10-K

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FIRSTCITY FINANCIAL CORPORATION TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to

Commission file number 033-19694

FirstCity Financial Corporation
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	76-0243729 (I.R.S. Employer Identification No.)
6400 Imperial Drive, Waco, TX (Address of Principal Executive Offices)	76712 (Zip Code)

(254) 761-2800
(Registrant's Telephone Number, Including Area Code)

         Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $.01	The NASDAQ Global Select Market

         Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         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 ý    No o

         Indicate by check whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company ý

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2012 was $63,866,808 based on the closing price of the common stock of $8.65 per share on such date as reported on the NASDAQ Global Select Market.

         The number of shares of the registrant's common stock outstanding at March 15, 2013 was 10,556,197.

DOCUMENTS INCORPORATED BY REFERENCE

None.

FIRSTCITY FINANCIAL CORPORATION
TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	6
Item 1A.	Risk Factors	20
Item 1B.	Unresolved Staff Comments	21
Item 2.	Properties	22
Item 3.	Legal Proceedings	22
Item 4.	Mine Safety Disclosures	23
	PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
Item 6.	Selected Financial Data	24
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	66
Item 8.	Financial Statements and Supplementary Data	67
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	148
Item 9A.	Controls and Procedures	148
Item 9B.	Other Information	148
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	149
Item 11.	Executive Compensation	155
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	160
Item 13.	Certain Relationships and Related Transactions, and Director Independence	162
Item 14.	Principal Accounting Fees and Services	162
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	164
Signatures		173

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oral communications from time to time that contain such statements. All statements, other than statements of historical fact, are forward-looking statements, including statements regarding our expected financial position, future financial performance, overall trends, liquidity and capital needs, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. In this context, words such as "anticipates," "believes," "expects," "estimates," "plans," "intends," "could," "should," "will," "may" and similar words or expressions are intended to identify forward-looking statements and are not historical facts.

        These forward-looking statements involve risks, uncertainties and assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Risks, uncertainties and assumptions that may affect our business, operating results and financial condition include, but are not limited to, the following:

•

General economic, industry or political conditions, either domestically or internationally, may be less favorable than expected and may affect our access to capital, our ability to fund investment activities, the success of our business, and our stock price;

•

Volatility and disruptions in the functioning of U.S. and international financial markets and related liquidity issues could continue or worsen and, therefore, may adversely impact our business, financial condition and results of operations;

•

United States fiscal debt and budget matters, and the uncertainty surrounding the strength of the U.S. economic recovery;

•

European sovereign debt issues;

•

Our liquidity and ability to raise capital to finance and fund our operations and investment activities may be limited;

•

The sufficiency of our funds generated from operations, existing cash, available borrowings and available investment capital to finance our current operations and future investment activity;

•

Possible changes in the credit or capital markets that could affect our ability to borrow money or raise capital to purchase and service portfolio assets or invest capital in U.S. lower middle-market companies;

•

We may incur significant credit losses due to downward trends in general economic conditions and real estate markets;

•

Possible changes in the business practices of credit originators, financial institutions and governmental agencies in terms of selling loan portfolios and other financial assets may affect the availability of portfolio assets offered for sale;

•

Declining values in the collateral securing our loan portfolios and deterioration in commercial and residential real estate markets may adversely affect our results of operations;

•

Possible changes in the performance and creditworthiness of our borrowers and other counterparties may adversely impact our business, financial condition and results of operations;

•

Availability of portfolio asset and U.S. lower middle-market investment opportunities, and our ability to consummate such investments and transactions on acceptable terms and at appropriate prices;

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•

The degree and nature of competition in the business segments, industries and geographic regions in which we invest and operate;

•

Our ability to sustain relationships with our acquisition partnership investors, and to find other suitable investment partners;

•

Our ability to satisfy covenants related to our debt agreements;

•

Our ability to project future cash collections and develop critical assumptions and estimates underlying portfolio asset performance;

•

Our financial statements are based in part on assumptions and estimates which, if wrong, could cause unexpected losses in the future;

•

Our ability to manage risks associated with growth and entry into new businesses and foreign markets;

•

Our ability to employ and retain qualified employees;

•

The effects of natural disasters such as hurricanes, tornadoes, earthquakes, fires and floods, and the effects of man-made disasters, may disrupt the local economies in the geographic regions in which we operate which, in turn, may adversely affect the ability of our borrowers to repay their debts, condition of assets that collateralize our loans, and our results of operations;

