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

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR

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

COMMISSION FILE NUMBER 0-26500

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

DELAWARE 76-0243729
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6400 IMPERIAL DRIVE, WACO, TX 76712
(Address of Principal Executive Offices) (Zip Code)
(254) 751-1750
(Registrant's Telephone Number, Including Area Code)

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

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

The number of shares of common stock, par value $.01 per share, outstanding
at August 13, 1999 was 8,314,239.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)

ASSETS

JUNE 30, DECEMBER 31,
1999 1998
---------- ------------

Cash and cash equivalents................................... $ 17,940 $ 13,677
Portfolio Assets, net....................................... 48,157 69,717
Loans receivable, net....................................... 77,859 46,187
Mortgage loans held for sale................................ 694,552 1,207,679
Residual interests in securitizations....................... 68,021 65,242
Equity investments in Acquisition Partnerships and Servicing
Entities.................................................. 40,092 41,466
Mortgage servicing rights, net.............................. 15,241 91,440
Receivable from sale of mortgage servicing rights........... 53,103 10,313
Receivable for servicing advances and accrued interest...... 44,034 48,664
Deferred tax benefit, net................................... 27,098 32,162
Other assets, net........................................... 23,554 37,430
---------- ----------
Total Assets...................................... $1,109,651 $1,663,977
========== ==========

LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY

Liabilities:
Notes payable............................................. $ 930,969 $1,462,231
Other liabilities......................................... 62,570 38,468
---------- ----------
Total Liabilities................................. 993,539 1,500,699
Commitments and contingencies............................... -- --
Redeemable preferred stock:
Adjusting rate preferred stock, including dividends of
$642 (redemption value of $21 per share; 2,000,000
shares authorized; 1,222,901 shares issued and
outstanding)........................................... 26,323 26,323
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
authorized; issued and outstanding: 8,314,239 and
8,287,959 shares, respectively)........................ 83 83
Paid in capital............................................. 78,651 78,456
Retained earnings........................................... 11,394 58,061
Accumulated other comprehensive income (loss)............... (339) 355
---------- ----------
Total Shareholders' Equity........................ 89,789 136,955
---------- ----------
Total Liabilities, Redeemable Preferred Stock and
Shareholders' Equity............................ $1,109,651 $1,663,977
========== ==========

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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
-------- ------- -------- -------

Revenues:
Gain on sale of mortgage loans........................ $ 13,233 $28,303 $ 39,874 $48,572
Gain on sale of automobile loans...................... 6,445 2,434 6,445 2,434
Net mortgage warehouse income......................... 3,529 2,395 9,486 4,117
Loss on sale of mortgage servicing rights............. (6,298) -- (8,693) --
Servicing fees:
Mortgage........................................... 4,227 5,588 10,370 10,282
Other.............................................. 2,165 1,250 4,278 2,363
Gain on resolution of Portfolio Assets................ 745 2,839 2,047 5,936
Equity in earnings of Acquisition Partnerships and
servicing entities................................. 2,798 1,523 5,442 4,737
Interest income....................................... 4,989 2,898 10,196 6,697
Other income.......................................... 1,816 2,314 4,036 6,432
-------- ------- -------- -------
Total revenues................................ 33,649 49,544 83,481 91,570
Expenses:
Interest on notes payable............................. 5,431 3,304 11,001 6,722
Salaries and benefits................................. 25,847 20,447 51,640 36,464
Amortization of mortgage servicing rights............. 2,431 4,126 7,154 7,302
Provision for loan losses and impairment on residual
interests.......................................... 3,597 575 3,268 2,927
Provision for valuation of mortgage servicing
rights............................................. 4,638 500 2,294 500
Occupancy, data processing, communication and other... 30,230 13,494 47,658 25,617
-------- ------- -------- -------
Total expenses................................ 72,174 42,446 123,015 79,532
Earnings (loss) before minority interest, accounting
change and income taxes............................... (38,525) 7,098 (39,534) 12,038
Benefit (provision) for income taxes.................. (5,010) 755 (5,032) 1,396
-------- ------- -------- -------
Earnings (loss) before minority interest and
accounting change..................................... (43,535) 7,853 (44,566) 13,434
Minority interest..................................... (346) (229) 18 (14)
Cumulative effect of accounting change................ -- -- (835) --
-------- ------- -------- -------
Net earnings (loss)..................................... (43,881) 7,624 (45,383) 13,420
Preferred dividends................................... (642) (1,515) (1,284) (3,030)
-------- ------- -------- -------
Net earnings (loss) to common shareholders.............. $(44,523) $ 6,109 $(46,667) $10,390
======== ======= ======== =======
Earnings (loss) before accounting change per common
share -- basic........................................ $ (5.36) $ 0.84 $ (5.53) $ 1.51
Earnings (loss) before accounting change per common
share -- diluted...................................... $ (5.36) $ 0.83 $ (5.53) $ 1.47
Cumulative effect of accounting change -- basic......... $ -- $ -- $ (0.10) $ --
Cumulative effect of accounting change -- diluted....... $ -- $ -- $ (0.10) $ --
Net earnings (loss) per common share -- basic........... $ (5.36) $ 0.84 $ (5.63) $ 1.51
Net earnings (loss) per common share -- diluted......... $ (5.36) $ 0.83 $ (5.63) $ 1.47
Weighted average common shares outstanding -- basic..... 8,299 7,243 8,294 6,889
Weighted average common shares outstanding -- diluted... 8,299 7,401 8,294 7,045

See accompanying notes to consolidated financial statements.

3
4

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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

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

BALANCES, JANUARY 1, 1998....... 6,526,510 $65 $29,509 $ 83,140 $ 44 $112,758
Exercise of warrants, options
and employee stock purchase
plan.......................... 519,299 5 12,675 -- -- 12,680
Issuance of common stock to
acquire the minority interest
of subsidiary................. 41,000 1 2,149 -- -- 2,150
Issuance of common stock in
public offering............... 1,201,150 12 34,123 -- -- 34,135
Comprehensive loss:
Net loss for 1998............. -- -- -- (20,192) -- (20,192)
Foreign currency items........ -- -- -- -- 311 311
--------
Total comprehensive loss........ (19,881)
--------
Preferred dividends............. -- -- -- (5,186) -- (5,186)
Other........................... -- -- -- 299 -- 299
--------- --- ------- -------- ----- --------
BALANCES, DECEMBER 31, 1998..... 8,287,959 83 78,456 58,061 355 136,955
Exercise of employee stock
purchase plan................. 26,280 -- 195 -- -- 195
Comprehensive loss:
Net loss for the six months
ended June 30, 1999........ -- -- -- (45,383) -- (45,383)
Foreign currency items........ -- -- -- -- (694) (694)
--------
Total comprehensive loss........ (46,077)
--------
Preferred dividends............. -- -- -- (1,284) -- (1,284)
--------- --- ------- -------- ----- --------
BALANCES, JUNE 30, 1999......... 8,314,239 $83 $78,651 $ 11,394 $(339) $ 89,789
========= === ======= ======== ===== ========

See accompanying notes to consolidated financial statements.

4
5

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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

SIX MONTHS ENDED JUNE 30,
--------------------------
1999 1998
----------- ------------

Cash flows from operating activities:
Net earnings (loss)....................................... $ (45,383) $ 13,420
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities, net of
effect of acquisitions:
Proceeds from resolution of Portfolio Assets........... 11,018 30,032
Gain on resolution of Portfolio Assets................. (2,047) (5,936)
Purchase of Portfolio Assets and loans receivable,
net................................................... (2,108) (11,827)
Origination of automobile receivables, net of purchase
discount.............................................. (94,159) (57,762)
Loss on sale of mortgage servicing rights.............. 8,693 --
(Increase) decrease in mortgage loans held for sale.... 513,127 (487,528)
(Increase) decrease in construction loans receivable... 7,942 (9,569)
Originated mortgage servicing rights................... (77,934) (62,409)
Purchases of mortgage servicing rights................. -- (69)
Proceeds from sale of mortgage servicing rights........ 151,023 --
Provision for loan losses, residual interests and
valuation of mortgage servicing rights................ 5,562 3,427
Equity in earnings of Acquisition Partnerships......... (5,442) (4,737)
Proceeds from performing Portfolio Assets and loans
receivable, net....................................... 57,083 51,884
(Increase) decrease in net deferred tax asset.......... 5,064 (1,571)
Depreciation and amortization.......................... 11,984 9,185
Increase in other assets............................... (22,784) (26,506)
Increase in other liabilities.......................... 13,477 38,775
----------- ------------
Net cash provided by (used in) operating
activities..................................... 535,116 (521,191)
----------- ------------
Cash flows from investing activities, net of effect of
acquisitions:
Property and equipment, net............................... (4,391) (3,269)
Contributions to Acquisition Partnerships and servicing
entities............................................... (10,939) (13,581)
Distributions from Acquisition Partnerships and servicing
entities............................................... 15,760 15,653
----------- ------------
Net cash provided by (used in) investing
activities..................................... 430 (1,197)
----------- ------------
Cash flows from financing activities, net of effect of
acquisitions:
Borrowings under notes payable............................ 4,813,259 10,630,721
Payments of notes payable................................. (5,343,453) (10,152,827)
Proceeds from issuance of common stock.................... 195 46,450
Preferred dividends paid.................................. (1,284) (3,030)
----------- ------------
Net cash provided by (used in) financing
activities..................................... (531,283) 521,314
----------- ------------
Net increase (decrease) in cash............................. 4,263 (1,074)
Cash, beginning of period................................... 13,677 31,605
----------- ------------
Cash, end of period......................................... $ 17,940 $ 30,531
=========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 47,492 $ 33,188
Income taxes........................................... $ 87 $ 231
Non-cash investing activities:
Investment securities received as a result of sales of
loans through securitizations......................... $ 11,957 $ 37,175

See accompanying notes to consolidated financial statements.

5
6

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(1) BASIS OF PRESENTATION

The unaudited consolidated financial statements of FirstCity Financial
Corporation ("FirstCity" or the "Company") reflect, in the opinion of
management, all adjustments, consisting only of normal and recurring
adjustments, necessary to present fairly FirstCity's financial position at June
30, 1999, the results of operations and the cash flows for the three month and
six month periods ended June 30, 1999 and 1998.

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

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

(2) PORTFOLIO ASSETS

Portfolio Assets are summarized as follows:

JUNE 30, DECEMBER 31,
1999 1998
-------- ------------

Non-performing Portfolio Assets............................. $ 82,430 $ 93,716
Performing Portfolio Assets................................. 19,750 24,759
Real estate Portfolios...................................... 9,707 12,561
-------- --------
Total Portfolio Assets............................ 111,887 131,036
Discount required to reflect Portfolio Assets at carrying
value..................................................... (63,730) (61,319)
-------- --------
Portfolio Assets, net............................. $ 48,157 $ 69,717
======== ========

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

(3) LOANS RECEIVABLE

Loans receivable are summarized as follows:

JUNE 30, DECEMBER 31,
1999 1998
-------- ------------

Construction loans receivable............................... $ 16,648 $24,590
Residential mortgage and other loans held for investment.... 7,317 11,016
Automobile and consumer finance receivables................. 65,831 16,475
Allowance for loan losses................................... (11,937) (5,894)
-------- -------
Loans receivable, net............................. $ 77,859 $46,187
======== =======

6
7
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

SIX MONTHS ENDED
JUNE 30,
-----------------
1999 1998
------- -------

Balances, beginning of period............................... $ 5,894 $ 9,282
Provision for loan losses................................. (36) 2,852
Discounts acquired........................................ 14,582 8,649
Allocation of reserves to sold loans...................... (7,890) (7,602)
Charge off activity:
Principal balances charged off......................... (1,723) (8,956)
Recoveries............................................. 1,110 2,266
------- -------
Net charge offs................................... (613) (6,690)
------- -------
Balances, end of period..................................... $11,937 $ 6,491
======= =======

The provision for loan losses during the six months ended June 30, 1998,
was predominantly for automobile finance receivables generated by the NAF
platform that was discontinued in January 1998.

