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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------

FORM 10-Q

(MARK ONE)

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

For the Quarterly Period Ended March 31, 2001

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

Commission File Number 033-19694

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

FIRSTCITY FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 76-0243729
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

6400 IMPERIAL DRIVE, WACO, TX 76712
(Address of Principal Executive Offices) (Zip Code)

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

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

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

The number of shares of common stock, par value $.01 per share, outstanding
at May 15, 2001 was 8,375,533.
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2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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

MARCH 31, DECEMBER 31,
2001 2000
--------- ------------

ASSETS
Cash and cash equivalents................................... $ 7,224 $ 8,043
Portfolio Assets, net....................................... 27,297 30,018
Loans receivable, net....................................... 17,771 14,539
Equity investments.......................................... 41,122 39,022
Deferred tax benefit, net................................... 20,101 20,101
Other assets, net........................................... 8,879 8,824
Net assets of discontinued operations....................... 20,842 20,444
-------- --------
Total Assets...................................... $143,236 $140,991
======== ========

LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $ 94,108 $ 93,764
Other liabilities......................................... 8,967 9,216
-------- --------
Total Liabilities................................. 103,075 102,980
Commitments and contingencies............................... -- --
Redeemable preferred stock:
Adjusting rate preferred stock, including accumulated
dividends in arrears of $4,494 and $3,852, respectively
(par value $.01; redemption value of $21 per share;
2,000,000 shares authorized; 1,222,901 shares issued
and outstanding)....................................... 30,175 29,533
Shareholders' equity:
Optional preferred stock (par value $.01 per share;
98,000,000 shares authorized; no shares issued or
outstanding)........................................... -- --
Common stock (par value $.01 per share; 100,000,000 shares
authorized; issued and outstanding: 8,375,533 and
8,368,344 shares, respectively)........................ 84 84
Paid in capital........................................... 79,643 79,634
Accumulated deficit....................................... (70,148) (71,131)
Accumulated other comprehensive income (loss)............. 407 (109)
-------- --------
Total Shareholders' Equity........................ 9,986 8,478
-------- --------
Total Liabilities, Redeemable Preferred Stock and
Shareholders' Equity............................ $143,236 $140,991
======== ========

See accompanying notes to consolidated financial statements.

2
3

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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

THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
------- --------

Revenues:
Servicing fees............................................ $2,465 $ 3,296
Gain on resolution of Portfolio Assets.................... 218 1,081
Equity in earnings of investments......................... 2,060 2,613
Interest income........................................... 1,240 5,005
Gain on sale of interest in equity investment............. 3,134 --
Gain on sale of automobile loans.......................... -- 2,836
Other income.............................................. 120 845
------ -------
Total revenues.................................... 9,237 15,676
Expenses:
Interest and fees on notes payable........................ 2,442 5,509
Salaries and benefits..................................... 2,223 4,670
Provision for loan and impairment losses.................. 585 1,105
Occupancy, data processing, communication and other....... 2,578 4,262
------ -------
Total expenses.................................... 7,828 15,546
Earnings from continuing operations before income taxes and
minority interest......................................... 1,409 130
Benefit (provision) for income taxes........................ 15 (19)
------ -------
Earnings from continuing operations before minority
interest.................................................. 1,424 111
Minority interest........................................... 201 (240)
------ -------
Earnings (loss) from continuing operations.................. 1,625 (129)
Loss from discontinued operations........................... -- --
------ -------
Net earnings (loss)......................................... 1,625 (129)
Accumulated preferred dividends in arrears.................. (642) (642)
------ -------
Net earnings (loss) to common shareholders.................. $ 983 $ (771)
====== =======
Basic and diluted earnings (loss) per common share are as
follows:
Earnings (loss) from continuing operations................ $ 0.12 $ (0.09)
Weighted average common shares outstanding................ 8,368 8,333

See accompanying notes to consolidated financial statements.

3
4

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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

ACCUMULATED
OTHER TOTAL
NUMBER OF COMMON PAID IN ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
COMMON SHARES STOCK CAPITAL DEFICIT INCOME (LOSS) EQUITY
------------- ------- -------- ----------- ------------- -------------

BALANCES, DECEMBER 31, 1999...... 8,333,300 $83 $79,562 $(52,663) $(395) $ 26,587
Purchase of shares through
employee stock purchase plan... 35,044 1 72 -- -- 73
Comprehensive loss:
Net loss for 2000.............. -- -- -- (15,900) -- (15,900)
Foreign currency items......... -- -- -- -- 286 286
--------
Total comprehensive loss......... (15,614)
--------
Preferred dividends.............. -- -- -- (2,568) -- (2,568)
--------- --- ------- -------- ----- --------
BALANCES, DECEMBER 31, 2000...... 8,368,344 84 79,634 (71,131) (109) 8,478
Purchase of shares through
employee stock purchase plan... 7,189 -- 9 -- -- 9
Comprehensive income:
Net earnings for the first
three months of 2001......... -- -- -- 1,625 -- 1,625
Foreign currency items......... -- -- -- -- (464) (464)
Unrealized gain of equity
investment................... -- -- -- -- 980 980
--------
Total comprehensive income....... 2,141
--------
Preferred dividends.............. -- -- -- (642) -- (642)
--------- --- ------- -------- ----- --------
BALANCES, MARCH 31, 2001......... 8,375,533 $84 $79,643 $(70,148) $ 407 $ 9,986
========= === ======= ======== ===== ========

See accompanying notes to consolidated financial statements

4
5

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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

