8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

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

Date of Report (Date of earliest event reported): November 1, 2004

FIRSTCITY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation) 033-19694
(Commission File No.) 76-0243729
(IRS Employer Identification No.)

6400 Imperial Drive
Waco, Texas 76712
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (254) 751-1750

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Section 1 — Registrant’s Business and Operations
	Item 1.01 Entry into a Material Definitive Agreement.
	Section 2 — Financial Information
	Item 2.01 Completion of Acquisition or Disposition of Assets.
	Section 5 — Corporate Governance and Management
	Item 5.02 (b) Departure of Directors or Principal Officers.
	Section 9 — Financial Statements and Exhibits
	Item 9.01 Financial Statements and Exhibits.
SIGNATURES
EXHIBIT INDEX
Letter Agreement - Consumer Corp & BoS-UK
Letter Agreement - Bank of Scotland
Pro forma Consolidated Balance Sheet as of 6/30/2004

Section 1 — Registrant’s Business and Operations

Item 1.01 Entry into a Material Definitive Agreement.

FirstCity Financial Corporation (“FirstCity”), FirstCity Consumer Lending Corporation (“Consumer Corp.”) and The Governor & Company of the Bank of Scotland (“BoS-UK”) entered into two letter agreements dated as of November 1, 2004 (the “Waiver Letters”) to extend the time for payment of any fee arising under a Fee Letter dated as of November 29, 2002 (the “Fee Letter”) in connection with the sale of ownership interests in Drive Financial Services LP and its general partner, Drive GP LLC until 75 days following the consummation of the sale of the ownership interests and waived the requirement that the fee be paid contemporaneously with the consummation of the sale as contemplated in the Fee Letter. Pursuant to the terms of the Fee Letter, a fee in the amount of $8,000,000.00 was payable to BoS-UK upon the completion of the sale of the 31% beneficial ownership interest in Drive Financial Services LP and its general partner, Drive GP LLC on November 1, 2004. The Waiver Letters are attached hereto as Exhibit 10.1.

On November 1, 2004, FirstCity and Bank of Scotland entered into a letter agreement dated November 1, 2004 (the “Escrow Letter”), which provided that the amount of $29,552,696.30 was to be paid to and held by the Bank of Scotland, acting through its New York branch, as agent for the lenders under a revolving acquisition loan facility between FirstCity and Bank of Scotland, in a cash collateral account with Bank of Scotland as security for obligations under the revolving acquisition loan facility with the funds to be utilized by FirstCity as provided in a letter agreement dated as of September 21, 2004 (the “Proceeds Letter”) among FirstCity, Bank of Scotland, BoS-UK, and BoS (USA), Inc. (“BoS (USA)”) relating to the contemplated use of $86,800,000.00 in proceeds from the sale of the ownership interests in Drive Financial Services LP and its general partner, Drive GP LLC by FirstCity and Consumer Corp. The Escrow Letter is attached hereto as Exhibit 10.2.

For description of material relationships between FirstCity and its affiliates and any of the parties to these agreements, see description under Item 2.01.

Section 2 — Financial Information

Item 2.01 Completion of Acquisition or Disposition of Assets.

On November 1, 2004, FirstCity and certain of its subsidiaries completed the sale of a 31% beneficial ownership interest in Drive Financial Services LP and its general partner, Drive GP LLC, to IFA Drive GP Holdings LLC (“IFA-GP”), IFA Drive LP Holdings LLC (“IFA-LP”) and Drive Management LP (“MG-LP”) for a total purchase price of $108,478,300.00 in cash, which resulted in distributions and payments to FirstCity and Consumer Corp. in the aggregate amount of $86,800,000.00 in cash, from various sources.