•

Our ability to utilize all of our estimated net operating loss carryforwards and deferred tax assets;

•

The imposition of additional taxes on our results of operations;

•

Possible changes in U.S. and foreign government regulations, including bankruptcy or collections laws, that could affect our ability to collect sufficient amounts on our portfolio assets and negatively impact our business segments;

•

Our ability to comply with the federal, state and local statutes and regulations in the business segments, geographic regions and jurisdictions in which we operate;

•

Adverse fluctuations and volatility in foreign currency exchange rates may adversely impact our results of operations and value of foreign investments;

•

Possible changes in or interpretation of U.S. or foreign tax, monetary or fiscal policies, rules and regulations may adversely affect our operations;

•

Possible changes in accounting policies or accounting standards, and changes in how accounting standards are interpreted or applied, could materially affect how we report our financial results and condition;

•

Our ability to comply with the provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder;

•

Legal and regulatory proceedings and related matters with respect to the financial services industry, including those directly involving our business segments and underlying subsidiaries;

•

The outcome of, or any expenses associated with, any legal proceedings, regulatory proceedings or enforcement matters that have been or may be instituted against the Company and other persons related to the merger;

•

Contractual restrictions on the conduct of the Company's business included in the merger agreement, and the potential difficulties in employee retention as a result of the merger, disruption of the Company's business and operations or any impact on the Company's relationships with third parties as a result of the merger;

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•

Any delay in consummating or failure to consummate the merger or the possible adverse effect on the Company's business and the price of the Company's common stock if the merger is not completed in a timely manner or at all; and

•

The amount of costs, fees, expenses and charges related to the merger.

        We are also subject to other risks detailed herein or detailed from time to time in our filings with the Securities and Exchange Commission. These listed risks are not intended to be exhaustive and the order in which the risks appear is not intended as an indication of their relative weight or importance. We operate in continually changing business environments, and new risk factors emerge from time to time. We cannot predict these new risk factors, nor can we assess the impact, if any, of these new risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements.

        You are cautioned that our forward-looking statements could be wrong in light of these and other risks, uncertainties and assumptions, which change over time. Actual results, developments and outcomes may differ materially from those expressed in, or implied by, our forward-looking statements. The forward-looking statements speak only as of the date the statement is made, and we have no obligation to publicly update or revise our forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made.

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PART I

Item 1.    Business.

General

        FirstCity Financial Corporation, a Delaware corporation, is a multi-national specialty financial services company headquartered in Waco, Texas with offices throughout the United States and Mexico and a presence in Europe and South America. When we refer to "FirstCity," "the Company," "we," "our" or "us" in this Form 10-K, we mean FirstCity Financial Corporation and subsidiaries (consolidated). The Company engages in two major business segments—Portfolio Asset Acquisition and Resolution business segment and Special Situations Platform business segment.

        The Portfolio Asset Acquisition and Resolution business has been the Company's core business segment since it commenced operations in 1986. In the Portfolio Asset Acquisition and Resolution business, the Company acquires portfolios of under-performing and non-performing loans and, to a lesser extent, performing loans and other assets, generally at a discount to their legal principal balances or appraised values, and services and resolves these assets in an effort to maximize the present value of the ultimate cash recoveries.

        The Company engages in its Special Situations Platform business through its majority ownership in a special-purpose investment subsidiary that was formed in April 2007. Through its Special Situations Platform business, the Company provides investment capital to privately-held lower middle-market companies through flexible capital structuring arrangements to generate an attractive risk-adjusted return. These capital investments primarily take the form of senior and junior financing arrangements, but also include direct equity investments and common equity warrants. In addition, our Special Situations Platform business engages in leveraged buyouts and distressed debt transactions.

        The Company became a publicly-held institution in July 1995 through its acquisition, by merger, of First City Bancorporation of Texas, Inc. ("FCBOT"), a former bank holding company that had been engaged in a proceeding under Chapter 11 of the U.S. Bankruptcy Code since November 1992. As a result of the merger, the Company's common stock, $.01 par value per share, became publicly held.