THREE MONTHS ENDED
MARCH 31,
---------------------
2001 2000
--------- --------

Cash flows from operating activities:
Net earnings (loss)....................................... $ 1,625 $ (129)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Proceeds from resolution of Portfolio Assets........... 1,841 4,286
Gain on resolution of Portfolio Assets................. (218) (1,081)
Purchase of Portfolio Assets and loans receivable,
net................................................... (3,955) (334)
Origination of automobile receivables, net of purchase
discount.............................................. -- (51,660)
Provision for loan and impairment losses............... 585 1,105
Equity in earnings of investments...................... (2,060) (2,613)
Proceeds from performing Portfolio Assets and loans
receivable, net....................................... 1,259 40,379
Depreciation and amortization.......................... 251 693
Increase in other assets............................... (717) (7,674)
Gain on sale of interest in equity investment.......... (3,134) --
Increase in other liabilities.......................... 322 4,135
-------- --------
Net cash used in operating activities............. (4,201) (12,893)
-------- --------
Cash flows from investing activities:
Proceeds from sale of interest in equity investment....... 7,000 --
Property and equipment, net............................... (85) 481
Contributions to Acquisition Partnerships and Servicing
Entities............................................... (5,778) (1,659)
Distributions from Acquisition Partnerships and Servicing
Entities............................................... 2,345 2,418
-------- --------
Net cash provided by investing activities......... 3,482 1,240
-------- --------
Cash flows from financing activities:
Borrowings under notes payable............................ 11,197 55,894
Payments of notes payable................................. (10,908) (41,428)
Proceeds from issuance of common stock.................... 9 34
-------- --------
Net cash provided by financing activities......... 298 14,500
-------- --------
Net cash provided by (used in) continuing
operations...................................... (421) 2,847
Net cash used by discontinued operations.......... (398) (1,133)
-------- --------
Net increase (decrease) in cash and cash equivalents........ $ (819) $ 1,714
Cash and cash equivalents, beginning of period.............. 8,043 11,263
-------- --------
Cash and cash equivalents, end of period.................... $ 7,224 $ 12,977
======== ========
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest............................................... $ 2,293 $ 4,638
Income taxes........................................... (15) 19
Non-cash investing activities:
Residual interests received as a result of sales of
loans through securitizations......................... -- 5,713
Non-cash financing activities:
Dividends accumulated and not paid on preferred
stock................................................. 642 642

See accompanying notes to consolidated financial statements.

5
6

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(1) BASIS OF PRESENTATION AND EARNINGS (LOSS) PER COMMON SHARE

The unaudited consolidated financial statements of FirstCity Financial
Corporation ("FirstCity" or the "Company") reflect, in the opinion of
management, all adjustments, consisting only of normal and recurring
adjustments, necessary to present fairly FirstCity's financial position at March
31, 2001, the results of operations and the cash flows for the three-month
periods ended March 31, 2001 and 2000.

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

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

The effects of any common stock equivalents are antidilutive for the three
months ended March 31, 2001 and 2000; therefore, diluted earnings (loss) per
common share is reported the same as basic earnings (loss) per common share.

(2) LIQUIDITY AND CAPITAL RESOURCES

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

6
7

$12 million Term Loan B owed to IFA Parent and Bank of Scotland remains
outstanding, but not prior to that date. The strike price of $2.3125 remains the
same. In the event that prior to August 31, 2001 the Company either (a)
refinances the $12 million Term Loan B with subordinated debt, or (b) pays off
the balance of Term Loan B from proceeds of an equity offering, then the option
to acquire a warrant for 1,975,000 shares of non-voting Common Stock will
terminate.

IFA Parent also retains its warrant to purchase 425,000 shares of the
Company's voting Common Stock at $2.3125 per share, which was issued in
connection with the Company's debt restructure in December 1999. In the event
that Term Loan B is terminated prior to August 31, 2001 through a transaction
involving the issuance of warrants, IFA Parent is entitled to additional
warrants in connection with this existing warrant for 425,000 shares to retain
its ability to acquire approximately 4.86% of the Company's voting Common Stock.

Dividends on outstanding preferred stock of FirstCity will be restricted
until Term Loan B is paid in full. Given the continued high debt levels of the
Company, and management's priority of assuring adequate levels of liquidity, the
Company does not anticipate that preferred dividends will be paid in 2001.
Management continues to evaluate various alternatives, including an overall
corporate restructure to maximize long term stockholder value.

During the second quarter of 2000, the Portfolio Asset acquisition and
resolution group of the Company entered into a $17 million loan facility with
Cargill. This facility is being used exclusively to provide equity in new
portfolio acquisitions in partnerships with Cargill. In January 2001, this
facility was increased to $30 million. As of March 31, 2001, the Company has $23
million outstanding under this facility.

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

(3) NEW ACCOUNTING PRONOUNCEMENTS

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

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

7
8

(4) DISCONTINUED OPERATIONS

The net assets from discontinued operations consist of the following:

MARCH 31, DECEMBER 31,
2001 2000
--------- ------------

Estimated future gross cash receipts on residual interests
in securitizations........................................ $23,901 $24,652
Accrual for loss on operations and disposal of discontinued
operations, net........................................... (3,059) (4,208)
------- -------
Net assets of discontinued operations............. $20,842 $20,444
======= =======

(5) PORTFOLIO ASSETS

Portfolio Assets are summarized as follows:

MARCH 31, DECEMBER 31,
2001 2000
--------- ------------

Non-performing Portfolio Assets............................. $55,055 $55,807
Performing Portfolio Assets................................. 14,206 15,162
Real estate Portfolios...................................... 3,001 3,075
------- -------
Total Portfolio Assets................................. 72,262 74,044
Adjusted purchase discount required to reflect Portfolio
Assets at carrying value.................................. (44,965) (44,026)
------- -------
Portfolio Assets, net.................................. $27,297 $30,018
======= =======

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

(6) LOANS RECEIVABLE

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

MARCH 31, DECEMBER 31,
2001 2000
--------- ------------

Consumer finance receivables................................ $ 261 $ 332
Other loans held for investment............................. 17,510 14,207
------- -------
Loans receivable, net............................. $17,771 $14,539
======= =======

(7) EQUITY INVESTMENTS

The Company has investments in Acquisition Partnerships and their general
partners and investments in Servicing Entities that are accounted for under the
equity method. The condensed combined financial position

8
9

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,
2001 2000
--------- ------------

Assets...................................................... $664,394 $603,353
======== ========
Liabilities................................................. $511,538 $471,336
Net equity.................................................. 152,856 132,017
-------- --------
$664,394 $603,353
======== ========
Equity investment in Acquisition Partnerships............... $ 36,082 $ 33,862
Equity investment in Servicing Entities..................... 1,972 1,422
-------- --------
$ 38,054 $ 35,284
======== ========

CONDENSED COMBINED SUMMARY OF OPERATIONS

THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------

Proceeds from resolution of Portfolio Assets................ $61,785 $29,282
Gain on resolution of Portfolio Assets...................... 30,258 13,738
Interest income on performing Portfolio Assets.............. 5,027 5,222
Net earnings (loss)......................................... (5,102) 10,051
======= =======
Equity in earnings of Acquisition Partnerships.............. $ 3,125 $ 2,592
Equity in earnings of Servicing Entities.................... 829 21
------- -------
$ 3,954 $ 2,613
======= =======

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

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, DECEMBER 31,
2001 2000
--------- ------------

Assets...................................................... $255,634 $164,208
======== ========
Liabilities................................................. $247,716 $154,561
Net equity.................................................. 7,918 9,647
-------- --------
$255,634 $164,208
======== ========
Equity investment in Drive.................................. $ 3,068 $ 3,738
Minority interest......................................... (613) (748)
-------- --------
Net investment in Drive........................... $ 2,455 $ 2,990
======== ========

9
10

CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS

THREE MONTHS ENDED
MARCH 31, 2001
------------------

Revenues.................................................... $ 6,502
Expenses.................................................... 11,391
-------
Net loss.................................................... $(4,889)
=======
Equity in loss of Drive..................................... $(1,894)
Minority interest......................................... (378)
-------
Net equity in loss of Drive............................... $(1,516)
=======

(8) SEGMENT REPORTING

The Company is engaged in two reportable segments (i) portfolio asset
acquisition and resolution; and (ii) consumer lending. These segments have been
segregated based on products and services offered by each. As a result of the
sale of a 49% equity interest in the Company's automobile finance operation, the
net operations of Drive have been recorded (since August 1, 2000) as equity in
earnings of investments. The following is a summary of results of operations for
each of the segments and a reconciliation to earnings (loss) from continuing
operations for the three months ended March 31, 2001 and 2000.

THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- -------

PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Servicing fees......................................... $ 2,465 $1,623
Gain on resolution of Portfolio Assets................. 218 1,081
Equity in earnings of investments...................... 3,954 2,613
Interest income........................................ 1,223 394
Gain on sale of interest in equity investment.......... 3,134 --
Other.................................................. 120 633
------- ------
Total............................................. 11,114 6,344
Expenses:
Interest and fees on notes payable..................... 1,035 620
Salaries and benefits.................................. 1,520 1,414
Provision for loan and impairment losses............... 585 --
Occupancy, data processing and other................... 2,291 1,454
------- ------
Total............................................. 5,431 3,488
------- ------
Operating contribution before direct taxes................ $ 5,683 $2,856
======= ======
Operating contribution, net of direct taxes............... $ 5,699 $2,840
======= ======
CONSUMER LENDING:
Revenues:
Servicing fees......................................... $ -- $1,673
Equity in loss of investment........................... (1,894) --
Interest income........................................ 2 4,583
Gain on sale of automobile loans....................... -- 2,836
Other.................................................. -- 50
------- ------
Total............................................. (1,892) 9,142

10
11

THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- -------

Expenses:
Interest and fees on notes payable..................... -- 1,108
Salaries and benefits.................................. -- 2,426
Provision for loan and impairment losses............... -- 1,105
Occupancy, data processing and other................... (369) 2,304
------- ------
Total............................................. (369) 6,943
------- ------
Operating contribution (loss) before direct taxes......... $(1,523) $2,199
======= ======
Operating contribution (loss), net of direct taxes........ $(1,523) $2,191
======= ======
Total operating contribution, net of direct
taxes.......................................... $ 4,176 $5,031
CORPORATE OVERHEAD:
Corporate interest expense................................ 1,407 3,781
Salaries and benefits, occupancy, professional and other
income and expenses, net............................... 1,144 1,379
------- ------
Earnings (loss) from continuing operations................ $ 1,625 $ (129)
======= ======

Revenues from the Portfolio Asset acquisition and resolution business
attributable to foreign operations were $3,079 and $1,442, respectively, in the
three months ended March 31, 2001 and 2000.

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

MARCH 31, DECEMBER 31,
2001 2000
--------- ------------

Portfolio acquisition and resolution assets
Domestic.................................................. $ 54,962 $ 55,218
Mexico.................................................... 18,987 15,521
France.................................................... 9,038 8,828
Consumer assets............................................. 3,329 4,069
Deferred tax benefit, net................................... 20,101 20,101
Other assets, net........................................... 15,977 16,810
Net assets of discontinued operations....................... 20,842 20,444
-------- --------
Total assets...................................... $143,236 $140,991
======== ========

(9) PREFERRED STOCK AND SHAREHOLDERS' EQUITY

In the third quarter of 1999, dividends on the Company's adjusting rate
preferred stock were suspended. At March 31, 2001, accumulated dividends in
arrears on such preferred stock totaled $4.5 million, or $3.675 per share. Since
the Company failed to pay quarterly dividends for six consecutive quarters, the
holders of adjusting rate preferred stock are entitled to elect two directors to
the Company's Board until cumulative dividends have been paid in full. Given the
continued high debt levels of the Company, and management's priority of assuring
adequate levels of liquidity, the Company does not anticipate that preferred
dividends will be paid in 2001. Management continues to evaluate various
alternatives, including an overall corporate restructure to maximize long term
stockholder value.

In connection with the restructuring of the Company's Senior Facility in
the third quarter of 2000, the Company and IFA Parent amended IFA Parent's
option to acquire a warrant for 1,975,000 shares of non-voting Common Stock,
which was granted to IFA Parent in December 1999 in connection with the $25
million subordinated debt facility. The option, as amended, allows IFA Parent to
acquire a warrant for 1,975,000 shares of the Company's non-voting Common Stock;
the option can be exercised after August 31, 2001 if Term Loan B remains
outstanding, but not prior to that date. The strike price of $2.3125 per share

11
12

remains the same. In the event that prior to August 31, 2001 the Company either
(a) refinances the $12 million Term Loan B with subordinated debt, or (b) pays
off the balance of Term Loan B from proceeds of an equity offering, then the
option to acquire a warrant for 1,975,000 shares of non-voting Common Stock will
terminate.

IFA Parent also retains its warrant to purchase 425,000 shares of the
Company's voting Common Stock at $2.3125 per share, which was issued in
connection with the debt restructure in December 2000. In the event that Term
Loan B is terminated prior to August 31, 2001 through a transaction involving
the issuance of warrants, IFA Parent is entitled to additional warrants in
connection with this existing warrant for 425,000 shares to retain its ability
to acquire approximately 4.86% of the Company's voting Common Stock.

(10) INCOME TAXES

Federal income taxes are provided at a 35% rate. The Company has
substantial federal net operating loss carryforwards ("NOLs"), which can be used
to offset the tax liability associated with the Company's pre-tax earnings until
the earlier of the expiration or utilization of such NOLs. The Company accounts
for the benefit of the NOLs by recording the benefit as an asset and then
establishing an allowance to value the net deferred tax asset at a value
commensurate with the Company's expectation of being able to utilize the
recognized benefit in the foreseeable future. Such estimates are reevaluated on
a quarterly basis with the adjustment to the allowance recorded as an adjustment
to the income tax expense generated by the quarterly operating results.
Significant events that change the Company's view of its currently estimated
ability to utilize the tax benefits result in substantial changes to the
estimated allowance required to value the deferred tax benefits recognized in
the Company's periodic financial statements. During the quarters ended March 31,
2001 and 2000, management deemed that an adjustment to the valuation allowance
was not necessary. Additional events could occur in the future that may impact
the quarterly recognition of the Company's estimate of the required valuation
allowance associated with its NOLs. Although realization is not assured,
management believes it is more likely than not that all of the recorded deferred
tax asset will be realized.