Description of the Assets; Identity of Persons to Whom Assets Were Sold; Nature and Amount of Consideration; Formula or Principle Followed in Determining Amount of Consideration

     The Agreement. FirstCity, Consumer Corp., FirstCity Funding L.P. (“Funding LP”) and FirstCity Funding GP Corp. (“Funding GP”), entered into a Securities Purchase Agreement dated as of September 21, 2004 (the “Securities Purchase Agreement”), with IFA-GP, IFA-LP, MG-LP, Drive Management GP LLC (“MG-LLC”), Drive Holdings LP (“Drive Holdings”), Drive GP LLC (“Drive-GP”) and Drive Financial Services LP (“Drive”). The Securities Purchase Agreement was attached as Exhibit 10.1 to an 8-K filed by FirstCity on September 27, 2004.

     Sale of Limited Partnership Interests and Distribution by Limited Partnership and General Partner. Pursuant to the terms of the Securities Purchase Agreement, Funding LP sold to IFA-LP a 19.0053364% limited partnership interest in Drive (equivalent to 52.8999991% of Funding LP’s 35.9269125% limited partnership interest in Drive) for $57,339,103.00, and sold to MG-LP a 16.9215761% limited partnership interest in Drive (equivalent to 47.1000009% of Funding LP’s 35.9269125% limited partnership interest in

Drive for $51,052,397.00. In connection with the assignment and sale of the limited partnership interests in Drive owned by Funding LP, IFA-LP and MG-LP assumed all of the duties, obligations and liabilities of Funding LP arising after the closing date under the agreement among owners and the partnership agreement. Following the receipt of the purchase price, Funding LP distributed the purchase price as follows: (i) $85,846,068.00 to Consumer Corp.; (ii) $21,461,517.00 to Drive Holdings; and (iii) $1,083,915.00 to Funding GP. Funding GP distributed its portion of the distribution of the purchase price from Funding LP as follows: (i) $867,132.00 to Consumer Corp.; and (ii) $216,783.00 to Drive Holdings.

     Sale of Membership Interests. Consumer Corp. sold to IFA-GP a 15.5% membership interest in Drive-GP (equivalent to 50.0% of Consumer Corp.’s membership interest in Drive-GP) for $43,400.00, and sold to MG-LP its remaining 15.5% membership interest in Drive-GP (equivalent to 50.0% of Consumer Corp.’s membership interest in Drive-GP) for $43,400.00. In connection with the assignment and sale of the membership interests in Drive-GP owned by Consumer Corp., IFA-GP and MG-LP assumed all of the duties, obligations and liabilities of Consumer Corp. arising after the closing date under the owners agreement and the operating agreement.

     Formula or Principle Used in Determining Consideration. IFA-GP, IFA-LP and MG-LP based their offer for the purchase of limited partnership interests in Drive and the membership interests in Drive-GP on the market value of Drive without reduction for the interests being minority interests. FirstCity and Consumer Corp. obtained a fairness opinion from Howard, Fraizer, Barker and Elliott, Inc. confirming the fairness to the common stockholders of FirstCity of the sale of the ownership interests pursuant to the terms of the Securities Purchase Agreement.

     Use of Proceeds and Escrow Deposit. The proceeds of $86,800,000.00 from the sale of the ownership interests in Drive and its general partner, Drive GP by FirstCity and Consumer Corp. were applied to payment of indebtedness of FirstCity and Consumer Corp. as described in the Nature of Material Relationship with IFA-GP, IFA-LP and MG-LP below in this Item 2.01 with the remaining balance of the proceeds held by the Bank of Scotland pursuant to the Escrow Letter to be held and applied as described in Item 1.01.

Nature of Material Relationship with IFA-GP, IFA-LP and MG-LP

IFA-GP and IFA-LP are wholly-owned subsidiaries of BoS (USA) (formerly known as IFA Incorporated) a wholly-owned subsidiary of Bank of Scotland. FirstCity has had a significant relationship with Bank of Scotland and BoS-UK or their subsidiaries since September 1997. FirstCity has entered into loan agreements with of Bank of Scotland, BoS (USA) and BoS-UK from time to time since 1997.

