6/10 of a Workday and credit for 1/2 Workday totaling 1.10 Workdays.

          “Workdays Threshold” means 100 Workdays less the number of days of any Requested Assignment which Consultant declines.

2. TERMS AND DUTIES

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          2.1 ENGAGEMENT. The Company hereby engages the services of the Consultant, and the Consultant hereby accepts engagement by the Company, upon the terms and conditions set forth in this Agreement.

          2.2 TERM. Subject to the provisions of Section 6, the term of the Consultant’s engagement under this Agreement will be one (1) year, beginning on the Effective Date and ending on March 31, 2005.

          2.3 DUTIES. During the period beginning on April 1, 2004 and ending on March 31, 2005 (the “Consulting Period”), the Consultant shall assume the role of a consultant to the Company and will be available for consultation to the Company for at least the Workdays Threshold during the Consulting Period. Anything to the contrary notwithstanding, the Consultant shall devote only so much time, in excess of the Workdays Threshold, to the affairs of the Company as the Consultant, in his sole discretion, deems necessary. The specific services to be performed by Consultant shall be such duties as are assigned or delegated to the Consultant by the Board of Directors, Chairman or the President of the Company or their designee, which are generally those common to the position of a senior officer of the Company (the “Requested Assignments”). It is the intent of the Company and the Consultant that the Consultant will have additional free time available to him to pursue activities that are not in competition with the business of the Company or any of the subsidiaries or affiliates of the Company. During the Consulting Period, the Consultant will be entitled to receive the Consulting Fee. The Consultant will be reimbursed for reasonable travel and related expenses incurred in connection with such consultation services in accordance with Company’s then existing reimbursement policy. The Consultant will, subject to the limitations of this Section 2.3, use his best efforts to promote the success of the Company’s business, and will cooperate fully with the Board of Directors in the advancement of the best interests of the Company. Nothing in this Section 2.3, however, will prevent the Consultant from engaging in additional activities that are not inconsistent with the Consultant’s duties under this Agreement. In no event shall Consultant’s duties under this Agreement require Consultant to remain our of Waco, Texas for more than three (3) weeks including two (2) weekends without returning to Waco, Texas for a period of at least three (3) consecutive calendar days unless Consultant and Company mutually agree. Consultant shall be available to perform duties upon three (3) business days notice from Company.

3. COMPENSATION

          3.1 Subject to the terms of this Agreement, the Consultant will receive compensation as set forth in subparts (a) and (b) of this Section 3.1.

(a) Consulting Fee. The Consultant will be paid a consulting fee of $1,000.00 per Workday (or a pro-rata portion thereof for partial Workdays), commencing on the Effective Date, and continuing during the Consulting Period (the “Consulting Fee”). Consultant shall submit documentation as reasonably required by Company to substantiate Workdays (“Documentation”). The Consulting Fee will be payable in equal minimum bi-monthly installments equal to $4,166.67 on the 15^th of the month and on the last day of each calendar month according to the Company’s customary payroll practices. In the event Consultant is required to work in excess of 100 Workdays during the Consulting Period then such excess shall be payable to Consultant at the rate of $1,000.00 per excess Workday on the 15^th of each month following the month in which Consultant reaches the Workday Threshold. Except as provided in Section 6, the Consulting Fee shall be paid to Consultant for at least

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the number of Workdays constituting the Workdays Threshold, even if the Consultant is not required to work the entire Workdays Threshold by Company.

(b) No Other Compensation. Except as set forth in a Separation Agreement and Release (the “Separation Agreement”) of even date herewith executed by Consultant, Company and FirstCity Financial Corporation, the Consultant shall not be entitled to any additional compensation, fees, benefits or bonuses of any kind from the Company or its subsidiaries or affiliates.

          3.2 STATUS OF CONSULTANT AND COMPANY. The parties intend that Consultant shall be considered a part-time employee of the Company during the Consulting Period. However, Consultant shall not be entitled to participate in any benefit or benefit plan of Company or its affiliates and upon the termination of this Agreement shall not be entitled to or due any type of severance.