(11) COMMITMENTS AND CONTINGENCIES

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

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

12
13

Inc. and an action against Chase Bank of Texas, N.A. under the Bank Holding
Company Act as is asserted in the Texas suit.

On October 14, 1999, Harbor Financial Group, Inc. and its subsidiaries
(collectively referred to as "Mortgage Corp.") filed voluntary petitions under
Chapter 11 of the United States Bankruptcy Code before the United States
Bankruptcy Court for the Northern District of Texas, Dallas Division. In a
motion filed in those proceedings requesting the appointment of a Chapter 11
Trustee, the debtors stated that they were reviewing pre-petition transfers to
the Company to determine if those transfers are avoidable. On December 14, 1999,
the bankruptcy proceedings were converted to liquidations under Chapter 7 of the
United States Bankruptcy Code. The Chapter 7 Trustee has not initiated an action
against the Company to assert an avoidance action to recover any preferential
transfers. The Company believes that it has valid defenses to any allegations
that might be made to avoid any pre-petition transfers in connection with the
Mortgage Corp. bankruptcy proceedings.

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

The Company is a 50% owner in an entity that is obligated to advance up to
$2.5 million toward the acquisition of Portfolio Assets from financial
institutions in California. At March 31, 2001, advances of $2.4 million had been
made under the obligation.

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

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

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apply to any breach of which the party had knowledge at the time of the Closing
Date or any intentional breach by a party of any covenant or obligation under
the Contribution Agreements.

The Company also provided a guaranty limited to a maximum of up to $4
million of a $60 million loan to Drive by IFA Parent. The Company, Consumer
Corp. and Funding L.P. secured the guaranty with security interests in their
respective ownership interest in Consumer Corp., Funding L.P. and Drive.

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

OVERVIEW

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

The Company reported earnings for the quarter ended March 31, 2001 of $1.6
million. After accrued and unpaid dividends on the Company's preferred stock,
net earnings to common shareholders were $1.0 million or $0.12 per share on a
diluted basis. Profits were derived mainly from the partial liquidation of a
portfolio interest held by Commercial Corp. Components of the quarterly earnings
for the first quarter 2001, compared to the first quarter 2000 were as follows:

THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- -------

Portfolio Asset Acquisition and Resolution.................. $ 5,699 $ 2,840
Consumer.................................................... (1,523) 2,191
Corporate interest.......................................... (1,407) (3,781)
Corporate overhead.......................................... (1,144) (1,379)
Accrued preferred dividends................................. (642) (642)
------- -------
Net earnings (loss) to common shareholders........ $ 983 $ (771)
======= =======

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

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

ANALYSIS OF REVENUES AND EXPENSES

The Company reported net earnings to common stockholders for the quarter
ended March 31, 2001 of $1.0 million. As a result of the sale of interest in the
automobile finance operation, the net operations of Drive have been recorded
(since August 1, 2000) as equity in earnings of investments.

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15

PORTFOLIO ASSET ACQUISITION AND RESOLUTION

The strong earnings contribution from Commercial Corp. during the quarter
was a result of good collections from U.S. investments and a gain of $3.1
million from the sale of a 35% equity interest in an Acquisition Partnership to
CSFC Capital Corp. II. The partnership is comprised mainly of real estate
located in Texas. The sale reduces the Company's exposure to fluctuating prices
of real estate and reduces the Company's debt.

Acquisitions for the quarter of $87 million were comprised of four
portfolios -- two large domestic portfolios totaling $66 million, a $19 million
portfolio in Mexico, and a $2 million portfolio in France. The Company invested
$4.1 million in the domestic portfolios, $3.9 million in the portfolio in
Mexico, and $.4 million in the portfolio in France, for an aggregate investment
of $8.4 million. Aggregate acquisitions by the Company are as follows:

FIRSTCITY
PURCHASE INVESTED
PRICE EQUITY
-------- ---------

First Quarter 2001.......................................... $ 87,406 $ 8,418
Total 2000.................................................. 394,927 22,140
Total 1999.................................................. 210,799 11,203
Total 1998.................................................. 139,691 28,478
Total 1997.................................................. 183,229 37,109

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

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

ANALYSIS OF SELECTED REVENUES AND EXPENSES
PORTFOLIO ASSET ACQUISITION AND RESOLUTION

THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------

GAIN ON RESOLUTION OF PORTFOLIO ASSETS:
Average investment:
Nonperforming Portfolios.................................. $14,760 $21,043
Performing Portfolios..................................... 11,057 8,722
Real estate Portfolios.................................... 3,056 7,198
Loans receivable.......................................... 14,830 775
Gain on resolution of Portfolio Assets:
Nonperforming Portfolios.................................. 213 722
Performing Portfolios..................................... -- --
Real estate Portfolios.................................... 5 359
------- -------
Total............................................. $ 218 $ 1,081
Interest income on performing Portfolios and loans
receivable................................................ $ 1,167 $ 394
Gross profit percentage on resolution of Portfolio Assets:
Nonperforming Portfolios.................................. 11.67% 25.24%
Performing Portfolios..................................... -- --
Real estate Portfolios.................................... 27.75% 25.20%
Weighted average gross profit percentage.................. 11.84% 25.22%
Interest yield on performing Portfolios and loans receivable
(annualized).............................................. 18.03% 16.58%
Gain on sale of equity investment........................... $ 3,134 $ --

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16

THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------

Servicing fee revenues...................................... $ 2,465 $ 1,623
PERSONNEL:
Personnel expenses.......................................... $ 1,520 $ 1,414
Number of personnel (at period end):
Production................................................ 26 13
Servicing................................................. 87 58
INTEREST EXPENSE:
Average debt................................................ $41,109 $29,813
Interest expense............................................ 1,035 620
Average cost (annualized)................................... 10.07% 8.32%

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,
-------------------
2001 2000
-------- --------

Revenues:
Gain on resolution of Portfolio Assets.................... $30,258 $13,738
Gross profit percentage on resolution of Portfolio
Assets................................................. 48.97% 46.92%
Interest income........................................... $ 5,027 $ 5,222
Other income.............................................. 779 428
Interest expense(1):
Interest expense.......................................... $18,450 $ 3,965
Average cost (annualized)................................. 15.88% 8.74%
Other expenses:
Servicing fees............................................ $ 2,918 $ 1,857
Other..................................................... 19,798 3,515
------- -------
Total other expenses.............................. 22,716 5,372
------- -------
Net earnings (loss).................................. $(5,102) $10,051
======= =======
Equity in earnings of Acquisition Partnerships.............. $ 3,125 $ 2,592
Equity in earnings of Servicing Entities.................... 829 21
------- -------
$ 3,954 $ 2,613
======= =======

- ---------------
(1) Interest expense includes interest on loans to the Acquisition Partnerships
located in Mexico from affiliates of the investor groups. The rates on these
loans range between 19% and 20%. The average cost on debt excluding the
Mexican Acquisition Partnerships was 7.99% and 8.64% for 2001 and 2000,
respectively.