In December 2002 in connection with an exchange offer to the holders of FirstCity’s New Preferred Stock, BoS-UK provided a non-recourse loan in the amount of $16,000,000.00 to FirstCity, which was used to pay the cash portion of the exchange offer to the holders of the New Preferred Stock, to pay expenses of the exchange offer and recapitalization, and to reduce FirstCity’s debt to Bank of Scotland and BoS (USA) (the “Senior Lenders”). The $16,000,000.00 loan was secured by a 20% interest in Drive (64.51% of FirstCity’s remaining 31% interest in Drive) and other assets of Consumer Corp. as were necessary and only to the extent to allow BoS-UK to realize the security interest in the 20% interest in Drive. In connection with the $16,000,000.00 loan, FirstCity agreed to pay a contingent fee to BoS-UK equal to 20% of all amounts received by FirstCity and Consumer Corp. upon any sale of the 20% interest in Drive or any receipt of distributions from Drive related to the 20% ownership interest, once such payments exceeded $16,000,000.00 in the aggregate. The outstanding principal and accrued interest of $16,003,946.67 under the $16,000,000.00 loan was paid in full on November 1, 2004 in connection with the sale of the 31% beneficial interest in Drive. Pursuant to the Waiver Letters, FirstCity, Consumer Corp. and BoS-UK agreed to extend the time for payment of the $8,000,000.00 fee arising under the Fee Letter in connection with the sale of the ownership interests in Drive until 75 days following the consummation of the sale of the ownership interests in Drive and waived the requirement that the fee be paid contemporaneously with the consummation of the sale as contemplated in the Fee Letter. The Waiver Letters are attached hereto as Exhibit 10.1.

In December 2002, in connection with the recapitalization, the Senior Lenders refinanced the remainder of the Company’s existing debt facilities into a term debt facility. The term debt facility was secured by all of the assets of FirstCity and its wholly-owned subsidiaries. The outstanding principal, accrued interest and fees of $37,235,681.63 under the term debt facility were paid in full on November 1, 2004 in connection with the sale of the 31% beneficial interest in Drive.

Since December 2002, the Senior Lenders have also provided an additional loan facility consisting of (i) a revolving acquisition loan facility providing for a maximum principal balance of loans outstanding at any time of $45,000,000.00, and (ii) a revolving loan facility in the maximum principal amount of $5,000,000.00 for corporate purposes. These facilities had an outstanding balance of $36,597,983.50 as of November 1, 2004, of which the outstanding balance of $4,007,675.40 under the revolving loan facility was paid in full on November 1, 2004. This loan facility is secured by all of the assets of FirstCity and its wholly-owned subsidiaries.

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

Section 5 — Corporate Governance and Management

Item 5.02 (b) Departure of Directors or Principal Officers.

On November 1, 2004, Jim W. Moore, President of Consumer Corp. and an officer of certain of its subsidiaries and a director of Consumer Corp. and certain of its subsidiaries, resigned all of his positions as an officer or director of Consumer Corp. and its subsidiaries to assume employment with Drive as the Chief Financial Officer, a position he had held prior to that date as a seconded employee pursuant to a Services Agreement dated as of August 18, 2000, by and between Consumer Lending, Drive and Drive GP. The Services Agreement dated as of August 18, 2000, was terminated on November 1, 2004.

Section 9 — Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

(b) Pro Forma Financial Information

Pro forma consolidated balance sheet as of June 30, 2004 and statements of operations for the six months ended June 30, 2004 and the year ended December 31, 2003 illustrating the effects of the Drive sale as if it had occurred as of the beginning of the periods are being furnished as Exhibit 99.1 to this Current Report on Form 8-K.

(c) Exhibits

10.1    Letter agreements dated as of November 1, 2004, between FirstCity, Consumer Corp. and BoS-UK relating to extension of time for and waiver related to payment of any fee under Fee Letter.

10.2    Letter agreement dated November 1, 2004 between Bank of Scotland, acting through its New York branch, and FirstCity providing for deposit of funds in cash collateral account.

99.1    Pro forma consolidated balance sheet as of June 30, 2004 and statements of operations for the six months ended June 30, 2004 and the year ended December 31, 2003 illustrating the effects of the Drive sale as if it had occurred as of the beginning of the periods.