(4) MORTGAGE LOANS HELD FOR SALE

Mortgage loans held for sale include loans collateralized by first lien
mortgages on one-to-four family residences as follows:

JUNE 30, DECEMBER 31,
1999 1998
-------- ------------

Residential mortgage loans.................................. $683,854 $1,190,585
Unamortized premiums and discounts, net..................... 10,698 17,094
-------- ----------
$694,552 $1,207,679
======== ==========

(5) RESIDUAL INTERESTS IN SECURITIZATIONS

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

JUNE 30, DECEMBER 31,
1999 1998
-------- ------------

Rated securities............................................ $ 1,523 $ 2,073
Residual interests.......................................... 72,067 66,473
Accrued interest............................................ 2,234 1,146
Allowance for losses........................................ (7,803) (4,450)
------- -------
$68,021 $65,242
======= =======

7
8
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The activity related to residual interests for 1999 and 1998 is as follows:

SIX MONTHS ENDED
JUNE 30,
------------------
1999 1998
-------- -------

Balance, beginning of period................................ $ 65,242 $ 6,935
Cost allocated from securitizations......................... 11,957 37,175
Interest accreted........................................... 4,345 688
Increase in other securities, net........................... -- 88
Cash received from trusts................................... (10,170) (1,840)
Provision for permanent impairment of value................. (3,353) --
-------- -------
Balance, end of period...................................... $ 68,021 $43,046
======== =======

(6) EQUITY INVESTMENTS IN ACQUISITION PARTNERSHIPS AND SERVICING ENTITIES

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

CONDENSED COMBINED BALANCE SHEETS

JUNE 30, DECEMBER 31,
1999 1998
-------- ------------

Assets...................................................... $269,810 $295,114
======== ========
Liabilities................................................. $161,389 $190,590
Net equity.................................................. 108,421 104,524
-------- --------
$269,810 $295,114
======== ========
Equity investment in Acquisition Partnerships............... $ 36,491 $ 41,466
Equity investment in servicing entities..................... 3,601 --
-------- --------
$ 40,092 $ 41,466
======== ========

CONDENSED COMBINED SUMMARY OF EARNINGS

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
1999 1998 1999 1998
-------- -------- ------- -------

Proceeds from resolution of Portfolio Assets... $37,539 $30,070 $67,184 $87,628
Gross margin................................... 13,626 9,110 24,357 27,643
Interest income on performing Portfolio
Assets....................................... 3,248 2,169 6,584 4,622
Net earnings................................... $ 9,997 $ 3,860 $16,380 $12,982
======= ======= ======= =======
Equity in earnings of Acquisition
Partnerships................................. $ 2,792 $ 1,523 $ 5,463 $ 4,737
Equity in earnings of servicing entities....... 6 -- (21) --
------- ------- ------- -------
$ 2,798 $ 1,523 $ 5,442 $ 4,737
======= ======= ======= =======

(7) SEGMENT REPORTING

The Company is engaged in three reportable segments i) residential and
commercial mortgage banking; ii) portfolio asset acquisition and resolution; and
iii) consumer lending. These segments have been segregated

8
9
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

based on products and services offered by each. The following is a summary of
results of operations for each of the segments and a reconciliation to net
earnings (loss) for the periods indicated.

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
-------- ------- -------- -------

MORTGAGE BANKING:
Revenues:
Gain on sale of mortgage loans.................. $ 13,233 $28,303 $ 39,874 $48,572
Net mortgage warehouse income................... 3,529 2,395 9,486 4,117
Loss on sale of mortgage servicing rights....... (6,298) -- (8,693) --
Servicing fees.................................. 4,227 5,588 10,370 10,282
Other........................................... 2,562 1,552 5,245 3,556
-------- ------- -------- -------
Total...................................... 17,253 37,838 56,282 66,527
Expenses:
Salaries and benefits........................... 23,232 17,216 45,128 30,151
Amortization of mortgage servicing rights....... 2,431 4,126 7,154 7,302
Provision for loan losses and residual
interests..................................... 1,658 75 1,708 75
Provision for valuation of mortgage servicing
rights........................................ 4,638 500 2,294 500
Interest on notes payables...................... 1,750 486 3,778 987
Occupancy, data processing, communication and
other......................................... 24,926 9,335 36,903 17,439
-------- ------- -------- -------
Total...................................... 58,635 31,738 96,965 56,454
-------- ------- -------- -------
Operating contribution (loss) before direct
taxes........................................... $(41,382) $ 6,100 $(40,683) $10,073
======== ======= ======== =======
Operating contribution (loss), net of direct
taxes........................................... $(41,382) $ 6,100 $(40,683) $ 9,984
======== ======= ======== =======
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Gain on resolution of Portfolio Assets.......... $ 745 $ 2,839 $ 2,047 $ 5,936
Equity in earnings of Acquisition
Partnerships.................................. 2,798 1,523 5,442 4,737
Servicing fees.................................. 779 666 1,757 1,395
Other........................................... 719 512 2,009 2,510
-------- ------- -------- -------
Total...................................... 5,041 5,540 11,255 14,578
Expenses:
Salaries and benefits........................... 613 1,100 2,034 2,267
Interest on notes payable....................... 1,038 1,336 2,090 2,812
Asset level expenses, occupancy, data processing
and other..................................... 1,598 1,886 3,144 4,098
-------- ------- -------- -------
Total...................................... 3,249 4,322 7,268 9,177
-------- ------- -------- -------
Operating contribution before direct taxes......... $ 1,792 $ 1,218 $ 3,987 $ 5,401
======== ======= ======== =======
Operating contribution, net of direct taxes........ $ 1,782 $ 1,223 $ 3,958 $ 5,392
======== ======= ======== =======
CONSUMER LENDING:
Revenues:
Gain on sale of automobile loans................ $ 6,445 $ 2,434 $ 6,445 $ 2,434
Interest income................................. 3,445 2,659 6,850 5,225
Servicing fees and other........................ 1,426 653 2,590 1,043
-------- ------- -------- -------
Total...................................... 11,316 5,746 15,885 8,702
======== ======= ======== =======

9
10
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
-------- ------- -------- -------

Expenses:
Salaries and benefits........................... 1,667 1,292 3,200 2,404
Provision for loan losses and residual
interests..................................... 1,939 500 1,962 2,852
Interest on notes payable....................... 736 939 1,403 1,819
Occupancy, data processing and other............ 3,001 1,658 5,097 2,765
-------- ------- -------- -------
Total...................................... 7,343 4,389 11,662 9,840
-------- ------- -------- -------
Operating contribution (loss) before direct
taxes........................................... $ 3,973 $ 1,357 $ 4,223 $(1,138)
======== ======= ======== =======
Operating contribution (loss), net of direct
taxes........................................... $ 3,973 $ 1,357 $ 4,223 $(1,138)
======== ======= ======== =======
Total operating contribution (loss), net of
direct taxes............................. $(35,627) $ 8,680 $(32,502) $14,238
======== ======= ======== =======
CORPORATE OVERHEAD:
Corporate interest expense, salaries and benefits,
occupancy, professional and other income and
expenses, net................................... $ (3,254) $(1,806) $ (7,878) $(2,318)
Deferred tax benefit (provision) from NOLs......... (5,000) 750 (5,003) 1,500
-------- ------- -------- -------
Net earnings (loss)................................ $(43,881) $ 7,624 $(45,383) $13,420
======== ======= ======== =======

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

JUNE 30, DECEMBER 31,
1999 1998
---------- ------------

Mortgage assets............................................. $ 849,727 $1,413,799
Portfolio acquisition and resolution assets................. 88,175 114,596
Consumer assets............................................. 99,377 52,029
Deferred tax benefit........................................ 27,098 32,162
Other assets................................................ 45,274 51,391
---------- ----------
Total assets...................................... $1,109,651 $1,663,977
========== ==========

10
11
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) PREFERRED STOCK AND SHAREHOLDERS' EQUITY

In May 1998, the Company closed the public offering of 1,542,150 shares of
FirstCity common stock, of which 341,000 shares were sold by selling
shareholders. Net proceeds (after expenses) of $34.1 million were used to retire
debt. On May 11, 1998, the Company notified holders of its outstanding warrants
to purchase shares of common stock that it was exercising its option to
repurchase such warrants for $1.00 each. In June 1998, as a result of such
notification, warrants representing 471,380 shares of common stock were
exercised for an aggregate warrant purchase price of $11.8 million. On July 17,
1998 the Company filed a shelf registration statement with the Securities and
Exchange Commission which allows the Company to issue up to $250 million in debt
and equity securities from time to time in the future. The registration
statement became effective July 28, 1998. As of June 30, 1999, there have been
no securities issued under this registration statement. At June 30, 1999,
accrued dividends on adjusting rate preferred stock totaled $.6 million, or
$.525 per share, and were paid on July 15, 1999. A reconciliation between the
weighted average shares outstanding used in the basic and diluted EPS
computations is as follows:

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
1999 1998 1999 1998
--------- ------- -------- -------

Net earnings (loss) to common shareholders............ $(44,523) $6,109 $(46,667) $10,390
======== ====== ======== =======
Weighted average common shares outstanding -- basic... 8,299 7,243 8,294 6,889
Effect of dilutive securities:
Assumed exercise of stock options................... -- 78 -- 76
Assumed exercise of warrants........................ -- 80 -- 80
-------- ------ -------- -------
Weighted average common shares
outstanding -- diluted.............................. 8,299 7,401 8,294 7,045
======== ====== ======== =======
Earnings (loss) before accounting change per common
share -- basic...................................... $ (5.36) $ 0.84 $ (5.53) $ 1.51
Earnings (loss) before accounting change per common
share -- diluted.................................... $ (5.36) $ 0.83 $ (5.53) $ 1.47
Cumulative effect of accounting change -- basic....... $ -- $ -- $ (0.10) $ --
Cumulative effect of accounting change -- diluted..... $ -- $ -- $ (0.10) $ --
Net earnings (loss) per common share -- basic......... $ (5.36) $ 0.84 $ (5.63) $ 1.51
Net earnings (loss) per common share -- diluted....... $ (5.36) $ 0.83 $ (5.63) $ 1.47

(9) INCOME TAXES

Federal income taxes are provided at a 35% rate. Net operating loss carry
forwards ("NOLs") are available to FirstCity and are recognized as an offset to
the provision in the period during which the benefit is realized. 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 next three to four year period. 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 earnings.
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. The Company's analysis for the
quarter ended June 30, 1999 resulted in an increase in the valuation allowance
of $5 million. Additional events could occur in the future, and would impact the
quarterly recognition of the Company's estimate of the required valuation
allowance associated with its NOLs. 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
12
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) COMMITMENTS AND CONTINGENCIES

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

The Company is a 50% owner in an entity that is obligated to advance up to
$2.5 million toward the acquisition of Portfolio Assets from financial
institutions in California. At June 30, 1999, advances of $.7 million had been
made under the obligation.

(11) MORTGAGE BANKING OPERATIONS

Over the past nine months, the Company explored numerous strategic
alternatives regarding its mortgage banking operations, which is comprised of
FirstCity Financial Mortgage Corporation and subsidiaries ("Mortgage Corp.") and
FirstCity Capital Corporation ("Capital Corp."). Alternatives explored included
obtaining a joint venture partner, new funding sources and/or sale or
liquidation of the businesses. Ultimately, the Company made the decision that
the operations of the mortgage segment do not fit the Company's long-term
strategy. As a result, the Company engaged independent advisory firms subsequent
to quarter end to assist with the sale of Mortgage Corp. and Capital Corp. The
due diligence process by prospective buyers has already begun at Mortgage Corp.
There can be no assurance that a satisfactory contract to sell either entity
will be received. To date, an exit plan has not been adopted. Accordingly, other
options, including liquidation, may be required in the future.