CONSUMER LENDING

During the quarter Consumer Corp. realized a loss of $1.5 million through
its 31% direct and indirect ownership interest in Drive, primarily as a result
of increased provisions related to the loans available for sale,

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as well as the lack of securitization gains during the quarter. The
delinquencies on the present portfolio are currently less than five percent and
the performance of Drive continues to be favorable.

Drive did not conduct a securitization in the first quarter; however, the
Company anticipates that Drive will complete a securitization of over $280
million of face value of automobile receivables during the month of May.
Earnings from Drive may correlate closely with the timing, size and execution of
securitizations and depend primarily on the structure of such transactions.

PROVISION FOR INCOME TAXES

The Company has substantial federal net operating loss carryforwards
("NOLs"), which can be used to offset the tax liability associated with the
Company's pre-tax earnings until the earlier of the expiration or utilization of
such NOLs. The Company accounts for the benefit of the NOLs by recording the
benefit as an asset and then establishing an allowance to value the net deferred
tax asset at a value commensurate with the Company's expectation of being able
to utilize the recognized benefit in the foreseeable future. Such estimates are
reevaluated on a quarterly basis with the adjustment to the allowance recorded
as an adjustment to the income tax expense generated by the quarterly operating
results. Significant events that change the Company's view of its currently
estimated ability to utilize the tax benefits result in substantial changes to
the estimated allowance required to value the deferred tax benefits recognized
in the Company's periodic financial statements. During the quarters ended March
31, 2001 and 2000, management deemed that an adjustment to the valuation
allowance was not necessary. Additional events could occur in the future, that
may impact the quarterly recognition of the Company's estimate of the required
valuation allowance associated with its NOLs. Although realization is not
assured, management believes it is more likely than not that all of the recorded
deferred tax asset will be realized.

RESULTS OF OPERATIONS

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

FIRST QUARTER 2001 COMPARED TO FIRST QUARTER 2000

The Company reported earnings from continuing operations of $1.6 million in
the first quarter of 2001. Net earnings to common stockholders were $1.0 million
in the first quarter of 2001 compared to a loss of $.8 million in the first
quarter of 2000. On a per share basis, basic and diluted net earnings
attributable to common stockholders were $.12 in the first quarter of 2001
compared to a loss of $.09 in the first quarter of 2000.

Portfolio Asset Acquisition and Resolution

The operating contribution of $5.7 million in the first quarter of 2001
increased by $2.9 million, or 101%, compared with the first quarter of 2000.
Commercial Corp. purchased $87.4 million of Portfolio Assets during the first
quarter of 2001 through the Acquisition Partnerships compared to $13.6 million
in acquisitions in the first quarter of 2000. Commercial Corp.'s quarter end
investment in Portfolio Assets decreased to $27.3 million in the first quarter
of 2001 from $35.5 million in the first quarter of 2000. Commercial Corp.
invested $8.4 million in equity in Portfolio Assets in the first quarter of 2001
compared to $1.8 million in the first quarter of 2000.

Servicing fee revenues. Servicing fees increased by 52% to $2.5 million in
the first quarter of 2001 from $1.6 million in the first quarter of 2000
primarily as a result of increased operations from Acquisition Partnerships in
Mexico formed during 2000 and 1999. The service fees for the Mexico Acquisition
Partnerships are based on operating expenses, unlike the Acquisition
Partnerships in the United States and France, which are based on collections.

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18

Gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets decreased by 57% to $1.8 million in the first quarter of 2001
from $4.3 million in the first quarter of 2000. The net gain on resolution of
Portfolio Assets decreased 80% or $.9 million, primarily as a result of the
decreased proceeds. The weighted average gross profit percentage on the
resolution of Portfolio Assets in the first quarter of 2001 was 11.8% as
compared to 25.2% in the first quarter of 2000.

Equity in earnings of investments. Commercial Corp.'s equity in earnings
of Acquisition Partnerships increased 21% to $3.1 million in the first quarter
of 2001 compared to $2.6 million in the first quarter of 2000. However, the
Acquisition Partnerships reflected a net loss of $5.1 million in the first
quarter of 2001 compared to net earnings of $10.1 million in the first quarter
of 2000. The current period net loss resulted from tax provisions in certain
Mexico Partnerships. The impact of these losses was minimal to Commercial Corp.
due to its small equity ownership in the Mexico Partnerships (approximately 5%).
The primary reason for the increase in the equity earnings of Acquisition
Partnerships reflected by the Company is the increase in net income of the
domestic Acquisition Partnerships of $3.2 million or 76%. Equity in earnings of
Servicing Entities were $.8 million in the first quarter of 2000 due to
significant earnings recorded by one French entity in which the Company has a
33% ownership.

Interest income. Interest income increased $.8 million or 210% as a result
of increased balances of investment loans receivable from the Mexico Acquisition
Partnerships.

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

Other revenues. Other revenues declined $.5 million or 81% primarily due
to certain consulting fees received in the first quarter of 2000. These fees
will vary from period to period.

Operating expenses. Operating expenses increased $1.9 million or 56%
primarily as a result of increased debt costs, the write-down of a Portfolio
Asset, and increased operating costs in Mexico.

Interest and fees on notes payable increased $.4 million or 67% due to
average debt for the quarter increasing to $41.1 million in the first quarter of
2001 from $29.8 million in the first quarter of 2000. Also, the average cost of
borrowing increased from 8.3% in the first quarter of 2000 to 10.1% in the first
quarter of 2001.

Salaries and benefits were consistent from period to period.

The provision for loan and impairment losses totaled $.6 million and can be
attributed to the write-down in estimated future collections of one of the
Portfolio Asset pools.

Occupancy, data processing and other expenses increased $.8 million or 58%
due to increased operations in Mexico.

Consumer Lending

The operating loss for the first quarter of 2001 was $1.5 million compared
to an operating contribution of $2.2 million during the first quarter of 2000.
In the first quarter of 2001, the loss relates entirely to losses in the
Company's equity investment in Drive, which recorded increased provisions
related to the loans available for sale, as well as the lack of securitization
gains during the quarter. In the first quarter of 2000, the automobile finance
operations were consolidated with the Company, which recognized a securitization
gain of $2.8 million.