SIGNATURES

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

	FIRSTCITY FINANCIAL CORPORATION
Date: November 5, 2004	By:	/s/ J. Bryan Baker
		J. Bryan Baker
		Senior Vice President and Chief Financial Officer

EXHIBIT INDEX

10.1    Letter agreements dated as of November 1, 2004, between FirstCity, Consumer Corp. and BoS-UK relating to extension of time for and waiver related to payment of any fee under Fee Letter.

10.2    Letter agreement dated November 1, 2004 between Bank of Scotland, acting through its New York branch, and FirstCity providing for deposit of funds in cash collateral account.

99.1    Pro forma consolidated balance sheet as of June 30, 2004 and statements of operations for the six months ended June 30, 2004 and the year ended December 31, 2003 illustrating the effects of the Drive sale as if it had occurred as of the beginning of the periods.

EX-10.1

Exhibit 10.1

November 1, 2004

FirstCity Financial Corporation
6400 Imperial Drive, P.O. Box 8216
Waco, Texas 76712

     Re: Distribution of Proceeds from Sale of Subject Securities

Dear Sirs:

     Reference is made to that certain letter agreement relating to the distribution of proceeds from the sale of certain Subject Securities, dated as of September 21, 2004 (the “Proceeds Letter”), among FirstCity Financial Corporation (“you” or the “Obligor”), The Governor & Company of the Bank of Scotland, Bank of Scotland and BoS (USA) Inc. (collectively, the “Lenders”). Unless otherwise defined herein capitalized terms used herein shall have the meanings specified in the Securities Purchase Agreement, as defined in the Proceeds Letter.

     You have requested that the Lenders agree to extend the time for payment of the $8,000,000 fee payable to BOS-UK (as a result of the sale of the Subject Securities) pursuant to clause (ii) of the Proceeds Letter.

     Provided that the sale of the Subject Securities is consummated on or before November 30, 2004, the Lenders hereby agree that such fee shall be due and payable 75 days following the Closing Date, and waive the requirement that such fee be paid on the Closing Date.

     The foregoing is limited as provided herein and does not extend to any other provisions of the Proceeds Letter not specified herein nor to any other matter other than as described above. The Obligor hereby ratifies and confirms that the Proceeds Letter continues in full force and effect. This letter agreement may be executed in any number of counterparts with the same effect as if the signatures hereto were upon the same instrument.

     Please indicate your agreement with the foregoing by executing in the space provided below.

[Signature Page Follows]

     Please confirm your understanding of the foregoing by signing and returning a copy of this letter.

Very truly yours, BANK OF SCOTLAND, acting through its New York branch, individually and as Agent under the PFAL and Restated Agreement
By:
	Name:
	Title:

THE GOVERNOR & COMPANY OF THE BANK OF SCOTLAND
By:
	Name:
	Title:

BoS (USA) Inc.
By:
	Name:
	Title:

CONFIRMED AND AGREED

FIRSTCITY FINANCIAL CORPORATION

By:
	Name:
	Title:

November 1, 2004

FirstCity Financial Corporation
FirstCity Consumer Lending Corporation
6400 Imperial Drive, P.O. Box 8216
Waco, Texas

     Re: Extension of Disposition Fee

Dear Sirs:

     Reference is made to that certain Fee Letter, dated as of November 29, 2002 (the “Fee Letter”), among FirstCity Financial Corporation, a Delaware corporation, and FirstCity Consumer Lending Corporation, a Texas corporation (together, “you” or the “Obligors”), and The Governor & Company of the Bank of Scotland (the “Lender”). Capitalized terms defined in the Fee Letter shall have the meanings specified therein (unless otherwise defined herein).

     You have informed the Lender that you intend to conduct a Disposition of all of your interests in the Drive Collateral pursuant to that certain Securities Purchase Agreement (the “Purchase Agreement”), dated as of September 21, 2004, among the Obligors, FirstCity Funding L.P., FirstCity Funding GP Corp., IFA Drive GP Holdings LLC, IFA Drive LP Holdings LLC, Drive MG, Drive Management GP LLC, Drive Holdings LP, Drive GP LLC and Drive Financial Services LP. You have requested that the Lender agree to extend the time for payment of any fee arising under Section 1 of the Fee Letter in connection with such Disposition.