In the second quarter of 1999, the mortgage operations operating loss was
$41.4 million, comprised of a $6.6 million loss on sale of FHA/VA buyout assets
(netted against gain on sale of mortgage loans), an $11.3 million loss on sale
of mortgage servicing rights (including the provision for valuation of mortgage
servicing rights), $8.1 million in operating losses at Mortgage Corp., $9.1
million in writeoffs and reserves, including $1.8 million of goodwill related to
the 1997 acquisition of a commercial mortgage origination platform (included in
other expense), and a $1.4 million impairment in Home Equity residuals.

(12) LIQUIDITY AND CAPITAL RESOURCES

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

In August, the Company completed the extension and renewal of its working
capital revolving line of credit with its revolving lenders ("Revolving
Lenders") in the amount of $93 million. In consideration of the additional
funding provided under the revolving line of credit, warrants for the purchase
of 250,000 shares of the Company's common stock were issued which are
exercisable over a ten year period at a strike price equal to the average
closing price for the Company's common stock for the month of August 1999. This
renewed facility includes a sub-line for FirstCity Consumer Lending ("Consumer")
and matures June 30, 2000. This facility requires the approval of the lenders
prior to payment of common and preferred dividends.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

payable to affiliates of Consumer under the securitizations will be escrowed by
the credit provider, (2) advances under the warehouse line will be reduced from
79.5% to 77% of the principal balances of the loans funded with total fundings
under the line limited to $11,500,000 for the thirty day period, (3) the
Corporate revolving lenders must agree to waive the default under the revolving
loan agreement related to the trigger event for a thirty day period, (4) the
Company and its subsidiaries will be required to cross-collateralize the
securitizations wrapped by the credit provider, (5) the servicing agreements
related to the wrapped securitizations will be made subject to thirty day
renewal periods. Additionally, these trigger events were events of default under
a $4.3 million credit facility secured by certain automobile residual assets.
The Company is currently working with this lender to waive such defaults.

Mortgage Corp. is currently in default on a payment in the approximate
amount of $5 million on a $14 million gestation facility and is working with the
lender to cure such defaults. As a result of this payment default and the net
worth of Harbor Financial Mortgage Corporation, Mortgage Corp. is in default of
its covenants contained in the $500 million warehouse facility. These defaults
also create defaults in Mortgage Corp's other credit facilities. Mortgage Corp.
is currently working with the syndicate lenders to receive waivers of these
defaults. If such waivers or cures are not obtained, funding under Mortgage
Corp's warehouse facilities could be halted. The Company's revolving credit
facility provides that the defaults by Mortgage do not constitute a default
under the Company's revolving credit facility unless they are not cured or
waived on or before September 15, 1999. In the event these defaults are not
waived or cured by September 15, 1999, they could have an adverse impact on the
Company's liquidity.

As described above, the Company has recently engaged independent advisory
firms to assist with the sale of Mortgage Corp. and Capital Corp. Assuming the
Company sells or liquidates its mortgage segment, and is able to cure or obtain
waivers of the defaults in its loan facilities described above, the Company
believes that the liquidity provided by its revolving credit facility, funding
from senior lenders in Acquisition Partnership investments, direct portfolio
investments and business acquisitions, securitizations of loans made by
Consumer, and other revenue generated by Consumer and Commercial Corp. will be
adequate to fund the Company's contemplated activities and liquidity needs. In
addition, the Company believes that after it has exited the mortgage business
that it will be able to raise capital through public debt equity offerings
(subject to limitations related to the preservation of the Company's NOLS).

13
14

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

OVERVIEW

The Company is a diversified financial services company engaged in
residential and commercial mortgage banking ("Mortgage Banking"), Portfolio
Asset acquisition and resolution ("Commercial Corp.") and consumer lending
("Consumer Corp."). The mortgage banking business involves the origination,
acquisition and servicing of residential and commercial mortgage loans and the
subsequent warehousing, sale or securitization of such loans through various
public and private secondary markets. The Portfolio Asset acquisition and
resolution business involves acquiring Portfolio Assets at a discount to Face
Value and servicing and resolving such Portfolios in an effort to maximize the
present value of the ultimate cash recoveries. The consumer lending business
involves the acquisition, origination, warehousing, securitization and servicing
of consumer receivables. The Company's current consumer lending operations are
focused on the acquisition of sub-prime automobile receivables.

The Company posted a loss of $43.9 million for the quarter ended June 30,
1999 and $45.4 million for the year-to-date. After dividends on the preferred
stock, the loss was $44.5 million or $5.36 per common share on a fully diluted
basis for the quarter and $46.7 million or $5.63 per common share on a fully
diluted basis year-to-date.

Over the past nine months, the Company explored numerous strategic
alternatives regarding its mortgage banking operations, which are comprised of
FirstCity Financial Mortgage Corporation and subsidiaries ("Mortgage Corp.") and
FirstCity Capital Corporation ("Capital Corp."). Alternatives explored included
obtaining a joint venture partner, new funding sources and/or sale or
liquidation of the business. Ultimately, the Company made a decision that the
operations of the mortgage segment do not fit the Company's long-term strategy.
As a result, the Company engaged independent advisory firms to assist with the
sale of Mortgage Corp. and Capital Corp. The due diligence process by
prospective buyers has already begun at Mortgage Corp. There can be no assurance
that a satisfactory contract to sell either entity will be received. To date, an
exit plan has not been adopted. Accordingly, other options, including
liquidation, may be required in the future.

The major factors contributing to the second quarter loss were (dollars in
thousands):

Loss on the sale of FHA/VA buyout assets (reduces gain on
sale of mortgage loans)................................... $ 6,630
Loss on sale of mortgage servicing rights (includes
provision for valuation of mortgage servicing rights)..... 11,329
Operating losses at Mortgage................................ 8,085
Write-offs and reserves at Mortgage including goodwill
(included in other expense)............................... 9,107
Impairment in NAF originated Auto Receivable residuals...... 1,990
Impairment in Home Equity residuals......................... 1,363
An increase in the valuation allowance of the deferred tax
asset..................................................... 5,000

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

As a result of the significant period to period fluctuations in the
revenues and earnings of the Company's Portfolio Asset acquisition and
resolution business, and the strategic changes in Mortgage Corp., period to
period comparisons of the Company's results of operations may not be meaningful.

14
15

ANALYSIS OF REVENUES AND EXPENSES

The following table summarizes the revenues and expenses of each of the
Company's business lines and presents the operating contribution (loss) of each
business.

ANALYSIS OF REVENUES AND EXPENSES
(IN THOUSANDS, EXCEPT PER SHARE DATA)

SIX MONTHS ENDED
SECOND SECOND JUNE 30,
QUARTER QUARTER -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------

MORTGAGE BANKING:
Revenues:
Gain on sale of mortgage and other loans... $13,233.... $ 28,303 $ 39,874 $ 48,572
Net mortgage warehouse income.............. 3,529 2,395 9,486 4,117
Loss on sale of mortgage servicing
rights................................... (6,298) -- (8,693) --
Servicing fees............................. 4,227 5,588 10,370 10,282
Other...................................... 2,562 1,552 5,245 3,556
---------- ---------- ---------- ----------
Total................................. 17,253 37,838 56,282 66,527
Expenses:
Salaries and benefits...................... 23,232 17,216 45,128 30,151
Amortization of mortgage servicing
rights................................... 2,431 4,126 7,154 7,302
Provision for loan losses and residual
interests................................ 1,658 75 1,708 75
Provision for valuation of mortgage
servicing rights......................... 4,638 500 2,294 500
Interest on notes payables................. 1,750 486 3,778 987
Occupancy, data processing, communication
and other................................ 24,926 9,335 36,903 17,439
---------- ---------- ---------- ----------
Total................................. 58,635 31,738 96,965 56,454
---------- ---------- ---------- ----------
Operating contribution (loss) before direct
taxes...................................... $ (41,382) $ 6,100 $ (40,683) $ 10,073
========== ========== ========== ==========
Operating contribution (loss), net of direct
taxes...................................... $ (41,382) $ 6,100 $ (40,683) $ 9,984
========== ========== ========== ==========
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Gain on resolution of Portfolio Assets..... $ 745 $ 2,839 $ 2,047 $ 5,936
Equity in earnings of Acquisition
Partnerships and Servicing Entities...... 2,798 1,523 5,442 4,737
Servicing fees............................. 779 666 1,757 1,395
Other...................................... 719 512 2,009 2,510
---------- ---------- ---------- ----------
Total................................. 5,041 5,540 11,255 14,578
Expenses:
Salaries and benefits...................... 613 1,100 2,034 2,267
Interest on notes payable.................. 1,038 1,336 2,090 2,812
Asset level expenses, occupancy, data
processing and other..................... 1,598 1,886 3,144 4,098
---------- ---------- ---------- ----------
Total................................. 3,249 4,322 7,268 9,177
---------- ---------- ---------- ----------
Operating contribution before direct taxes.... $ 1,792 $ 1,218 $ 3,987 $ 5,401
========== ========== ========== ==========
Operating contribution, net of direct taxes... $ 1,782 $ 1,223 $ 3,958 $ 5,392
========== ========== ========== ==========

15
16

SIX MONTHS ENDED
SECOND SECOND JUNE 30,
QUARTER QUARTER -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------

CONSUMER LENDING:
Revenues:
Gain on sale of automobile loans........... $ 6,445 $ 2,434 $ 6,445 $ 2,434
Interest income............................ 3,445 2,659 6,850 5,225
Servicing fees and other................... 1,426 653 2,590 1,043
---------- ---------- ---------- ----------
Total................................. 11,316 5,746 15,885 8,702
Expenses:
Salaries and benefits...................... 1,667 1,292 3,200 2,404
Provision for loan losses and residual
interests................................ 1,939 500 1,962 2,852
Interest on notes payable.................. 736 939 1,403 1,819
Occupancy, data processing and other....... 3,001 1,658 5,097 2,765
---------- ---------- ---------- ----------
Total................................. 7,343 4,389 11,662 9,840
---------- ---------- ---------- ----------
Operating contribution (loss) before direct
taxes...................................... $ 3,973 $ 1,357 $ 4,223 $ (1,138)
========== ========== ========== ==========
Operating contribution (loss), net of direct
taxes...................................... $ 3,973 $ 1,357 $ 4,223 $ (1,138)
========== ========== ========== ==========
Total operating contribution (loss),
net of direct taxes................. $ (35,627) $ 8,680 $ (32,502) $ 14,238
========== ========== ========== ==========
CORPORATE OVERHEAD:
Corporate interest expense, salaries and
benefits, occupancy, professional and other
income and expenses, net................... $ (3,254) $ (1,806) $ (7,878) $ (2,318)
Deferred tax benefit (provision) from NOLs.... (5,000) 750 (5,003) 1,500
---------- ---------- ---------- ----------
Net earnings (loss)........................ (43,881) 7,624 (45,383) 13,420
Preferred dividends........................ (642) (1,515) (1,284) (3,030)
---------- ---------- ---------- ----------
Net earnings (loss) to common
shareholders........................ $ (44,523) $ 6,109 $ (46,667) $ 10,390
========== ========== ========== ==========
SHARE DATA:
Earnings (loss) before accounting change per
common share -- basic...................... $ (5.36) $ 0.84 $ (5.53) $ 1.51
Earnings (loss) before accounting change per
common share -- diluted.................... $ (5.36) $ 0.83 $ (5.53) $ 1.47
Cumulative effect of accounting
change -- basic............................ $ -- $ -- $ (0.10) $ --
Cumulative effect of accounting
change -- diluted.......................... $ -- $ -- $ (0.10) $ --
Net earnings (loss) per common
share -- basic............................. $ (5.36) $ 0.84 $ (5.63) $ 1.51
Net earnings (loss) per common
share -- diluted........................... $ (5.36) $ 0.83 $ (5.63) $ 1.47
Weighted average common shares outstanding --
basic...................................... 8,299 7,243 8,294 6,889
Weighted average common shares outstanding --
diluted.................................... 8,299 7,401 8,294 7,045
ORIGINATION AND OTHER FINANCIAL DATA:
Mortgage Corp.:
Origination of residential mortgage loans:
Conventional............................. $1,031,658 $1,584,727 $2,463,453 $2,945,592
Agency................................... 460,537 377,364 1,057,774 708,592
Home equity.............................. 53,062 89,022 115,406 147,284
Other.................................... 18,551 37,075 48,979 56,987
---------- ---------- ---------- ----------
Total................................. $1,563,808 $2,088,188 $3,685,612 $3,858,455
========== ========== ========== ==========