Service fees. Service fee income decreased due to the sale of 49% of the
Company's equity interest in the automobile finance operation.

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

Interest income. Interest income on consumer loans decreased due to the
sale of 49% of the Company's equity interest in its automobile finance
operation.

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19

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

Other Items Affecting Operations

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

Corporate overhead. Company level interest expense decreased by 63% to
$1.4 million in the first quarter of 2001 from $3.8 million in the first quarter
of 2000 as a result of lower levels of debt. Other corporate overhead expenses
were consistent from period to period.

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

LIQUIDITY AND CAPITAL RESOURCES

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

In connection with the restructuring of the Company's Senior Facility that
occurred in the third quarter of 2000 in connection with the sale of the
Company's automobile finance operation, the Company and IFA Parent amended IFA
Parent's option to acquire a warrant for 1,975,000 shares of non-voting Common
Stock, which was granted to IFA Parent in December 1999 in connection with the
$25 million subordinated debt facility. The option, as amended, allows IFA
Parent to acquire a warrant for 1,975,000 shares of the Company's non-voting
Common Stock; the option can be exercised after August 31, 2001 if the Company's
$12 million Term Loan B owed to IFA Parent and The Bank of Scotland remains
outstanding, but not prior to that date. The strike price of $2.3125 remains the
same. In the event that prior to August 31, 2001 the Company either (a)
refinances the $12 million Term Loan B with subordinated debt, or (b) pays off
the balance of Term Loan B from proceeds of an equity offering, then the option
to acquire a warrant for 1,975,000 shares of non-voting Common Stock will
terminate.

IFA Parent also retains its warrant to purchase 425,000 shares of the
Company's voting Common Stock at $2.3125 per share, which was issued in
connection with the Company's debt restructure in December 2000. In the event
that Term Loan B is terminated prior to August 31, 2001 through a transaction
involving the issuance of warrants, IFA Parent is entitled to additional
warrants in connection with this existing warrant for 425,000 shares to retain
its ability to acquire approximately 4.86% of the Company's voting Common Stock.

Currently, the Company has approximately 1.2 million preferred shares
outstanding with accrued and unpaid dividends of approximately $4.5 million.
Term Loan B, which resulted from the corporate debt restructure completed in
August 2000, restricts the payment of dividends on these shares until it is
repaid in full. Given the continued high debt levels of the Company, and
management's priority of assuring adequate levels of liquidity, the Company does
not anticipate that preferred dividends will be paid in 2001. Management
continues to evaluate various alternatives, including an overall corporate
restructure to maximize long term shareholder value.

The Company and each of its major operating subsidiaries have entered into
one or more credit facilities to finance their respective operations. Each of
the operating subsidiary credit facilities is nonrecourse to the Company, except
as described below. The Company and Funding LP are parties to an Insurance
Agreement and Letter Agreement related to the FCAR LLC Retail Automobile
Installment Loan Agreement Financing Facility provided by Enterprise Funding
Corporation (the "Enterprise Facility"). These agreements require the Company
and Funding LP, as servicer and seller, to (i) purchase nonconforming contracts
in the event that the seller, the servicer, or the related originator fails to
repurchase any contract which is required to be repurchased, (ii) pay certain
premiums and other expenses, and (iii) indemnify Enterprise Funding Corporation,
the collateral agent, and the insurance provider. Additionally, the Company,
pursuant to the terms of the Letter Agreement, has agreed to make certain
secondary servicer advances. The Enterprise Facility was terminated on April 6,
2001 in connection with a $100 million warehouse facility provided by Enterprise
Funding Corporation. The Company has agreed to indemnify IFA Parent for 31% of
losses which might arise as a result of agreements IFA Parent executed as a
sponsor in connection with the $100 million warehouse facility and the
securitizations completed by Drive. The Company has also provided a guaranty
limited to a maximum amount of up to $4 million of a $60 million term loan from
IFA Parent to Drive.

Excluding the term acquisition facilities of the unconsolidated Acquisition
Partnerships and the term and warehouse facilities of Drive, as of March 31,
2001, the Company and its subsidiaries had credit facilities providing for
borrowings in an aggregate principal amount of $111 million and outstanding
borrowings of $94 million.

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

The following table summarizes the material terms of the credit facilities
to which the Company, its major operating subsidiaries and the Acquisition
Partnerships were parties to as of May 15, 2001 and the outstanding borrowings
under such facilities as of March 31, 2001.

CREDIT FACILITIES

FUNDED AND
UNFUNDED OUTSTANDING
COMMITMENT BORROWINGS
AMOUNT AS OF AS OF
MAY 15, 2001 MARCH 31, 2001 INTEREST RATE OTHER TERMS AND CONDITIONS
------------ -------------- ------------- ---------------------------
(DOLLARS IN MILLIONS)

FIRSTCITY
Company Senior Facility:
Revolving Line of $ 10 $ -- LIBOR+2.5% Secured by the assets of
Credit.................
Term Loan A.............. 31 31 LIBOR+2.5% the Company, matures
Term Loan B.............. 12 12 Prime December 31, 2003
Term credit facility....... 8 8 LIBOR+5.0% Secured by ownership
interests in certain
acquisition partnerships
matures February 2002
COMMERCIAL CORP.
Acquisition facilities..... 7 7 LIBOR+4.0% Secured by existing
Portfolio Assets, matures
June 15, 2001
Term facilities............ 13 13 Fixed at Secured by Portfolio
7.00% to Assets, matures June 5,
7.66% 2002 and November 7, 2002

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Equity investment 30 23 LIBOR+4.5% Acquisition facility for
facility................. ---- ---- the investment in future
acquisition partnerships,
matures March 2002
Total............. $111 $ 94
==== ====
Unconsolidated Acquisition
Partnerships term
Facilities(1).......... $213 $213 Fixed at 10%, Secured by Portfolio
==== ==== LIBOR+2.25% Assets, various Maturities
to 5% and
Prime+1% to
7%
Unconsolidated Drive
Warehouse Facility....... $150 $130 LIBOR+1% Secured by warehouse
inventory, Commitment
Termination Date is
February 15, 2002; Final
Scheduled Payment Date
matures 72 months after
Commitment Termination Date
Warehouse Facility....... 100 40 Rate based on Secured by warehouse
commercial inventory, matures April
paper rates 2002
combined with
certain
facility fees
Term Facility............ 43 43 LIBOR Secured by residual
---- ---- interests, matures August
18, 2003
$213 $293
==== ====