     Provided such Disposition is consummated on or before November 30, 2004, the Lender hereby agrees that any fee arising under Section 1 of the Fee Letter (as a result of such Disposition) shall be due and payable 75 days following the consummation of such Disposition, and waives the requirement that such fee be paid contemporaneously with the consummation of such a Disposition.

     The foregoing is limited as provided herein and does not extend to any other provisions of the Fee Letter not specified herein (nor to any other Disposition other than that contemplated in the Purchase Agreement) nor to any other matter other than as described above. The Obligors hereby ratify and confirm that the Fee Letter continues in full force and effect. This letter agreement may be executed in any number of counterparts with the same effect as if the signatures hereto were upon the same instrument.

     Please indicate your agreement with the foregoing by executing in the space provided below.

[Signature Page Follows]

THE GOVERNOR & COMPANY OF THE BANK OF SCOTLAND
By:
	Name:
	Title:

FIRSTCITY FINANCIAL CORPORATION

By:
	Name:
	Title:

FIRSTCITY CONSUMER LENDING CORPORATION

By:
	Name:
	Title:

EX-10.2

Exhibit 10.2

November 1, 2004

FirstCity Financial Corporation
6400 Imperial Drive
Waco, Texas 76712
Attention: Mr. Jim Sartain, President

Dear Jim:

Closing Statement

     Reference is made to the letter agreement (the “Proceeds Letter”) dated as of September 21, 2004 among FirstCity Financial Corporation (“FC”), Bank of Scotland, acting through its New York branch, The Governor & Company of the Bank of Scotland (“BoS-UK”) and BoS (USA) Inc. relating to the contemplated use of the $86,800,000 in proceeds from the sale of the Subject Securities by FC and FirstCity Consumer Lending Corporation (“CLC”) and as contemplated in Section 2.8 of the Securities Purchase Agreement. All capitalized terms used in this letter agreement shall have the meaning set forth in the Securities Purchase Agreement unless such term is defined in this letter agreement in which case such defined term shall have the meaning set forth herein.

     This letter sets forth the distribution of funds as at November 1, 2004 (the “Payment Date”) as contemplated by the Securities Purchase Agreement and in addition provides for a Closing Statement of those loans referenced in the Proceeds Letter.

     FC, CLC, BOS-UK, Bank of Scotland, acting through its New York branch, and BoS (USA), Inc. acknowledge that the payments and distributions set forth below were made and received on the Payment Date as contemplated by in Section 2.8 of the Securities Purchase Agreement and by the Proceeds Letter.

     The Purchase Price payable to CLC by the Buying Entities and CLC’s portion of the Funding Distributions were applied on Payment Date, as follows:

(i)	the amount of $16,003,946.67 was paid to BOS-UK in full satisfaction of the outstanding principal balance of $16,000,000 on the Non-Recourse Loan and accrued interest in the amount of $3,946.67 payable as of the Payment Date; and
(ii)	the balance of $70,796,053.33 was distributed to FCFC.

     The balance of the Purchase Price and the Funding Distributions distributed by CLC to FCFC on the Payment Date ($70,796,053.33) was applied on the Payment Date, as follows:

(iii)	the amount of $12,113,993.54 was paid to BoS (USA) Inc. in full satisfaction of the outstanding principal balance due under the Tranche II Loans (as defined in the Restated Agreement) under the Restated Agreement in the amount of $12,000,000, interest in the amount of $8,767.50 accrued and payable thereon and breakage costs in the amount of $105,226.04 as of the Payment Date);
(iv)	the amount of $24,621,688.09 was paid to BoS (USA) Inc. in full satisfaction of the outstanding principal balance due under the Tranche I Loans (as defined in the Restated Agreement) under the Restated Agreement in the amount of $24,607,025.00 and interest in the amount of $14,663.09 accrued and payable thereon as of the Payment Date);
(v)	the amount of $500,000.00 was paid to the Bank of Scotland, acting through its New York branch, as agent for the benefit of the lenders under the Restated Agreement in full satisfaction of the Repayment Fee related to the Tranche II Loans under Section 4.2 of the Restated Agreement;
(vi)	the amount of $4,007,675.40 was paid to Bank of Scotland, acting through its New York branch, in full satisfaction of the outstanding principal balance due under the Revolving Credit Loans (as defined in the PFAL) in the amount of $4,006,103.00 and interest in the amount of $1,572.40 accrued and payable thereon as of the Payment Date;
(vii)	the amount of $29,552,696.30 was paid to Bank of Scotland, acting through its New York branch, as agent for the “Lenders” pursuant to the Cash Collateral Agreement dated November 1, 2004, to deposit the balance in the amount of $29,552,696.30 in a cash collateral account as security for obligations under the PFAL, held at Bank of Scotland, New York branch to be utilized by FCFC as set forth in paragraph (viii) of the Proceeds Letter.

[End of Page]

     Executed and acknowledged effective as of November 1, 2004.

Very truly yours, BANK OF SCOTLAND, acting through its New York branch, individually and as Agent under the PFAL and Restated Agreement
By:
	Name:	Joseph Fratus
	Title:	First Vice President

THE GOVERNOR & COMPANY OF THE BANK OF SCOTLAND
By:
	Name:	James Halley
	Title:	Executive Vice President

BoS (USA) Inc.
By:
	Name:	Lolita M. Lazaro
	Title:	Secretary

CONFIRMED AND AGREED

FIRSTCITY FINANCIAL CORPORATION

By:
	Name:	James T. Sartain
	Title:	President

FIRSTCITY CONSUMER LENDING CORPORATION

By:
	Name:	James T. Sartain
	Title:	Chairman of the Board

EX-99.1

Exhibit 99.1

FIRSTCITY FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET AT JUNE 30, 2004
(Dollars in thousands)
(Unaudited)

				Pro Forma Adjustments
	Historical			(A)			(B)			Other			Pro Forma
Assets
Assets:
Cash and cash equivalents	$	3,823		$	86,800		$	(85,148	)	$	(315	)(C)	$	5,160
Portfolio Assets, net		11,238			—			—			—			11,238
Loans receivable from Acquisition Partnerships held for investment		20,333			—			—			—			20,333
Equity investments		85,359			(25,824	)		—			—			59,535
Deferred tax asset, net		20,101			—			—			—			20,101
Service fees receivable from affiliates		1,033			—			—			—			1,033
Other assets, net		13,528			—			(800	)		(6,253	)(D)		6,475
Net assets of discontinued operations		5,527			—			—			—			5,527
Total Assets	$	160,942		$	60,976		$	(85,948	)	$	(6,568	)	$	129,402
Liabilities and Stockholders’ Equity
Liabilities:
Notes payable to affiliates	$	97,856		$	—		$	(79,854	)	$	—		$	18,002
Notes payable other		4,664			—			(3,944	)		—			720
Preferred stock subject to mandatory redemption		3,978			—			—			—			3,978
Minority interest		6,516			(5,160	)		—			—			1,356
Other liabilities		12,013			—			(337	)		—			11,676
Total Liabilities		125,027			(5,160	)		(84,135	)		—			35,732
Stockholders’ equity:
Common stock		112			—			—			—			112
Paid in capital		99,288			—			—			—			99,288
Accumulated deficit		(65,775	)		66,136			(1,813	)		(315	)(C)		(8,020	)
											(6,253	)(D)
Accumulated other comprehensive income		2,290			—			—			—			2,290
Total Stockholders’ Equity		35,915			66,136			(1,813	)		(6,568	)		93,670
Total Liabilities and Stockholders’ Equity	$	160,942		$	60,976		$	(85,948	)	$	(6,568	)	$	129,402

(A)	Record proceeds of sale of FirstCity’s 31% interest in Drive.
(B)	Record $83.8 million pay down of debt and interest, payment of $1.3 million of debt fees to Bank of Scotland and write-off $1.5 million of unamortized loan fees relating to the paid off debt (net of $.7 million on new loan fees capitalized).
(C)	Record $315 thousand estimated closing costs.
(D)	Record write-off remaining $6.3 million unamortized loan discount relating to the accrued participation liability owed to Bank of Scotland.