16
17

SIX MONTHS ENDED
SECOND SECOND JUNE 30,
QUARTER QUARTER -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------

Origination of commercial mortgage loans:
Correspondent............................ $ 91,725 $ 67,985 $ 214,353 $ 181,250
Construction............................. 6,724 12,767 24,786 28,363
---------- ---------- ---------- ----------
Total................................. $ 98,449 $ 80,752 $ 239,139 $ 209,613
========== ========== ========== ==========
Capital Corp.:
Acquisition of Home Equity Loans........... $ 46,908 $ 69,312 $ 146,648 $ 105,728
Commercial Corp.:
Aggregate purchase price of assets
acquired................................. $ 58,017 $ 17,869 $ 67,996 $ 69,840
Proceeds from resolution................... 43,590 43,126 78,202 117,660
Consumer Corp.:
Aggregate acquisition of automobile and
other consumer receivables............... $ 55,008 $ 33,250 $ 108,744 $ 67,061

MORTGAGE BANKING

The Company continued its efforts to "right-size" Mortgage Corp. Additional
sales of mortgage servicing rights occurred, including bulk sales totaling $1.1
billion and flow sales totaling $1.6 billion. Losses of $11.3 million were
recognized as a result of such sales. Additionally, Mortgage Corp. must incur
the cost to subservice the loans for the period between sale date and delivery
date, which averages approximately 90 days. At quarter end, Mortgage Corp. was
subservicing $4.5 billion, down from $5.1 billion at the end of the first
quarter.

Additionally, Mortgage Corp. was able to sell or close the majority of its
retail origination offices during the quarter, with a nominal gain realized on
the sales. Such offices generated operating losses of $1.2 million for the
quarter and $2.9 million year-to-date. Sales and closings of such offices and
other reductions resulted in a decrease of personnel in the mortgage operations.
This action allowed Mortgage Corp. to focus its originations solely from the
broker retail network at New America. Originations for the second quarter of
$1.7 billion dropped by 24% from the first quarter of 1999. The decrease
resulted from the elimination of the retail origination offices, as well as, a
significant rise in interest rates during the quarter. Monthly broker retail
production for the months of April, May and June were $544, $429 and $437
million, respectively.

During the second quarter Capital had originations of $46.9 million of home
equity loans, down from $100 million during the first quarter of 1999. Such
decrease is consistent with the Company's planned reduction in the level of
capital commitment to the mortgage business, as previously announced by the
Company at the end of the first quarter. At quarter end, the Capital held $184
million of home equity loans in inventory, and $23 million in home equity
residuals. No securitization transaction was planned or completed during the
quarter.

17
18

The following table presents selected information regarding the revenues
and expenses of the Company's mortgage banking business.

ANALYSIS OF SELECTED REVENUES AND EXPENSES
MORTGAGE BANKING
(DOLLARS IN THOUSANDS)

SIX MONTHS ENDED
SECOND SECOND JUNE 30,
QUARTER QUARTER -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------

WAREHOUSE INVENTORY:
Average inventory balance.................. $ 809,869 $1,103,779 $ 919,391 $ 907,195
Net mortgage warehouse income:
Dollar amount........................... 3,529 2,395 9,486 4,117
Annualized percentage of average
inventory balance..................... 1.74% 0.87% 2.06% 0.91%
GAIN ON SALE OF MORTGAGE LOANS:
Gain on sale of mortgage loans as a
percentage of loans sold:
Residential............................. 0.55% 1.15% 0.81% 1.26%
Home Equity............................. 1.14% 4.43% 1.55% 4.59%
Securitized Home Equity................. -- 1.24% -- 1.24%
SERVICING REVENUES:
Average servicing portfolios:
Residential............................. $2,483,094 $5,621,502 $4,166,526 $5,119,061
Commercial.............................. 1,369,427 1,388,470 1,376,720 1,433,898
Sub-serviced............................ 5,085,168 1,099,795 4,936,430 960,261
Servicing fees:
Residential............................. $ 3,748 $ 5,123 $ 9,279 $ 9,407
Commercial.............................. 196 247 457 485
Sub-serviced............................ 283 218 634 390
---------- ---------- ---------- ----------
Total.............................. $ 4,227 $ 5,588 $ 10,370 $ 10,282
Annualized servicing fee percentage:
Residential............................. 0.60% 0.36% 0.45% 0.37%
Commercial.............................. 0.06% 0.07% 0.07% 0.07%
Sub-serviced............................ 0.02% 0.08% 0.03% 0.08%
Loss on sale of servicing rights........... $ 6,298 $ -- $ 8,693 $ --
Amortization of servicing rights:
Servicing rights amortization........... $ 2,431 $ 4,126 $ 7,154 $ 7,302
Servicing rights amortization as a
percentage of average residential
servicing portfolio (annualized)...... 0.39% 0.29% 0.34% 0.29%
PERSONNEL:
Personnel expense.......................... $ 23,232 $ 17,216 $ 45,128 $ 30,151
Number of personnel (at period end):
Production.............................. 232 511
Servicing............................... 302 146
Other................................... 576 710
---------- ----------
Total.............................. 1,110 1,367
========== ==========

18
19

PORTFOLIO ASSET ACQUISITION AND RESOLUTION

Commercial Corp. acquired assets of $58 million during the quarter
comprised of one French portfolio and five domestic portfolios. Collections
during the quarter totaled $43.6 million. Collections and returns achieved on
assets acquired in France and Mexico continue to exceed expectations. Commercial
Corp. also acquired an interest in the French entity that performs the servicing
on the French portfolios. This move is expected to solidify Commercial Corp.'s
servicing relationship in France.

Additionally, Japan's Minister of Finance approved the servicing license
for Commercial Corp.'s Japanese joint venture, which should facilitate increased
portfolio acquisition activity in the future. Commercial Corp. also made its
first bid in Korea. Although unsuccessful, this represents an entrance, with a
significant New York based capital partner, into a promising market.

The following table presents selected information regarding the revenues
and expenses of Commercial Corp.

ANALYSIS OF SELECTED REVENUES AND EXPENSES
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
(DOLLARS IN THOUSANDS)

SIX MONTHS ENDED
SECOND SECOND JUNE 30,
QUARTER QUARTER -----------------
1999 1998 1999 1998
------- ------- ------- -------

GAIN ON RESOLUTION OF PORTFOLIO ASSETS:
Average investment:
Nonperforming Portfolios.......................... $29,319 $42,201 $31,074 $46,005
Performing Portfolios............................. 15,554 13,177 19,166 14,956
Real estate Portfolios............................ 10,372 17,639 10,851 18,053
Gain on resolution of Portfolio Assets:
Nonperforming Portfolios............................. $ 545 $ 1,626 $ 1,439 $ 3,889
Performing Portfolios............................. -- -- -- 299
Real estate Portfolios............................ 200 1,213 608 1,748
------- ------- ------- -------
Total........................................ $ 745 $ 2,839 $ 2,047 $ 5,936
======= ======= ======= =======
Interest income on performing Portfolios............. $ 599 $ 455 $ 1,487 $ 1,186
Gross profit percentage on resolution of Portfolio
Assets:
Nonperforming Portfolios.......................... 11.66% 20.37% 17.25% 21.97%
Performing Portfolios........................... -- -- -- 7.99%
Real estate Portfolios.......................... 14.45% 22.26% 22.69% 20.35%
Weighted average gross profit percentage........ 12.31% 21.74% 18.58% 19.77%
Interest yield on performing Portfolios
(annualized)................................. 15.40% 13.81% 15.52% 15.86%
SERVICING FEE REVENUES:
Acquisition partnerships........................ $ 760 $ 648 $ 1,693 $ 1,308
Affiliates...................................... 19 18 64 87
------- ------- ------- -------
Total........................................ $ 779 $ 666 $ 1,757 $ 1,395
======= ======= ======= =======
PERSONNEL:
Personnel expenses................................... $ 613 $ 1,100 $ 2,034 $ 2,267
Number of personnel (at period end):
Production........................................ 10 11
Servicing......................................... 63 70
------- -------
Total........................................ 73 81
======= =======
INTEREST EXPENSE:
Average debt................................. $56,012 $70,641 $58,664 $73,589
Interest expense............................. 1,038 1,336 2,090 2,812
Average yield (annualized)................... 7.41% 7.56% 7.13% 7.64%

19
20

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

ANALYSIS OF SELECTED REVENUES AND EXPENSES
ACQUISITION PARTNERSHIPS
(DOLLARS IN THOUSANDS)

SIX MONTHS ENDED
SECOND SECOND JUNE 30,
QUARTER QUARTER -----------------
1999 1998 1999 1998
------- ------- ------- -------

REVENUES:
Gain on resolution of Portfolio Assets................ $13,626 $9,110 $24,357 $27,643
Gross profit percentage on resolution of Portfolio
Assets............................................. 36.30% 30.30% 36.25% 31.55%
Interest income....................................... $ 3,248 $2,169 $ 6,584 $ 4,622
Other interest income................................. 978 163 1,139 333
INTEREST EXPENSE:
Interest expense...................................... $ 2,703 $3,016 $ 5,855 $ 6,957
Average yield (annualized)............................ 10.50% 7.03% 9.24% 7.04%
OTHER EXPENSES:
Servicing fees........................................ $ 1,071 $1,364 $ 2,509 $ 2,785
Legal................................................. 662 577 1,219 985
Property protection................................... 645 958 2,030 1,994
Other................................................. 2,774 1,667 4,087 6,895
------- ------ ------- -------
Total other expenses.......................... 5,152 4,566 9,845 12,659
------- ------ ------- -------
Net earnings.................................. $ 9,997 $3,860 $16,380 $12,982
======= ====== ======= =======

CONSUMER LENDING

Consumer Corp. continued to perform as expected. In April, Consumer Corp.
completed a planned securitization of $55.8 million of auto receivables
resulting in a gain of $6.4 million. The loans purchased during the quarter were
purchased at an average discount to face value of 13.8% and carry a weighted
average coupon in excess of 19%. The defaults to date on assets acquired through
June 30, 1999 have totaled 8.7% of the total loans acquired. Actual losses on
these defaults have totaled 3.3% of the original loan balances at the time of
default. Delinquencies at quarter-end were 5.8% of the total serviced portfolio
of FirstCity Funding Corp. acquired loans. At the end of the quarter Consumer
Corp.'s balance sheet reflected $45 million of auto finance residuals. FirstCity
Funding Corp. originated $36 million of these residuals with the remainder
originated by NAF, the discontinued auto finance platform.