- ---------------
(1) In addition to the term acquisition facilities of the unconsolidated
Acquisition Partnerships, the Mexican Acquisition Partnerships also have
term debt of approximately $254 million outstanding as of March 31, 2001
owed to affiliates of the investor groups. Of this amount, the Company has
recorded approximately $16 million as Loans Receivable on the Consolidated
Balance Sheets.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q or
incorporated by reference from time to time, including, but not limited to,
statements relating to the Company's strategic objectives and future
performance, which are not historical facts, may be deemed to be forward-looking
statements under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, any statement that may
project, indicate or imply future results, performance or achievements, and may
contain the words "expect," "intend," "plan," "estimate," "believe," "will be,"
"will continue," "will likely result," and similar expressions. Such statements
inherently are subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those projected. There are many
important factors that could cause the Company's actual results to differ
materially from those indicated in the forward-looking statements. Such factors
include, but are not limited to, the performance of the Company's subsidiaries
and affiliates, the availability of Portfolio Assets; assumptions underlying
asset performance; the impact of certain covenants in loan agreements of the
Company and its subsidiaries; continued availability of the Company's credit
facilities; the degree to which the Company is leveraged; the ability of the
Company to utilize NOLs; interest rate risk; prepayment speeds; delinquency and
default rates; credit loss rates; changes (legislative and

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otherwise) in the asset securitization industry; demand for the Company's
services; fluctuations in residential and commercial real estate values; risk of
declining value of collateral; capital market conditions, including the markets
for asset-backed securities; risks associated with foreign operations; currency
exchange rate fluctuations; general economic conditions; changes in foreign
political, social and economic conditions; regulatory initiatives and compliance
with governmental regulations; the ability to attract and retain qualified
personnel; uncertainties of any litigation that might arise in a bankruptcy
proceeding; factors more fully discussed and identified in the Company's Annual
Report on Form 10-K, filed April 13, 2001 (including those discussed under "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations"), as well as in other Securities and Exchange Commission filings.
Many of these factors are beyond the Company's control. In addition, it should
be noted that past financial and operational performance of the Company is not
necessarily indicative of future financial and operational performance. Given
these risks and uncertainties, investors should not place undue reliance on
forward-looking statements. The forward-looking statements in this Form 10-Q
speak only as of the date of this Form 10-Q. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statement to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any forward-looking statement is based.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

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

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

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

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

22
23

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

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

23
24

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On October 14, 1999, Mortgage Corp. filed voluntary petitions under Chapter
11 of the United States Bankruptcy Code before the United States Bankruptcy
Court for the Northern District of Texas, Dallas Division. In a motion filed in
those proceedings requesting the appointment of a Chapter 11 Trustee, the
debtors stated that they were reviewing pre-petition transfers to the Company to
determine if those transfers are avoidable. On December 14, 1999, the bankruptcy
proceedings were converted to liquidations under Chapter 7 of the United States
Bankruptcy Code. The Chapter 7 Trustee has not initiated an action against the
Company to assert an avoidance action to recover any preferential transfers. The
Company believes that it has valid defenses to any allegations that might be
made to avoid any pre-petition transfers in connection with the Mortgage Corp.
bankruptcy proceedings.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

24
25

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

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

25
26

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

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

26
27

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation
in favor of the Bank of Scotland. (incorporated herein by
reference to Exhibit 10.15 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.16 -- Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation. (incorporated herein reference to Exhibit
10.16 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.17 -- Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk (incorporated herein by reference to Exhibit 10.17
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.18 -- Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland. (incorporated herein by reference to Exhibit
10.18 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation. (incorporated
herein by reference to Exhibit 10.19 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
10.20 -- Funding Commitment, dated as of May 17, 1996 by and
between ContiTrade Services L.L.C. and The Company.
(incorporated herein by reference to Exhibit 10.20 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.21 -- Revolving Credit Agreement, dated as of December 29,
1995, by and between the Company and Cargill Financial
Services Corporation, as amended by the Eighth Amendment
to Revolving Credit Agreement dated February 1998.
(incorporated herein by reference to Exhibit 10.21 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.22 -- Master Repurchase Agreement Governing Purchased and Sales
of Mortgage Loans, dated as of July 1998, between Lehman
Commercial Paper Inc. and FHB Funding Corp. (incorporated
herein by reference to Exhibit 10.1 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 18, 1998).
10.23 -- Warehouse Credit Agreement, dated as of April 30, 1998
among ContiTrade Services, L.L.C., FirstCity Consumer
Lending Corporation, FirstCity Auto Receivables L.L.C.
and FirstCity Financial Corporation. (incorporated herein
by reference to Exhibit 10.2 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission August
16, 1998).
10.24 -- Servicing Agreement, dated as of April 30, 1998 among
FirstCity Auto Receivables L.L.C., FirstCity Servicing
Corporation of California, FirstCity Consumer Lending
Corporation and ContiTrade Services L.L.C. (incorporated
herein by reference to Exhibit 10.3 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 16, 1998).
10.25 -- Security and Collateral Agreement, dated as of April 30,
1998 among FirstCity Auto Receivables L.L.C., ContiTrade
Services L.L.C. and Chase Bank of Texas, National
Association. (incorporated herein by reference to Exhibit
10.4 of the Company's Form 10-Q dated August 14, 1998,
filed with the Commission August 16, 1998).
10.26 -- Loan Agreement, dated as of July 24, 1998, between
FirstCity Commercial Corporation and CFSC Capital Corp.
XXX (incorporated herein by reference Exhibit 10.5 of the
Company's Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).
10.27 -- Loan Agreement, dated April 8, 1998 between Bank of
Scotland and the Company (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission on
August 18, 1998).