4. FACILITIES AND EXPENSES

          4.1 GENERAL. The Company will furnish the Consultant office space, equipment, supplies, and such other facilities as the Company deems necessary or appropriate for the performance of the Consultant’s duties under this Agreement. The Company will pay on behalf of the Consultant (or reimburse the Consultant for) reasonable expenses incurred by the Consultant, to which the Company gave its prior written approval, at the request of, or on behalf of, the Company in the performance of the Consultant’s duties pursuant to this Agreement, and in accordance with the Company’s employment policies, including reasonable expenses incurred by the Consultant in attending business meetings. The Consultant must file expense reports with respect to such expenses in accordance with the Company’s policies.

5. INTENTIONALLY OMITTED

6. TERMINATION

          6.1 EVENTS OF TERMINATION. During the Consulting Period, the Consultant’s Consulting Fee, and any and all other rights of the Consultant under this Agreement will terminate (except as otherwise provided in this Section 6):

(a) upon the death of the Consultant; or

(b) For Cause (as defined in Section 6.2), immediately upon notice from the Company to the Consultant, or at such later time as such notice may specify.

          6.2 DEFINITION OF “FOR CAUSE”. For purposes of Section 6.1, the phrase “For Cause” shall have the meaning as determined under common law, and shall include, without limitation: (a) the Consultant’s material breach of this Agreement; (b) the Consultant’s failure to adhere to any written policy of the Company if the Consultant has been given a reasonable opportunity to comply with such policy or cure his failure to comply (which reasonable opportunity must be granted during the ten-day period preceding termination of this Agreement); (c) the Consultant’s appropriation (or attempted appropriation) of a material business opportunity of the Company, including attempting to secure or securing any personal profit in connection with any transaction entered into on behalf of the Company; (d) the Consultant’s misappropriation (or attempted misappropriation) of any of the Company’s funds or property or commission of any act of

Page 4

fraud or embezzlement by the Consultant; (e) willful misconduct by the Consultant in the performance of his duties hereunder; (f) any breach by the Consultant of any fiduciary duty to the Company; (g) Consultant’s breach under the Separation Agreement; or (h) the Consultant’s conviction of, the indictment for (or its procedural equivalent), or the entering of a guilty plea or plea of no contest with respect to, a felony, the equivalent thereof, or any other crime with respect to which imprisonment is a possible punishment. Termination of Consultant “For Cause” shall deem the Note paid in full according to Section 2 of such Note, as amended.

          6.3 INTENTIONALLY OMITTED

          6.4 TERMINATION PAY. Effective upon the termination of this Agreement, the Company will be obligated to pay the Consultant (or, in the event of his death, his designated beneficiary as defined below) only such compensation as is provided in this Section 6.4, and in lieu of all other amounts and in settlement and complete release of all claims the Consultant may have against the Company. For purposes of this Section 6.4, the Consultant’s designated beneficiary will be such individual beneficiary or trust, located at such address, as the Consultant may designate by notice to the Company from time to time or, if the Consultant fails to give notice to the Company of such a beneficiary, the Consultant’s estate. Notwithstanding the preceding sentence, the Company will have no duty, in any circumstances, to attempt to open an estate on behalf of the Consultant, to determine whether any beneficiary designated by the Consultant is alive or to ascertain the address of any such beneficiary, to determine the existence of any trust, to determine whether any person or entity purporting to act as the Consultant’s personal representative (or the trustee of a trust established by the Consultant) is duly authorized to act in that capacity, or to locate or attempt to locate any beneficiary, personal representative, or trustee. Upon the termination of this Agreement, the Consultant will be entitled to receive the Consulting Fee based on Workdays worked only through the date such termination is effective. In the event this Agreement terminates prior to the end of the Consulting Period, and the Consultant Fees paid to Consultant are greater than $1,000.00 times the number of Workdays worked then Company may offset the difference in equal amounts against the remaining payments owed to Consultant under a Separation Agreement and Release of even date herewith between Consultant, FCSC and FirstCity Financial Corporation.