20
21

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

ANALYSIS OF SELECTED REVENUES AND EXPENSES
CONSUMER LENDING
(DOLLARS IN THOUSANDS)

SIX MONTHS ENDED
SECOND SECOND JUNE 30,
QUARTER QUARTER ------------------
1999 1998 1999 1998
------- ------- ------- -------

INTEREST INCOME:
Average loans and investments:
Auto........................................... $32,556 $45,697 $32,597 $51,085
Investments.................................... 46,480 22,677 45,430 18,278
Interest income:
Auto........................................... $ 1,900 $ 2,221 $ 3,898 $ 4,470
Investments.................................... 1,435 392 2,703 689
Average yield (annualized):
Auto........................................... 23.34% 19.44% 23.92% 17.50%
Investments.................................... 12.35% 6.91% 11.90% 7.54%
SERVICING FEE REVENUES.............................. $ 1,386 $ 584 $ 2,521 $ 968
PERSONNEL:
Personnel expenses................................ $ 1,667 $ 1,292 $ 3,200 $ 2,404
Number of personnel (at period end):
Production..................................... 130 67
Servicing...................................... 122 97
------- -------
Total..................................... 252 164
======= =======
INTEREST EXPENSE:
Average debt................................. $43,678 $41,521 $38,418 $41,158
Interest expense............................. 736 939 1,403 1,819
Average yield (annualized)................... 6.74% 9.05% 7.30% 8.84%

BENEFIT (PROVISION) FOR INCOME TAXES

The Company has substantial federal 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
next three to four year period. 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 earnings. 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. The Company's analysis for the quarter ended June 30, 1999 resulted
in an increase in the valuation allowance of $5 million. Additional events could
occur in the future, and would impact the quarterly recognition of the Company's
estimate of the required valuation allowance associated with its NOLs. Although
realization is not assured, management believes it is more likely than not that
all of the recorded deferred tax asset will be realized.

21
22

RESULTS OF OPERATIONS

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

SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998

The Company reported a net loss of $43.9 million (including a deferred tax
provision of $5.0 million) in 1999 compared to earnings of $7.6 million in 1998
(including a $0.8 million deferred tax benefit from NOLs). Net loss to common
shareholders was $44.5 million in 1999 compared to earnings of $6.1 million in
1998. On a per share basis, basic net loss attributable to common shareholders
was $5.36 in 1999 compared to earnings of $.84 in 1998. Diluted net loss per
common share was $5.36 in 1999 compared to earnings of $.83 in 1998.

Mortgage Banking

Gain on sale of mortgage loans. Gain on sale of mortgage loans decreased by
53% to $13.2 million in 1999 from $28.3 million in 1998. Although loan sales
were flat, the percentage gain declined from 1.23% in 1998 to 0.57% in 1999
because of increases in interest rates during the quarter and a $6.6 million
loss on sale of FHA/VA buyout assets.

Net mortgage warehouse income. Net mortgage warehouse income increased by
47% to $3.5 million in 1999 from $2.4 million in 1998. This is the result of a
significant increase in the spread between the interest rate on the underlying
mortgages and the interest cost of the warehouse credit facility.

Servicing fee revenues. Servicing fee revenues decreased by 24% to $4.2
million in 1999 from $5.6 million in 1998 as a result of a decrease in the size
of the owned residential servicing portfolio.

Other revenues. A $6.3 million loss on sale of mortgage servicing rights
was realized in the second quarter. Other revenues increased by 65% to $2.6
million in 1999 from $1.6 million in 1998 because of an increase in interest
income.

Operating expenses. Operating expenses of Mortgage Corp. increased by 85%
to $58.7 million in 1999 from $31.7 million in 1998 primarily as a result of
significant increases in the provision for mortgage servicing rights, personnel
and other costs.

Salaries and benefits increased by $6.0 million or 35% in 1999 reflecting a
growth in the platform from 1998. During the quarter, the majority of the retail
production offices were sold or closed.

Amortization of mortgage servicing rights decreased by $1.7 million or 41%
in 1999 as a result of the Company's strategy to reduce investment in servicing
rights.

A provision of $4.6 million for valuation of mortgage servicing rights was
recorded during the second quarter 1999.

Interest on notes payable (the portion not associated with Mortgage Corp.'s
warehouse credit facility) increased by $1.3 million or 260% due to higher
working capital borrowings during 1999.

Occupancy expense increased by $.8 million or 22% in 1999 as the result of
the opening or acquisition of several new offices in 1998 in the Broker Retail
and Direct Retail networks. Increases in data processing, communication and
other expenses in 1999 resulted primarily from $9.1 million for the write down
of assets deemed to be uncollectible and reserves for potential losses on assets
and $8.1 million of charges relating to the closing of retail offices.

Portfolio Asset Acquisition and Resolution

Commercial Corp. purchased $58.2 million of Portfolio Assets during 1999
for its own account and through the Acquisition Partnerships compared to $17.9
million in acquisitions in 1998. Commercial Corp.'s quarter end investment in
Portfolio Assets decreased to $48.2 million in 1999 from $68.5 million in 1998.

22
23

Commercial Corp. invested $4.5 million in equity in Portfolio Assets in 1999
compared to $8.4 million in 1998.

Net gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets decreased by 54% to $6.1 million in 1999 from $13.1 million in
1998. The net gain on resolution of Portfolio Assets decreased by 74% to $.7
million in 1999 from $2.8 million in 1998 as the result of lower collections and
a lower gross profit percentage. The gross profit percentage on the resolution
of Portfolio Assets in 1999 was 12.3% as compared to 21.7% in 1998.

Equity in earnings of Acquisition Partnerships. Proceeds from the
resolution of Portfolio Assets for the Acquisition Partnerships increased by 25%
to $37.5 million in 1999 from $30.1 million in 1998 and the gross profit
percentage increased to 36.3% in 1999 from 30.3% in 1998. Interest income rose
$1.9 million. Other expenses of the Acquisition Partnerships increased by $.6
million in 1999 generally reflecting costs associated with the resolution of
Portfolio Assets in Mexico which generated proceeds of $1.5 million. The net
result was an overall increase in the net income of the Acquisition Partnerships
of 159% to $10.0 million in 1999 from $3.9 million in 1998. As a result,
Commercial Corp.'s equity earnings from Acquisition Partnerships increased by
84% to $2.8 million in 1999 from $1.5 million in 1998.

Servicing fee revenues. Servicing fees increased by 17% to $.8 million in
1999 from $.7 million in 1998 primarily as a result of collections from the
acquisition partnership in Mexico formed at year-end 1998.

Other revenues. Other revenues increased by 40% to $.7 million in 1999
compared to $.5 million in 1998 principally as a result of higher interest
income.

Operating expenses. Operating expenses declined by 25% to $3.2 million in
1999 from $4.3 million in 1998 primarily as a result of reduced personnel and
interest expense.

Salaries and benefits decreased by $.5 million or 44% in 1999 as a result
of staff reductions during the quarter.

Interest on notes payable declined $.3 million or 22% due to overall lower
cost of funds and lower debt levels.

Asset level expenses, occupancy, data processing and other expenses
decreased by 15% to $1.6 million in 1999 from $1.9 million in 1998 as a result
of lower investments in Portfolio Assets and the consolidation of servicing
offices in 1999.

Consumer Lending

Gain on sale of automobile loans. Consumer Corp. sold $55.8 million of
automobile loans in the second quarter and realized a gain of $6.4 million.

Interest and other income. Interest income increased by 30% to $3.4 million
in 1999 from $2.7 million in 1998, reflecting increased levels of loan
origination activity and an increase in the average balance of aggregate loans
and investments held by Consumer Corp. during 1999. Other income increased $.8
million or 118% due to increased service fee revenue from securitization trusts.

Interest expense. Interest expense decreased by 22% to $.7 million in 1999
from $.9 million in 1998 as a result of lower funding rates.

Operating expenses. Operating expenses increased by 67% to $7.3 million in
1999 from $4.4 million in 1998 primarily as a result of a significant increase
in the provision for impairment on residual interests and increased operating
activity.

Provision for impairment on residual interest increased by $2.0 million
from 1998 as a result of increased losses in NAF originated Auto Receivable
residuals.

Salaries and benefits increased by $.4 million or 29% and other expenses
increased $1.3 million or 81% as a result of the increased levels of operating
activity.

23
24

Other Items Affecting Net Earnings

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

Corporate overhead. Company level interest expense increased by 251% to
$1.9 million in 1999 from $.5 million in 1998 as a result of higher volumes of
debt associated with the equity required to purchase Portfolio Assets, equity
interests in Acquisition Partnerships and capital support to operating
subsidiaries. Salaries and benefits decreased 60% to $.3 million in 1999. Loan
fees and professional fees account for the majority of the $.2 million increase
in other overhead expenses, which increased due to higher borrowings and other
costs associated with outsourcing projects related to the Company's year 2000
initiative and other operational reviews. Additionally, during the second
quarter of 1998 the Company recognized $.4 million of deferred premium income
related to the redemption of Special Preferred Stock.

Income taxes. Federal income taxes are provided at a 35% rate applied to
taxable income and are offset by NOLs that the Company believes are available.
The tax benefit of the NOLs is recorded in the period during which the benefit
is realized. The Company recorded a deferred tax provision from NOLs of $5.0
million in 1999 as compared to a benefit of $.8 million in 1998.

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

The Company reported a net loss of $45.4 million in 1999 (including a
deferred tax provision of $5.0 million) compared to earnings of $13.4 million in
1998 (including a $1.5 million deferred tax benefit from NOLs). Net loss to
common shareholders was $46.7 million in 1999 compared to earnings of $10.4
million in 1998. On a per share basis, basic net loss attributable to common
shareholders was $5.63 in 1999 compared to earnings of $1.51 in 1998. Diluted
net loss per common share was $5.63 in 1999 compared to earnings of $1.47 in
1998. An accounting change related to SOP 98-5 resulted in a loss of $.8 million
in the first six months of 1999 or $0.10 per share.

Mortgage Banking

Gain on sale of mortgage loans. Gain on sale of mortgage loans decreased by
18% to $39.9 million in 1999 from $48.6 million in 1998. Although loan sales
increased from $3.6 billion in 1998 to $4.8 billion in 1999, the percentage gain
declined from 1.35% in 1998 to 0.84% in 1999 because of a $6.6 million loss on
sale of FHA/VA buyout assets.

Net mortgage warehouse income. Net mortgage warehouse income increased by
130% to $9.5 million in 1999 from $4.1 million in 1998. This is the result of a
significant increase in the spread between the interest rate on the underlying
mortgages and the interest cost of the warehouse credit facility.

Servicing fee revenues. Servicing fee revenues were flat period to period.

Other revenues. An $8.7 million loss on sale of mortgage servicing rights
was realized in the first six months of 1999. Other revenues increased by 47% to
$5.2 million in 1999 from $3.6 million in 1998 because of a boost in interest
income.

Operating expenses. Operating expenses of Mortgage Corp. increased by 72%
to $97.0 million in 1999 from $56.5 million in 1998 primarily as a result of
significant increases in the provision for mortgage servicing rights, personnel
and other costs.

Salaries and benefits increased by $15.0 million or 50% in 1999 reflecting
a growth in the platform from 1998. During the period, the majority of the
retail production offices were sold or closed.

Amortization of mortgage servicing rights decreased as a result of the sale
of mortgage servicing rights. Interest on notes payable (the portion not
associated with Mortgage Corp.'s warehouse credit facility) increased due to
higher working capital borrowings during 1999. A provision of $2.3 million for
valuation of mortgaging servicing rights was recorded in the first six months of
1999.

24
25

Occupancy expense increased by $2.1 million or 31% in 1999 as the result of
the opening or acquisition of several new offices in 1998 in the Broker Retail
and Direct Retail networks. Increases in data processing, communication and
other expenses in 1999 resulted from $9.1 million for the write down of assets
deemed to be uncollectible and reserves for potential losses on assets and $8.1
million of one-time charges relating to the closing of retail offices.

Portfolio Asset Acquisition and Resolution

Commercial Corp. purchased $68.0 million of Portfolio Assets during 1999
for its own account and through the Acquisition Partnerships compared to $69.8
million in acquisitions in 1998. Commercial Corp.'s quarter end investment in
Portfolio Assets decreased to $48.2 million in 1999 from $68.5 million in 1998.
Commercial Corp. invested $7.0 million in equity in Portfolio Assets in 1999
compared to $17.1 million in 1998.