27
28

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

10.28 -- First Amendment to Loan Agreement, dated July 20, 1998,
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.7 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission on
August 18, 1998).
10.29 -- Employment Agreement, dated October 1, 1998, by and
between FirstCity. Financial Mortgage Corporation, and
Buddy L. Terrell (incorporated herein by reference to
Exhibit 10.29 of the Company's Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).
10.30 -- Security Agreement, dated as of April 30, 1998 among
Enterprise Funding Corporation, FCAR Receivables L.L.C.,
MBIA Insurance Corporation, FirstCity Funding
Corporation, NationsBank N.A. and CSC Logic/MSA LLP d/b/a
Loan Servicing enterprise (incorporated herein by
reference to Exhibit 10.30 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.31 -- Note purchase agreement, dated March 30, 1999 among
Enterprise Funding Corporation, FCAR Receivables, L.L.C.
and NationsBank, N.A. (incorporated herein by reference
to Exhibit 10.31 of the Company's Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).
10.32 -- Custodian Agreement, dated March 30, 1999, among FCAR
Receivables L.L.C., FirstCity Funding Corporation,
NationsBank, N.A., Enterprise Funding Corporation and
Chase Bank of Texas, N.A. (incorporated herein by
reference to Exhibit 10.32 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.33 -- 100,000,000 dollar form of note, dated March 30, 1999
among FCAR Receivables LLC, Enterprise Funding
Corporation and NationsBank, N.A. (incorporated herein by
reference to Exhibit 10.33 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.33 -- Credit agreement dated effective as of May 28, 1999 made
by and among Harbor Financial Mortgage, New America
Financial, Inc., FirstCity Financial Mortgage
Corporation, and Guaranty Federal Bank F.S.B. as
Administrative Agent and Bank One, Texas, N.A. as
Collateral Agent (incorporated herein by reference to
Exhibit 10.33 of the Company's Form 10-Q dated August 16,
1999, filed with the commission on August 16, 1999).
10.34 -- Tenth Amendment to Loan Agreement, dated August 11, 1999
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.34 of the Company's
Form 10-Q dated August 16, 1999, filed with the
Commission on August 16, 1999).
10.35 -- Amended and Restated Loan Agreement, dated December 20,
1999, by and among FirstCity Financial Corporation as
Borrower and The Lenders Named Herein, as Lenders and
Bank of Scotland as Agent (incorporated herein by
reference to Exhibit 10.1 of the Company's Form 8-K dated
December 22, 1999, filed with the commission on December
28, 1999).
10.36 -- Subordinated Secured Senior Note Purchase Agreement,
dated December 20, 1999, between FirstCity Financial
Corporation, as Issuer and IFA Corporation, as Purchaser
(incorporated herein by reference to Exhibit 10.2 of the
Company's Form 8-K dated December 22, 1999, filed with
the commission on December 28, 1999).
10.37 -- Employment Agreement, dated October 1, 1999, by and
between FirstCity Commercial Corporation and Terry R.
DeWitt. (incorporated herein by reference to Exhibit
10.37 of the Company's Form 10-K dated April 6, 2000,
filed with the commission on April 6, 2000).
10.38 -- Employment Agreement, dated October 1, 1999, by and
between FirstCity Commercial Corporation and G. Stephen
Fillip. (incorporated herein by reference to Exhibit
10.38 of the Company's Form 10-K dated April 6, 2000,
filed with the commission on April 6, 2000).
10.39 -- Shareholder Agreement, dated October 1, 1999, by and
among FirstCity Holdings Corporation, FirstCity
Commercial Corporation, Terry R. DeWitt, G. Stephen
Fillip and James C. Holmes. (incorporated herein by
reference to Exhibit 10.39 of the Company's Form 10-K
dated April 6, 2000, filed with the commission on April
6, 2000).

28
29

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

10.40 -- Securities Purchase Agreement, dated as of August 18,
2000, by and among the Company, Consumer Corp., Funding
LP, Funding GP, IFA-GP and IFA-LP. (incorporated herein
by reference to Exhibit 10.40 of the Company's Form 8-K
dated August 25, 2000, filed with the commission on
September 11, 2000).
10.41 -- Contribution and Assumption Agreement by and between
Consumer Corp. and Drive dated as of August 18, 2000.
(incorporated herein by reference to Exhibit 10.41 of the
Company's Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).
10.42 -- Contribution and Assumption Agreement by and between
Funding LP and Drive dated as of August 18, 2000.
(incorporated herein by reference to Exhibit 10.42 of the
Company's Form 8-K dated August 25, 2000, filed with the
commission on September 11, 2000).
10.43 -- Second Amendment to Amended and Restated Loan Agreement,
dated December 20, 1999, by and among the Company, as
borrower, and the Lenders, as lenders, and Bank of
Scotland, as Agent. (incorporated herein by reference to
Exhibit 10.43 of the Company's Form 8-K dated August 25,
2000, filed with the commission on September 11, 2000).

(b) Reports on Form 8-K. No report on Form 8-K was filed by the Registrant
with the Securities and Exchange Commission during the quarterly period ended
March 31, 2001.

29
30

SIGNATURES

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

FIRSTCITY FINANCIAL CORPORATION

By: /s/ JAMES T. SARTAIN
------------------------------------
James T. Sartain
President and Chief Executive
Officer and Director
(Duly authorized officer of the
Registrant)

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

Dated: May 15, 2001

30
31

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

31
32

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

32
33

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation
in favor of the Bank of Scotland. (incorporated herein by
reference to Exhibit 10.15 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.16 -- Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation. (incorporated herein reference to Exhibit
10.16 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.17 -- Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk (incorporated herein by reference to Exhibit 10.17
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.18 -- Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland. (incorporated herein by reference to Exhibit
10.18 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation. (incorporated
herein by reference to Exhibit 10.19 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
10.20 -- Funding Commitment, dated as of May 17, 1996 by and
between ContiTrade Services L.L.C. and The Company.
(incorporated herein by reference to Exhibit 10.20 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.21 -- Revolving Credit Agreement, dated as of December 29,
1995, by and between the Company and Cargill Financial
Services Corporation, as amended by the Eighth Amendment
to Revolving Credit Agreement dated February 1998.
(incorporated herein by reference to Exhibit 10.21 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.22 -- Master Repurchase Agreement Governing Purchased and Sales
of Mortgage Loans, dated as of July 1998, between Lehman
Commercial Paper Inc. and FHB Funding Corp. (incorporated
herein by reference to Exhibit 10.1 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 18, 1998).
10.23 -- Warehouse Credit Agreement, dated as of April 30, 1998
among ContiTrade Services, L.L.C., FirstCity Consumer
Lending Corporation, FirstCity Auto Receivables L.L.C.
and FirstCity Financial Corporation. (incorporated herein
by reference to Exhibit 10.2 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission August
16, 1998).
10.24 -- Servicing Agreement, dated as of April 30, 1998 among
FirstCity Auto Receivables L.L.C. , FirstCity Servicing
Corporation of California, FirstCity Consumer Lending
Corporation and ContiTrade Services L.L.C. (incorporated
herein by reference to Exhibit 10.3 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 16, 1998).
10.25 -- Security and Collateral Agreement, dated as of April 30,
1998 among FirstCity Auto Receivables L.L.C., ContiTrade
Services L.L.C. and Chase Bank of Texas, National
Association. (incorporated herein by reference to Exhibit
10.4 of the Company's Form 10-Q dated August 14, 1998,
filed with the Commission August 16, 1998).
10.26 -- Loan Agreement, dated as of July 24, 1998, between
FirstCity Commercial Corporation and CFSC Capital Corp.
XXX (incorporated herein by reference Exhibit 10.5 of the
Company's Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).
10.27 -- Loan Agreement, dated April 8, 1998 between Bank of
Scotland and the Company (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission on
August 18, 1998).

33
34

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

34
35

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------