7. NON-DISCLOSURE COVENANT; CONSULTANT INVENTIONS

          7.1 ACKNOWLEDGMENTS BY THE CONSULTANT. The Consultant acknowledges that (a) during the Consulting Period and as a part of his engagement, the Consultant will be afforded access to Confidential Information; (b) public disclosure of such Confidential Information could have an adverse effect on the Company and its business; (c) because the Consultant possesses substantial technical expertise and skill with respect to the Company’s business, the Company desires to obtain exclusive ownership of each Consultant Invention, and the Company will be at a substantial competitive disadvantage if it fails to acquire exclusive ownership of each Consultant Invention; (d) the Company has required that the Consultant make the covenants in this Section 7 as a condition to entering into this Agreement; and (e) the provisions of this Section 7 are reasonable and necessary to prevent the improper use or disclosure of Confidential Information and to provide the Company with exclusive ownership of all Consultant Inventions.

          7.2 AGREEMENTS OF THE CONSULTANT. In consideration of the compensation to be paid or provided to the Consultant by the Company under this Agreement, the Consultant covenants as follows:

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(a) Confidentiality.

(i)	During the Consulting Period the Consultant will hold in confidence the Confidential Information and will not disclose it to any person except with the specific prior written consent of the Company or except as otherwise expressly permitted by the terms of this Agreement.
(ii)	Any trade secrets of the Company will be entitled to all of the protections and benefits under applicable law. If any information that the Company deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information will, nevertheless, be considered Confidential Information for purposes of this Agreement. The Consultant hereby waives any requirement that the Company submit proof of the economic value of any trade secret or post a bond or other security.
(iii)	None of the foregoing obligations and restrictions applies to any part of the Confidential Information that the Consultant demonstrates was or became generally available to the public other than as a result of a disclosure by the Consultant.
(iv)	The Consultant will not remove from the Company’s premises (except to the extent such removal is for purposes of the performance of the Consultant’s duties at home or while traveling, or except as otherwise specifically authorized by the Company) any document, record, notebook, plan, model, component, device, or computer software or code owned by the Company, whether embodied in a disk or in any other form (collectively, the “Proprietary Items”). The Consultant recognizes that, as between the Company and the Consultant, all of the Proprietary Items, whether or not developed by the Consultant, are the exclusive property of the Company. Upon termination of this Agreement by either party, or upon the request of the Company during the Consulting Period, the Consultant will return to the Company all of the Proprietary Items in the Consultant’s possession or subject to the Consultant’s control, and the Consultant shall not retain any copies, abstracts, sketches, or other physical embodiment of any of the Proprietary Items.

(b) Consultant Inventions. Each Consultant Invention will belong exclusively to the Company. If it is determined that any such works are not works made for hire, the Consultant hereby assigns to the Company all of the Consultant’s right, title and interest, including all rights of copyright, patent, and other intellectual property rights, to or in such Consultant Inventions. The Consultant covenants that he will promptly:

(i)	disclose to the Company any Consultant Invention;
(ii)	assign to the Company or to a party designated by the Company, at the Company’s request and without additional compensation, all of the

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	Consultant’s rights to the Consultant Invention for the United States and all foreign jurisdictions;
(iii)	execute and deliver to the Company such applications, assignments, and other documents as the Company may request in order to apply for and obtain patents or other registrations with respect to any Consultant Invention in the United States and any foreign jurisdictions;
(iv)	sign all other papers necessary to carry out the above obligations; and
(v)	give testimony and render any other assistance but without expense to the Consultant in support of the Company’s rights to any Consultant Invention.

          7.3 DISPUTES OR CONTROVERSIES. The Consultant recognizes that should a dispute or controversy arising from or relating to this Agreement be submitted for adjudication to any court, arbitration panel, or other third party, the preservation of the secrecy of Confidential Information may be jeopardized. In the event any arbitration or court proceeding is instigated relating to this Agreement, the parties to this Agreement agree to make good faith efforts to preserve the secrecy of any Confidential Information.