Net gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets decreased by 63% to $11.0 million in 1999 from $30.0 million in
1998. The net gain on resolution of Portfolio Assets decreased by 66% to $2.0
million in 1999 from $5.9 million in 1998 as the result of lower collections.
The gross profit percentage on the resolution of Portfolio Assets in 1999 was
18.6% as compared to 19.8% in 1998.

Equity in earnings of Acquisition Partnerships. Proceeds from the
resolution of Portfolio Assets for the Acquisition Partnerships decreased by 23%
to $67.2 million in 1999 from $87.6 million in 1998 while the gross profit
percentage increased to 36.3% in 1999 from 31.6% in 1998. Interest income rose
$2.0 million in 1999. Other expenses of the Acquisition Partnerships decreased
by $2.8 million in 1999 generally reflecting costs associated with the
resolution of Portfolio Assets in Europe which generated proceeds of $37.4
million. The net result was an overall increase in the net income of the
Acquisition Partnerships of 26% to $16.4 million in 1999 from $13.0 million in
1998. As a result, Commercial Corp.'s equity earnings from Acquisition
Partnerships increased by 15% to $5.4 million in 1999 from $4.7 million in 1998.

Servicing fee revenues. Servicing fees increased by 26% to $1.8 million in
1999 from $1.4 million in 1998 primarily as a result of collections from the
acquisition partnership in Mexico formed at year-end 1998.

Other revenues. Other revenues decreased by 20% to $2.0 million in 1999
compared to $2.5 million in 1998 principally as a result of fewer acquisitions
during the year (which would generate lower due diligence recovery income).

Operating expenses. Operating expenses declined by 21% to $7.3 million in
1999 from $9.2 million in 1998 primarily as a result of reduced interest expense
and lower asset level expenses.

Salaries and benefits were relatively flat period to period.

Interest on notes payable declined $.7 million or 26% due to overall lower
cost of funds and lower debt levels.

Asset level expenses, occupancy, data processing and other expenses
decreased by 23% to $3.1 million in 1999 from $4.1 million in 1998 as a result
of lower investments in Portfolio Assets and the consolidation of servicing
offices in 1999.

Consumer Lending

Gain on sale of automobile loans. In the first six months of 1999, Consumer
Corp. realized a gain of $6.4 million on the sale of automobile loans as
compared to $2.4 million in 1998.

Interest and other income. Interest income increased by 31% to $6.9 million
in 1999 from $5.2 million in 1998, reflecting increased levels of loan
origination activity and an increase in the average balance of aggregate loans
and investments held by Consumer Corp. during 1999. Other income increased $1.5
million or 148% due to increased service fee revenue from securitization trusts.

Interest expense. Interest expense decreased by 23% to $1.4 million in 1999
from $1.8 million in 1998 as a result of lower funding costs.
25
26

Operating expenses. Operating expenses increased by 19% to $11.7 million in
1999 from $9.8 million in 1998 primarily as a result of increased operating
activity.

Provision for loan losses and impairment on residual interests decreased by
$.9 million or 31% from 1998 as a result of a reduction in loan loss provision
of $2.9 million when compared to 1998, offset by the provision on impairments on
residual assets increased by $2.0 million over 1998.

Salaries and benefits increased by $.8 million or 33% and other expenses
increased $2.3 million or 84% as a result of the increased levels of operating
activity.

Other Items Affecting Net Earnings

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

Corporate overhead. Company level interest expense increased by 238% to
$3.7 million in 1999 from $1.1 million in 1998 as a result of higher volumes of
debt associated with the equity required to purchase Portfolio Assets, equity
interests in Acquisition Partnerships and capital support to operating
subsidiaries. Salary and benefits decreased 22% to $1.3 million in 1999. Loan
fees and professional fees account for the majority of the $1.1 million increase
in other overhead expenses, which increased due to higher borrowings and other
costs associated with outsourcing projects related to the Company's year 2000
initiative and other operational reviews, as well as a write-off of $.5 million
of organization costs in accordance with SOP 98-5. Additionally, during the
first six months of 1998 the Company recognized $1.7 million of deferred premium
income related to the redemption of Special Preferred Stock.

LIQUIDITY AND CAPITAL RESOURCES

The Company has completed the extension and renewal of its working capital
revolving line of credit with its revolving lenders ("Revolving Lenders") in
August 1999 in the amount of $93 million. In consideration of the additional
funding provided under the revolving line of credit, warrants for the purchase
of 250,000 shares of the Company's common stock were issued which are
exercisable over a ten year period at a strike price equal to the average
closing price for the Company's common stock for the month of August 1999. This
renewed facility includes a sub-line for FirstCity Consumer Lending ("Consumer")
and matures June 30, 2000. This facility requires the approval of the lenders
prior to payment of common and preferred dividends.

Previously, the Company announced that certain trigger and termination
events had occurred under the agreements with its credit enhancement provider on
the Consumer residual assets and the Consumer warehouse facility. The credit
enhancement provider has given the Company a waiver until September 15, 1999, of
the trigger and termination events subject to the following conditions: (1) all
excess cash flows payable to affiliates of Consumer under the securitizations
will be reserved by the credit enhancement provider, (2) advances under the
warehouse line will be reduced from 79.5% to 77% of the principal balances of
the loans funded with total fundings under the line limited to $11,500,000 for
the thirty day period, (3) the Corporate revolving lenders must agree to waive
the default under the revolving loan agreement related to the
26
27

trigger event for a thirty day period, (4) the Company and its subsidiaries will
be required to cross-collateralize the securitizations wrapped by the credit
enhancement provider, (5) the servicing agreements related to the wrapped
securitizations will be made subject to thirty day renewal periods.
Additionally, these trigger events were events of default under a $4.3 million
credit facility secured by certain automobile residual assets. The Company is
currently working with this lender to waive such defaults.

Mortgage Corp. is currently in default on a payment in the approximate
amount of $5 million on a $14 million gestation facility and is working with the
lender to cure such defaults. As a result of this payment default and the net
worth of Harbor Financial Mortgage Corporation, Mortgage Corp. is in default of
its covenants contained in the $500 million warehouse facility. These defaults
also create defaults in Mortgage Corp.'s other credit facilities. Mortgage Corp.
is currently working with the syndicate lenders to receive waivers of these
defaults. If such waivers or cures are not obtained, funding under the Mortgage
Corp. warehouse facilities could be halted. The Company's revolving credit
facility provides that the defaults by Mortgage do not constitute a default
under the Company's revolving credit facility unless they are not cured or
waived on or before September 15, 1999. In the event these defaults are not
waived or cured by September 15, 1999, they could have an adverse impact on the
Company's liquidity.

The Company and each of its major operating subsidiaries have entered into
one or more credit facilities to finance its respective operations. Each of the
operating subsidiary credit facilities is nonrecourse to the Company and the
other operating subsidiaries, except as discussed below.

Excluding the term acquisition facilities of the unconsolidated Acquisition
Partnerships, as of June 30, 1999, the Company and its subsidiaries had credit
facilities providing for borrowings in an aggregate principal amount of $1.9
billion and outstanding borrowings of $931 million. The following table
summarizes the material terms of the credit facilities to which the Company, its
major operating subsidiaries and the Acquisition Partnerships were parties as of
August 13, 1999 and the outstanding borrowings under such facilities as of June
30, 1999.

CREDIT FACILITIES

OUTSTANDING
PRINCIPAL BORROWINGS AS OF
AMOUNT JUNE 30, 1999 INTEREST RATE OTHER TERMS AND CONDITIONS
--------- ---------------- ------------- --------------------------
(DOLLARS IN MILLIONS)

FIRSTCITY
Company Credit
Facility.............. $ 93 $ 76 Prime + 1.0% to Secured by the assets of the Company, expires
Prime + 4% June 30, 2000*
Term fixed asset
facility.............. 1 1 Prime + 1.0% Secured by certain fixed assets, expires
January 1, 2001
Term credit facility.... 10 10 LIBOR + 5.0% Secured by stock of an acquisition partnership
and certain residual interests, expires
February 20, 2000
MORTGAGE CORP.
Warehouse facilities.... 500 364 LIBOR + 1.375% Revolving line to warehouse residential
to 2.5% mortgage loans, expires May 27, 2000*
Supplemental warehouse
facilities............ 62 41 LIBOR + 1.75% Revolving line to warehouse residential
to 2.75% mortgage loans and related receivables, expires
May 27, 2000
Gestation facilities.... 860 148 Fed Funds + 0.8% Open facilities to fund committed loans to FNMA
to 1.05% and and others*
LIBOR + 0.5%
to 0.8%

27
28

OUTSTANDING
PRINCIPAL BORROWINGS AS OF
AMOUNT JUNE 30, 1999 INTEREST RATE OTHER TERMS AND CONDITIONS
--------- ---------------- ------------- --------------------------
(DOLLARS IN MILLIONS)

CAPITAL CORP.
Warehouse facility...... 200 177 LIBOR + 1.50% Acquisition facility to acquire Home Equity
to 3.00% Loans, expires March 31, 2000
Repurchase agreement.... 7 7 LIBOR + 4.00% Repurchase agreement secured by residual
interests in Home Equity securitized loans,
expires November 10, 1999
COMMERCIAL CORP.
Term facility........... 65 65 LIBOR + 4.0% Term facility secured by existing Portfolio
Assets, expires April 30, 2000 (includes $55
million advanced to unconsolidated Acquisition
Partnerships).
French and Japanese
acquisition
facility.............. 4 14 French franc Acquisition facility to fund equity investments
LIBOR + 3.5% in French and Japanese Portfolio Assets,
Japanese yen expires March 31, 2000. Guaranteed by
LIBOR + 3.5% Commercial Corp. and the Company. Paid down and
curtailed to $4 million in August, 1999.
Term acquisition
facilities............ 30 30 Fixed at 7.00% Acquisition facilities for existing Portfolio
to 7.66% Assets. Secured by Portfolio Assets. Expires
February 25, 2003 and June 5, 2002 and November
7, 2002

CONSUMER CORP.

Warehouse facility...... 100 44 Rate equal to the Commercial paper conduit warehouse facility
mixed rate of secured by automobile receivables, expires
LIBOR and March 30, 2000*
commercial paper
rates
Repurchase Agreement.... 3 3 LIBOR + 3% Repurchase agreement secured by residual
interests in automobile securitized loans,
expires November 10, 1999
Term facility........... 6 6 Prime + 1% Term facility secured by residual interests in
automobile securitized loans, expires March 15,
2000
Unconsolidated
Acquisition
Partnerships Term
acquisition
facilities............ 74 74 Fixed at 4.5% to Senior and subordinated loans secured by
13%, LIBOR + Portfolio Assets, various maturities
3.0% to 5.0% and
Prime + 1.0%

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

* See discussions above.

RELIANCE ON SYSTEMS; YEAR 2000 ISSUES

The Year 2000 Issue consists of shortcomings of many electronic data
processing systems that make them unable to process year-date data accurately
beyond the year 1999. The primary shortcoming arises because computer
programmers have abbreviated dates by eliminating the first two digits of the
year under the assumption that these digits would always be 19. Another
shortcoming is caused by the routine used by some computers for calculating leap
year does not detect that the year 2000 is a leap year. This inability to
process dates could potentially result in a system failure or miscalculation
causing disruptions in the Company's operations or performance.

The potential problems posed by this issue affect the Company's internal
business-critical systems ("internal systems") upon which the Company depends.
This includes information technology systems and applications ("IT"), as well as
non-IT systems and equipment with embedded technology, such as fax machines and
telephone systems. Examples of internal IT systems includes accounting systems
such as general ledger, loan servicing systems, cash management systems and loan
origination systems. In addition to the internal systems, the Company may be at
risk from Year 2000 failures caused by or occurring to third parties. Some third
parties have significant direct business relationships with the Company. These
parties include borrowers, lenders, investors who buy the Company's loan
products and outside system vendors such as Alltel, Inc., the primary data
processing provider for the servicing of Mortgage Corp's loans.