FIRSTCITY FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2004
(Dollars in thousands)
(Unaudited)

				Pro Forma
				Adjustments
	Historical			(A)			Pro Forma
Revenues:
Servicing fees from affiliates	$	6,748		$	—		$	6,748
Gain on resolution of Portfolio Assets		237			—			237
Equity in earnings of investments		16,969			(10,155	)		6,814
Interest income from affiliates		1,061			—			1,061
Interest income — other		136			—			136
Other income		1,782			—			1,782
Total revenues		26,933			(10,155	)		16,778
Expenses:
Interest and fees on notes payable to affiliates		4,797			(3,131	)		1,666
Interest and fees on notes payable — other		171			—			171
Interest on shares subject to mandatory redemption		133			—			133
Salaries and benefits		7,554			—			7,554
Provision for loan and impairment losses		22			—			22
Occupancy, data processing, communication and other		3,237			(4	)		3,233
Total expenses		15,914			(3,135	)		12,779
Earnings from continuing operations before income taxes and minority interest		11,019			(7,020	)		3,999
Provision for income taxes		(583	)		427			(156	)
Earnings from continuing operations before minority interest		10,436			(6,593	)		3,843
Minority interest		(2,038	)		2,029			(9	)
Earnings from continuing operations	$	8,398		$	(4,564	)	$	3,834
Earnings from continuing operations per common share are as follows:
Basic	$	0.75					$	0.34
Diluted	$	0.71					$	0.32
Weighted average common shares outstanding
Basic		11,216						11,216
Diluted		11,806						11,806

(A) To eliminate equity in earnings of Drive, interest expense, minority interest, taxes and other expenses from the Consumer business segment that would not have been incurred if the transaction had been completed at the beginning of the period. The elimination of $3.1 million of additional interest and fees on notes payable includes interest savings from paydown of $83.8 million x average rate of 6.52% ÷ 2 = $2,732 and amortization of loan fees of $399.

FIRSTCITY FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2003
(Dollars in thousands)
(Unaudited)

				Pro Forma
				Adjustments
	Historical			(A)			Pro Forma
Revenues:
Servicing fees from affiliates	$	15,051		$	—		$	15,051
Gain on resolution of Portfolio Assets		1,380			—			1,380
Equity in earnings of investments		21,411			(7,237	)		14,174
Interest income from affiliates		2,794			—			2,794
Interest income — other		533			—			533
Other income		1,560			—			1,560
Total revenues		42,729			(7,237	)		35,492
Expenses:
Interest and fees on notes payable to affiliates		7,567			(6,353	)		1,214
Interest and fees on notes payable — other		155			—			155
Interest on shares subject to mandatory redemption		133			—			133
Salaries and benefits		15,875			—			15,875
Provision for loan and impairment losses		98			—			98
Occupancy, data processing, communication and other		7,518			(27	)		7,491
Total expenses		31,346			(6,380	)		24,966
Earnings from continuing operations before income taxes and minority interest		11,383			(857	)		10,526
Provision for income taxes		(240	)		55			(185	)
Earnings from continuing operations before minority interest		11,143			(802	)		10,341
Minority interest		(1,436	)		1,446			10
Earnings from continuing operations	$	9,707		$	644		$	10,351
Earnings from continuing operations per common share are as follows:
Basic	$	0.86					$	0.92
Diluted	$	0.85					$	0.91
Weighted average common shares outstanding
Basic		11,200						11,200
Diluted		11,349						11,349

(A) To eliminate equity in earnings of Drive, interest expense, minority interest, taxes and other expenses from the Consumer business segment that would not have been incurred if the transaction had been completed at the beginning of the period. The elimination of $6.4 million of additional interest and fees on notes payable includes interest savings from paydown of $83.8 million x average rate of 6.66% = $5,582 and amortization of loan fees of $771.