8. INTENTIONALLY OMITTED

9. GENERAL PROVISIONS

          9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The Consultant acknowledges that the injury that would be suffered by the Company as a result of a breach of the provisions of this Agreement (including any provision of Section 7) would be irreparable and that an award of monetary damages to the Company for such a breach would be an inadequate remedy. Consequently, the Company will have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Company will not be obligated to post bond or other security in seeking such relief. Without limiting the Company’s rights under this Section 9 or any other remedies of the Company, if the Consultant breaches any of the provisions of Section 7, the Company will have the right to cease making any payments otherwise due to the Consultant under this Agreement.

          9.2 COVENANTS OF SECTION 7 ARE ESSENTIAL AND INDEPENDENT COVENANTS. The covenants by the Consultant in Section 7 are essential elements of this Agreement, and without the Consultant’s agreement to comply with such covenants, the Company would not have entered into this Agreement or engaged or continued the engagement of the Consultant. The Company and the Consultant have independently consulted their respective counsel and have been advised in all respects concerning the reasonableness and propriety of such covenants, with specific regard to the nature of the business conducted by the Company.

          The Consultant’s covenants in Section 7 are independent covenants and the existence of any claim by the Consultant against the Company under this Agreement or otherwise, or against the Buyer, will not excuse the Consultant’s breach of any covenant in Section 7 unless the Agreement is terminated pursuant to paragraph 6.1(b) hereof.

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          If the Consultant’s engagement hereunder expires or is terminated, this Agreement will continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of the Consultant in Section 7 unless the Agreement is terminated pursuant to paragraph 6.1(b) hereof.

          9.3 REPRESENTATIONS AND WARRANTIES BY THE CONSULTANT. The Consultant represents and warrants to the Company that the execution and delivery by the Consultant of this Agreement do not, and the performance by the Consultant of the Consultant’s obligations hereunder will not, with or without the giving of notice or the passage of time, or both: (a) violate any judgment, writ, injunction, or order of any court, arbitrator, or governmental agency applicable to the Consultant; or (b) conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Consultant is a party or by which the Consultant is or may be bound.

          9.4 WAIVER. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power or privilege under this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement.

          9.5 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives, including any entity with which the Company may merge or consolidate or to which all or substantially all of its assets may be transferred. The duties and covenants of the Consultant under this Agreement, being personal, may not be assigned.

          9.6 NOTICES. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties):

If to Company:	FirstCity Servicing Corporation
	P.O. Box 8216, Waco, Texas 76714-8216 (mail)
	6400 Imperial Drive, Waco, Texas 76712 (deliveries only)
	Attention: Richard J. Vander Woude
	Facsimile No. 254-761-2953
If to the Consultant:	G. Stephen Fillip

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1041 Bosque Ridge

Crawford, Texas 76638

          9.7 ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof. This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto.

          9.8 GOVERNING LAW. This Agreement will be governed by the laws of the State of Texas without regard to conflicts of laws principles.

          9.9 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms.

          9.10 SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

          9.11 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.

          9.12 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors, permitted assigns, heirs and legal representatives.

          9.13 NO CONSTRUCTION AGAINST PREPARER. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any party by any court or other governmental or judicial authority by reason of such party’s having or being deemed to have prepared or imposed such provision.

          9.14 COUNSEL. Each party hereto warrants and represents that each party has been afforded the opportunity to be represented by counsel of its choice in connection with the execution of this Agreement, and has had ample opportunity to read, review, and understand the provisions of this Agreement.

          9.15 ATTORNEYS’ FEES. In the event of any litigation between the Company and the Consultant arising under or in connection with this Agreement, the prevailing party shall be entitled to recover from the other party the expenses of litigation (including reasonable attorneys’ fees, expenses and disbursements) incurred by the prevailing party.

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          9.16 NON-WAIVER. Failure by any party to complain of any action, non-action or breach of any other party shall not constitute a waiver of any aggrieved party’s rights hereunder. Waiver by any party of any right arising from any breach of any other party shall not constitute a waiver of any other right arising from a subsequent breach of the same obligation or for any other default, past, present or future.