28
29

The Company's Year 2000 Initiative

The Company, with the assistance of a consulting firm that specializes in
Year 2000 readiness, is conducting an enterprise-wide Year 2000 initiative that
encompasses both the internal systems and exposure to third parties. For the
Company's internal systems, the initiative is being approached in four phases
comprised of assessment, remediation, testing and contingency planning. While
there is considerable overlap in the timing of the four phases, the internal
assessment phase was completed in March 1999 within the $135,000 budget
allocated for this phase. The components (i.e., hardware and software) of all
internal systems have been identified and the Year 2000 readiness assessed.

The Company has identified its third party business relationships and is
conducting a letter writing campaign to obtain written representations of Year
2000 readiness from the mission critical and significant third party business
relationships. At present, approximately 1000 letters have been mailed with 42%
of the entities responding including both mission critical and non-mission
critical relationships. At this time 59% of the mission critical business
relationships have responded with 92% of those indicating that they are Year
2000 ready or have Year 2000 plans in place and 8% responded with insufficient
data regarding Year 2000 readiness. The letter writing campaign to assess third
party relationships will continue throughout the remainder of 1999 and it is
anticipated that a significant number of positive Year 2000 readiness responses
will be received in the third and fourth quarters.

A comprehensive remediation and testing plan along with a budget of
approximately $1,500,000 for the remainder of the Year 2000 project was
presented and approved by the Board of Directors of the Company on April 15,
1999. Within this budget, approximately $165,000 is for computer hardware and
software that must be replaced or upgraded and the remainder is for personnel
costs (employees, external consultants and travel expenses). All estimated costs
have been budgeted and will be funded by cash flows from operations.

Remediation of mission critical infrastructure components began in January
1999 and has been completed as of June 30, 1999. Infrastructure is defined as
Servers, Workstations, Operating Systems and Network Operating Systems. Mission
critical vendor supplied applications have been upgraded to the vendor's
disclosed Year 2000 ready release with the exception of the Company's PC based
General Ledger software packages. The Year 2000 ready versions of the General
Ledger packages are scheduled for implementation in July and September 1999. The
PC General Ledger accounting systems will be replaced by the implementation of
PeopleSoft Financials in the third quarter of 1999. Mission critical custom
applications written and/or maintained by the Company have been remediated and
are in the process of verification testing. Test plans have been written for
these applications and testing will be completed by August 31, 1999.

Non IT systems, including fax machines, copiers and building mechanical
systems are also being addressed. Fax and copy machines have been identified by
model number and manufacturer have been contacted using the third party/vendor
letters requesting their for Year 2000 readiness. Properties owned or occupied
by the Company's business units are managed by individual property management
companies who have been contacted as to the readiness of the mechanical systems
within those buildings. To date no critical Non-IT systems or equipment with
embedded technology have been identified as having Year 2000 related issues that
will have a significant impact on business operations.

In addition to being included in the Company's initiative described above,
Mortgage Corp. participated in the Year 2000 Inter-Industry Test sponsored by
the Mortgage Bankers Association ("MBA Test"). Other participants in the MBA
Test were from a cross section of the top industry participants including
originators, servicers, mortgage insurers, service bureaus, investors and
software vendors. Mortgage Corp.'s primary data processing vendor, Alltel, Inc.,
and FNMA, Mortgage Corp.'s primary investor, were also participants. The
objective of the test was to prove that the interaction with common mortgage
industry trading partners is acceptable in a year 2000+ environment. The test
covered 17 types of transactions that fall under the three primary mortgage
processes: origination, secondary marketing, and servicing. The test was
completed April 30,

29
30

1999 within the $102,400 budget allotted. While this test will not replace
internal testing, it does provide additional assurance to Mortgage Corp. and the
other participants that the readiness of their systems, many of which are
directly interfaced, are subjected to independent verification.

Based on the Company's remediation efforts, responses received and testing
to date, it is not anticipated that any internal or third party Year 2000
readiness issues will materially affect the Company. The Company expects to have
a comprehensive Year 2000 contingency plan in place by the third quarter of
1999. In general, contingency plans will be developed to replace any significant
third party service providers or internal systems that have not completed their
Year 2000 initiative and disclosed their readiness to the Company by the third
quarter of 1999. Contingency planning also involves a comprehensive risk
assessment in order to maintain focus on critical business relationships and
systems. Contingency planning with respect to third parties will continue
throughout the remainder of 1999.

The cost of the Year 2000 initiative and the dates by which the Company
anticipates completion of its Year 2000 plan are based on management's best
estimates, which are derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. Unanticipated failures by critical third
parties, as well as the failure by the Company to execute its own remediation
and testing efforts, could have a material adverse effect on the cost of the
initiative and its completion date. As a result, there can be no assurance that
these forward-looking estimates will be achieved and the actual cost and third
party compliance could differ materially from those plans, resulting in material
financial risk.

Potential Risks

Currently, there is uncertainty as to the ultimate success of global
remediation efforts, including the efforts of entities that provide services to
large segments of society such as airlines, utilities and securities exchanges.
There could be short term or longer-term disruptions in segments of the economy
that could impact the Company. Due to the uncertainty with respect to how the
Year 2000 issue will affect business and government, it is not possible to list
all potential problems or risks to the Company.

The Company believes that the most reasonably likely worst case scenarios
that could have adverse effects on the Company are the failures of third
parties, particularly residential mortgage loan borrowers, its lenders and the
investors who purchase its mortgage and consumer loan products. The Company's
residential mortgage and consumer loan borrowers could be affected by any
adverse impact on the general economy that could cause a rise in delinquencies.
Lenders, who provide funds used by the Company to acquire assets, might be
adversely affected, disrupting the flow of funds, which could have an adverse
impact on the Company's ability to make new loans. Likewise, a disruption in
services by investors such as FNMA could have an adverse impact on the Company's
ability to sell loans, which would result in significant reductions in operating
activities.

Any Year 2000 factors that might impact borrowers' abilities to repay their
obligations relate to the failure of global remediation efforts over which the
Company has no influence. The Company's lenders and investors, most of which
operate in highly regulated industries, are among the largest such institutions
in the world. These institutions are under government regulatory mandates to
achieve full readiness prior to the end of 1999. The Company believes that it is
unlikely that these institutions will fail to achieve readiness within a
reasonable time frame; however, the Company will continue to monitor their
readiness and maintain an ongoing contingency plan.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q or
incorporated by reference from time to time, including, but not limited to,
statements relating to the Company's strategic objectives and future
performance, which are not historical fact, may be deemed to be forward-looking
statements under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, any statement that may
project, indicate or imply future results, performance or achievements, and may
contain the words "expect", "intend", "plan", "estimate", "believe", "will be",
"will continue", "will likely result",
30
31

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
impact of certain covenants in loan agreements of the Company and its
subsidiaries; the degree to which the Company is leveraged; its need for
financing; the continued availability of the Company's credit facilities;
capital markets conditions, including the markets for asset-backed securities
and commercial mortgage-backed securities; the performance of the Company's
subsidiaries and affiliates; availability of net operating loss carryforwards;
risks associated with rapid growth and entry into new businesses; general
economic conditions; interest rate risk; prepayment speeds; delinquency and
default rates; credit loss rates; changes (legislative and otherwise) in the
asset securitization industry; risk of securitization; demand for the Company's
services; residential and commercial and other real estate values; changes in
foreign political, social and economic conditions, regulatory initiatives and
compliance with governmental regulations, the ability to attract and retain
qualified and key personnel; dependence on independent mortgage brokers and
automobile dealership relationships, the Company's Year 2000 issues; factors
more fully discussed and identified under Item 2 Management's Discussion and
Analysis of Financial Condition and Results of Operations, risk factors and
other risks identified in the Company's current report on Form 10-K, filed March
31, 1999 and 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 Report speak only as of the
date of this Report. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
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 earnings are materially impacted by net gains on
sales of loans and net interest margins. The level of gains from loan sales the
Company achieves is dependent on demand for the products originated. Net
interest margins are dependent on the Company to maintain the spread or interest
differential between the interest it charges the customer for loans and the
interest the Company is charged for the financing of those loans. The following
describes each component of interest bearing assets held by the Company and how
each could be effected by changes in interest rates.

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

The sub-prime loans the Company sells generally are included in asset
backed securities the investor or purchaser issues. These securities are priced
at spreads over the LIBOR or an equivalent term treasury security. These spreads
are determined by demand for the security. Demand is affected by the perception
of credit quality and prepayment risk associated with the loans the Company
originates and sells. Interest rates offered to customers also affect prices
paid for loans. These rates are determined by review of competitors rate
offerings to the public and current prices being paid to the Company for the
products. The Company does not hedge these price risks.

Prices paid for prime loans, primarily mortgage loans held for sale, are
impacted by movements in interest rates. The Company mitigates this risk by
locking in prices with its investors as the customer locks in the price with the
Company, thus allowing the Company to maintain its margin. Generally, if
interest rates rise

31
32

significantly, home sales and refinancing will decline adversely affecting the
Company's prime mortgage loan production.

The Company's residual interests in securitizations represent the present
value of the excess cash flows the Company expects to receive over the life of
the underlying sub-prime mortgage or automobile loans. The value of the
sub-prime mortgage residual interest is adversely affected by prepayment, losses
and delinquencies due to the longer term of the underlying assets and the value
would be negatively impacted by an increase in short-term rates, as a portion of
the cash flows fluctuate monthly based upon the one-month LIBOR. The sub-prime
automobile residual interests is 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.

The Company's investment in mortgage servicing rights is based on weighted
average service fee rates and assumed prepayment speeds. Changes in prevailing
mortgage interest rates contribute to changes in the prepayment assumptions of
servicing rights, thus causing increases to the value of the servicing rights
when mortgage rates increase and decreases in value when mortgage rates
decrease.

Additionally the Company has various sources of financing which have been
previously described in the Liquidity 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 prime mortgage production and the value of the residual
interests in the securitization and declining prices for the Company's sub-prime
loans would adversely effect the levels of gains achieved upon the sale of those
loans.

32
33

PART II -- OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual meeting of shareholders (the "Annual Meeting")
on May 12, 1999. The following items of business were considered at the Annual
Meeting.

(a) Election of Directors

The following were elected as directors to serve as members of the
Company's Board of Directors until the Company's 2000 annual meeting of
shareholders. The number of votes cast for each nominee was as follows:

VOTES CAST VOTES
NOMINEE FOR AGAINST ABSTAINED
------- ---------- ------- ---------

James R. Hawkins............................................ 5,674,587 0 129,912
C. Ivan Wilson.............................................. 5,674,591 0 120,908
James T. Sartain............................................ 5,674,591 0 120,908
Rick R. Hagelstein.......................................... 5,674,591 0 120,908
Buddy L. Terrell............................................ 5,618,204 0 177,295
Richard E. Bean............................................. 5,674,475 0 121,024
Dane Fulmer................................................. 5,674,591 0 120,908
Robert E. Garrison II....................................... 5,674,591 0 120,908
David W. MacLennan.......................................... 5,674,591 0 120,908
Thomas E. Smith............................................. 5,674,591 0 120,908

(b) Ratification of Appointment of Auditors

A proposal to ratify the Board of Directors' appointment of KPMG LLP as the
Company's independent auditors for 1999 was approved by the shareholders. The
number of votes for the proposal: 5,748,525; votes witheld: 39,528; abstentions:
7,446.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

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

33
34

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

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).
9.1 -- Shareholder Voting Agreement, dated as of June 29, 1995,
among ATARA I Ltd., James R. Hawkins, James T. Sartain
and Cargill Financial Services Corporation. (incorporated
herein by reference to Exhibit 9.1 of the Company's Form
10-K dated March 24,1998 filed with the Commission on
March 26, 1998).
10.1 -- Trust Agreement of FirstCity Liquidating Trust, dated
July 3, 1995 (incorporated herein by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K dated
July 3, 1995 filed with the Commission on July 18, 1995).
10.2 -- Investment Management Agreement, dated July 3, 1995,
between the Company and FirstCity Liquidating Trust
(incorporated herein by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995
10.3 -- Lock-Box Agreement, dated July 11, 1995, among the
Company, NationsBank of Texas, N.A., as lock-box agent,
FirstCity Liquidating Trust, FCLT Loans, L.P., and the
other Trust-Owned Affiliates signatory thereto, and each
of NationsBank of Texas, N.A. and Fleet National Bank, as
co-lenders (incorporated herein by reference to Exhibit
10.3 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.4 -- Custodial Agreement, dated July 11, 1995, among Fleet
National Bank, as custodian, Fleet National Bank, as
agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and
the Company (incorporated herein by reference to Exhibit
10.4 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.5 -- Tier 3 Custodial Agreement, dated July 11, 1995, among
the Company, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company, as servicer (incorporated herein by reference to
Exhibit 10.5 of the Company's Form 8-A/A dated August 25,
1995 filed with the Commission on August 25, 1995).