          9.17 TIME OF ESSENCE; DATES. Time is of the essence of this Agreement. Anywhere a day certain is stated for payment or for performance of any obligation, the day certain so stated enters into and becomes a part of the consideration for this Agreement. If any date set forth in this Agreement shall fall on, or any time period set forth in this Agreement shall expire on, a day which is a Saturday, Sunday, federal or state holiday, or other non-business day, such date shall automatically be extended to, and the expiration of such time period shall automatically be extended to, the next day which is not a Saturday, Sunday, federal or state holiday or other non-business day. The final day of any time period under this Agreement or any deadline under this Agreement shall be the specified day or date, and shall include the period of time through and including such specified day or date.

          9.18 FACSIMILE AS WRITING. The parties expressly acknowledge and agree that, notwithstanding any statutory or decisional law to the contrary, the printed product of a facsimile transmittal shall be deemed to be “written” and a “writing” for all purposes of this Agreement.

          9.19 ARBITRATION. The parties agree that any controversy or claim arising out of or relating to this Agreement, the Consultant’s engagement or termination, including all statutory and common law claims (except for workers’ compensation and unemployment claims) will be settled exclusively by final and binding arbitration. Arbitration will be governed by the Federal Arbitration Act and administered by the Judicial Arbitration and Mediation Services Rules for the Resolution of Employment Disputes (JAMS). The arbitrator is empowered to award all appropriate remedies under Texas or federal law. The arbitrator shall have exclusive authority to resolve any dispute relating to the validity, interpretation, application and enforcement of this Agreement. Judgment on the arbitrator’s award may be enforced in any court with proper jurisdiction. Each party will equally bear all costs and legal fees of arbitration, unless otherwise required by law. The parties further agree that the arbitration will occur in Dallas County, Texas.

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          9.20 TERMINATION OF PRIOR AGREEMENTS. EXCEPT FOR THE SEPARATION AND RELEASE OF EVEN DATE HEREWITH, THE COMPANY AND THE CONSULTANT ACKNOWLEDGE AND AGREE THAT THIS AGREEMENT IS THE ONLY AGREEMENT RELATING TO THE TERMS OF ENGAGEMENT, COMPENSATION, BONUSES, RIGHTS TO ANY PROFITS (OR INTEREST THEREIN) OR ANY OTHER CLAIM TO PAYMENTS OF ANY KIND OF THE CONSULTANT RELATING TO THE COMPANY, FIRSTCITY FINANCIAL MORTGAGE CORPORATION, NEW AMERICA FINANCIAL, INC., HARBOR FINANCIAL MORTGAGE CORPORATION, OR ANY OF THEIR AFFILIATES OR SUBSIDIARIES COVERING THE CONSULTING PERIOD OR ANY PERIOD OF TIME PRIOR TO THE EFFECTIVE DATE. ANY AND ALL OTHER AGREEMENTS BETWEEN THE PARTIES TO THIS AGREEMENT RELATING TO THE TERMS OF ENGAGEMENT, COMPENSATION, BONUSES, RIGHTS TO ANY PROFITS (OR INTEREST THEREIN) OR ANY OTHER CLAIM TO PAYMENTS OF ANY KIND (WHETHER DEFERRED OR OTHERWISE), OR OTHER ENGAGEMENT MATTERS BETWEEN THE CONSULTANT AND THE COMPANY, OR ANY OF ITS AFFILIATES OR SUBSIDIARIES ARE HEREBY TERMINATED.

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date above first written above.

COMPANY:
FirstCity Servicing Corporation
By:
Name:	James T. Sartain
Title:	Chairman
CONSULTANT:
G. Stephen Fillip

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, James T. Sartain, certify that:

(1)	I have reviewed this quarterly report on Form 10-Q of FirstCity Financial Corporation;
(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2004

/s/ James T. Sartain
James T. Sartain
Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, J. Bryan Baker, certify that:

(1)	I have reviewed this quarterly report on Form 10-Q of FirstCity Financial Corporation;
(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2004

/s/ J. Bryan Baker
J. Bryan Baker
Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of FirstCity Financial Corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

     The Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.

Date: May 14, 2004	/s/ James T. Sartain
	James T. Sartain
	Chief Executive Officer

     The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of FirstCity Financial Corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

     The Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.

Date: May 14, 2004	/s/ J. Bryan Baker
	J. Bryan Baker
	Chief Financial Officer

     The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.