34
35

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

10.6 -- 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other
warehouse lenders party thereto. (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.7 -- Modification Agreement, dated January 26, 1998, to the
Amended and Restated Facilities Agreement, dated as of
December 3, 1997, among Harbor Financial Mortgage
Corporation, New America Financial, Inc. and Chase Bank
of Texas, National Association (formerly known as Texas
Commerce Bank National Association). (incorporated herein
by reference to Exhibit 10,7 of the company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.8 -- $50,000,000 3/98 Chase Texas Temporary Additional
Warehouse Note, dated March 17, 1998, by Harbor Financial
Mortgage Corporation and New America Financial, Inc., in
favor of Chase Bank of Texas, National Association.
(incorporated herein by reference to Exhibit 10.8 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.9 -- Employment Agreement, dated as of July 1, 1997, by and
between Harbor Financial Mortgage Corporation and Richard
J. Gillen. (incorporated herein by reference to Exhibit
10.9 of the Company's 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.10 -- Employment Agreement, dated as of September 8, 1997, by
and between FirstCity Funding Corporation and Thomas R.
Brower, with similar agreements between FC Capital Corp.
and each of James H. Aronoff and Christopher J.
Morrissey. (incorporated herein by reference to Exhibit
10.10 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.11 -- Shareholder Agreement, dated as of September 8, 1997,
among FirstCity Funding Corporation, FirstCity Consumer
Lending Corporation, Thomas R. Brower, Scot A. Foith,
Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves,
Stephen H. Trent and Blake P. Bozman. (incorporated
herein by reference to Exhibit 10.11 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
10.12 -- Revolving Credit Loan Agreement, dated as of March 20,
1998, by and between FC Properties, Ltd. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.12 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.13 -- Revolving Credit Loan Agreement, dated as of February 27,
1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.13 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.14 -- Note Agreement, dated as of June 6, 1997, among Bosque
Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque
Investment Realty Partners, L.P. and Bankers Trust
Company of California, N.A. (incorporated herein by
reference to Exhibit 10.14 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation
in favor of the Bank of Scotland. (incorporated herein by
reference to Exhibit 10.15 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).

35
36

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

10.16 -- Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation. (incorporated herein reference to Exhibit
10.16 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.17 -- Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk (incorporated herein by reference to Exhibit 10.17
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.18 -- Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland. (incorporated herein by reference to Exhibit
10.18 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation. (incorporated
herein by reference to Exhibit 10.19 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
10.20 -- Funding Commitment, dated as of May 17, 1996 by and
between ConiTrade 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 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 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)

36
37

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, LLC 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 LLC, 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 -- 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.
10.34 -- Tenth Amendment to Loan Agreement, dated August 11, 1999
between Bank of Scotland and the Company.
27.1 -- Financial Data Schedule. (Exhibit 27.1 is being submitted
as an exhibit only in the electronic format of this
Quarterly Report on Form 10-Q being submitted to the
Securities and Exchange Commission. Exhibit 27.1 shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933, Section 18 of the Securities Act
of 1934, as amended, or Section 323 of the Trust
Indenture Act of 1939, as amended, or otherwise be
subject to the liabilities of such sections, nor shall it
be deemed a part of any registration statement to which
it relates.)

(b) Reports on Form 8-K. No report on Form 8-K was filed by the Registrant
with the Securities Exchange Commission during the quarterly period ended June
30, 1999.

37
38
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
-----------------------------------
Name: James T. Sartain
Title: President and Chief Operating
Officer and Director
(Duly authorized officer of
the Registrant)

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

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

Dated: August 16, 1999

38
39

EXHIBIT INDEX

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

2.1 -- Joint Plan of Reorganization by First City Bancorporation
of Texas, Inc., Official Committee of Equity Security
Holders and J-Hawk Corporation, with the Participation of
Cargill Financial Services Corporation, Under Chapter 11
of the United States Bankruptcy Code, Case No.
392-39474-HCA-11 (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
2.2 -- Agreement and Plan of Merger, dated as of July 3, 1995,
by and between First City Bancorporation of Texas, Inc.
and J-Hawk Corporation (incorporated herein by reference
to Exhibit 2.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
3.1 -- Amended and Restated Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.1
of the Company's Current Report on Form 8-K dated July 3,
1995 filed with the Commission on July 18, 1995).
3.2 -- Bylaws of the Company (incorporated herein by reference
to Exhibit 3.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
4.1 -- Certificate of Designations of the New Preferred Stock
($0.01 par value) of the Company. (incorporated herein by
reference to Exhibit 4.1 to the Company's Current Report
on form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).
4.2 -- Warrant Agreement, dated July 3, 1995, by and between the
Company and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to
Exhibit 4.2 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
4.3 -- Registration Rights Agreement, dated July 1, 1997, among
the Company, Richard J. Gillen, Bernice J. Gillen, Harbor
Financial Mortgage Company Employees Pension Plan,
Lindsey Capital Corporation, Ed Smith and Thomas E.
Smith. (incorporated herein by reference to Exhibit 4.3
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission on March 26, 1998).
4.4 -- Stock Purchase Agreement, dated March 24, 1998, between
the Company and Texas Commerce Shareholders Company.
(incorporated herein by reference to Exhibit 4.4 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).
4.5 -- Registration Rights Agreement, dated March 24, 1998,
between the Company and Texas Commerce Shareholders
Company. (incorporated herein by reference to Exhibit 4.5
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission on March 24, 1998).
9.1 -- Shareholder Voting Agreement, dated as of June 29, 1995,
among ATARA I Ltd., James R. Hawkins, James T. Sartain
and Cargill Financial Services Corporation. (incorporated
herein by reference to Exhibit 9.1 of the Company's Form
10-K dated March 24,1998 filed with the Commission on
March 26, 1998).
10.1 -- 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

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

10.3 -- Lock-Box Agreement, dated July 11, 1995, among the
Company, NationsBank of Texas, N.A., as lock-box agent,
FirstCity Liquidating Trust, FCLT Loans, L.P., and the
other Trust-Owned Affiliates signatory thereto, and each
of NationsBank of Texas, N.A. and Fleet National Bank, as
co-lenders (incorporated herein by reference to Exhibit
10.3 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.4 -- Custodial Agreement, dated July 11, 1995, among Fleet
National Bank, as custodian, Fleet National Bank, as
agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and
the Company (incorporated herein by reference to Exhibit
10.4 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.5 -- Tier 3 Custodial Agreement, dated July 11, 1995, among
the Company, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company, as servicer (incorporated herein by reference to
Exhibit 10.5 of the Company's Form 8-A/A dated August 25,
1995 filed with the Commission on August 25, 1995).
10.6 -- 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other
warehouse lenders party thereto. (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.7 -- Modification Agreement, dated January 26, 1998, to the
Amended and Restated Facilities Agreement, dated as of
December 3, 1997, among Harbor Financial Mortgage
Corporation, New America Financial, Inc. and Chase Bank
of Texas, National Association (formerly known as Texas
Commerce Bank National Association). (incorporated herein
by reference to Exhibit 10,7 of the company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.8 -- $50,000,000 3/98 Chase Texas Temporary Additional
Warehouse Note, dated March 17, 1998, by Harbor Financial
Mortgage Corporation and New America Financial, Inc., in
favor of Chase Bank of Texas, National Association.
(incorporated herein by reference to Exhibit 10.8 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.9 -- Employment Agreement, dated as of July 1, 1997, by and
between Harbor Financial Mortgage Corporation and Richard
J. Gillen. (incorporated herein by reference to Exhibit
10.9 of the Company's 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.10 -- Employment Agreement, dated as of September 8, 1997, by
and between FirstCity Funding Corporation and Thomas R.
Brower, with similar agreements between FC Capital Corp.
and each of James H. Aronoff and Christopher J.
Morrissey. (incorporated herein by reference to Exhibit
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).

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

10.12 -- Revolving Credit Loan Agreement, dated as of March 20,
1998, by and between FC Properties, Ltd. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.12 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.13 -- Revolving Credit Loan Agreement, dated as of February 27,
1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.13 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.14 -- Note Agreement, dated as of June 6, 1997, among Bosque
Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque
Investment Realty Partners, L.P. and Bankers Trust
Company of California, N.A. (incorporated herein by
reference to Exhibit 10.14 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation
in favor of the Bank of Scotland. (incorporated herein by
reference to Exhibit 10.15 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.16 -- Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation. (incorporated herein reference to Exhibit
10.16 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.17 -- Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk (incorporated herein by reference to Exhibit 10.17
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.18 -- Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland. (incorporated herein by reference to Exhibit
10.18 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation. (incorporated
herein by reference to Exhibit 10.19 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
10.20 -- Funding Commitment, dated as of May 17, 1996 by and
between ConiTrade 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 dated August 14, 1998, filed with the Commission
August 16, 1998).

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

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 dated August 14, 1998, filed with the
Commission August 16, 1998).
10.25 -- Security and Collateral Agreement, dated as of April 30,
1998 among FirstCity Auto Receivables L.L.C., ContiTrade
Services L.L.C. and Chase Bank of Texas, National
Association. (incorporated herein by reference to Exhibit
10.4 of the Company's Form 10-Q dated August 14, 1998,
filed with the Commission August 16, 1998).
10.26 -- Loan Agreement, dated as of July 24, 1998, between
FirstCity Commercial Corporation and CFSC Capital Corp.
XXX (incorporated herein by reference Exhibit 10.5 of the
Company's Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).
10.27 -- Loan Agreement, dated April 8, 1998 between Bank of
Scotland and the Company (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission on
August 18, 1998)
10.28 -- First Amendment to Loan Agreement, dated July 20, 1998,
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.7 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission on
August 18, 1998).
10.29 -- Employment Agreement, dated October 1, 1998, by and
between FirstCity. Financial Mortgage Corporation, and
Buddy L. Terrell (incorporated herein by reference to
Exhibit 10.29 of the Company's Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).
10.30 -- Security Agreement, dated as of April 30, 1998 among
Enterprise Funding Corporation, FCAR Receivables L.L.C.,
MBIA Insurance Corporation, FirstCity Funding
Corporation, NationsBank N.A. and CSC Logic/MSA LLP d/b/a
Loan Servicing enterprise (incorporated herein by
reference to Exhibit 10.30 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.31 -- Note purchase agreement, dated March 30, 1999 among
Enterprise Funding Corporation, FCAR Receivables, LLC 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 LLC, 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 -- 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.
10.34 -- Tenth Amendment to Loan Agreement, dated August 11, 1999
between Bank of Scotland and the Company.

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

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