        In December 2012, the Company entered into a definitive merger agreement with Hotspurs Holdings LLC ("Parent") and Hotspurs Acquisition Corporation ("Merger Subsidiary") pursuant to which the Company will become a private company that is wholly owned by Parent. Parent and Merger Subsidiary are affiliates of certain private investment funds governed by Värde Partners, Inc. ("Värde"). Under the terms of the merger agreement, FirstCity stockholders will receive $10.00 per share in cash for each share of FirstCity stock they own. The transaction is expected to close in the second quarter of 2013. Consummation of the merger is subject to various customary conditions, including the adoption of the merger agreement by the holders of at least a majority of the outstanding shares of the Company's common stock. The Company has filed a preliminary proxy statement with the Securities and Exchange Commission recommending that the Company's stockholders adopt the merger agreement. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE DEFINITIVE PROXY STATEMENT WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER AND THE PARTIES THERETO. Investors and security holders may obtain a free copy of the proxy statement (when available) and other documents filed by FirstCity at the Securities and Exchange Commission's Web site at http://www.sec.gov. The proxy statement and such other documents may also be obtained for free from FirstCity by directing such request to the Corporate Secretary.

        FirstCity and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from its stockholders in connection with the proposed merger. Information concerning the interests of FirstCity's participants in the solicitation, which may be different than those of FirstCity stockholders generally, is set forth in FirstCity's proxy

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statements and Annual Reports on Form 10-K, previously filed with the Securities and Exchange Commission, and in the proxy statement relating to the merger when it becomes available.

Access to Public Filings and Additional Information

        FirstCity maintains an internet website at www.fcfc.com. Information contained on our website is not part of this Annual Report on Form 10-K. Stockholders of the Company and the public may access our periodic and current reports (including annual, quarterly and current reports on Form 10-K, Form 10-Q and Form 8-K, respectively, and any amendments to those reports) as filed with or furnished to the Securities and Exchange Commission ("SEC"). We make this information available through the "Investors" section of our website as soon as reasonably practicable after we electronically file the information with or furnish it to the SEC. This information may be reviewed, downloaded and printed, free of charge, from our website at any time. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC at www.sec.gov.

        FirstCity also provides public access to our Code of Business Conduct and Ethics, and the charters of the following committees of our Board of Directors: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. The Code of Business Conduct and Ethics and committee charters may be viewed free of charge through the "Investors" link of our website at www.fcfc.com.

        Stockholders of the Company and the public may obtain copies of any of these reports and documents free of charge by writing to: FirstCity Financial Corp., Attn: Investor Relations, 6400 Imperial Dr., Waco, Texas 76712.

Overall Business Strategy

        FirstCity, as an opportunistic investor, focuses on distressed asset investment opportunities in both the United States and, on a more-selective basis, certain international markets, and distressed transaction and special situations investment opportunities in U.S. lower middle-market companies. The Company has strategically aligned its operations into two major business segments—Portfolio Asset Acquisition and Resolution and Special Situations Platform. In the Portfolio Asset Acquisition and Resolution business, the Company acquires portfolios of under-performing and non-performing loans and, to a lesser extent, performing loans and other assets (collectively, "Portfolio Assets" or "Portfolios"), generally at a discount to their legal principal balances or appraised values, and services and resolves (i.e. liquidates) such Portfolio Assets in an effort to maximize the present value of the ultimate cash recoveries. Through its Special Situations Platform business, the Company provides investment capital to privately-held lower middle-market companies through flexible capital structuring arrangements to generate an attractive risk-adjusted return. These capital investments primarily take the form of senior and junior financing arrangements, but also include direct equity investments and common equity warrants. The Company also engages in other investment activities, including leveraged buyouts and distressed debt transactions, through its Special Situations Platform business.

        Although we are operating in a challenging economic environment, both in the U.S. and internationally, our primary objective remains to utilize the skills, experience and expertise of our management and business partners by identifying, evaluating, pricing, acquiring, servicing and resolving Portfolio Assets to maximize ultimate cash collections; and to identify and invest capital in U.S. lower

7

middle-market investment opportunities to provide attractive risk-adjusted returns. To enhance our position in the specialty financial services industry, FirstCity's business strategies include the following:

Portfolio Asset Acquisition and Resolution Business

•

Increase the Company's investments in U.S. Portfolio Assets acquired from financial services entities, government agencies and other market participants for our own account, thereby leveraging our management team's considerable experience in acquiring distressed assets from market-sellers in an industry fueled by challenges experienced in the financial services sector.

•

Capitalize on the Company's strategic relationships with its investment partners to identify and acquire U.S. Portfolio Assets through special-purpose investment entities formed with one or more other co-investors, thereby capitalizing on the skills, expertise and resources of business partners to identify and source Portfolio Asset acquisition opportunities, pool our extensive and diverse experience and knowledge of distressed asset markets, and provide additional financing alternatives to fund Portfolio Asset acquisitions.

•

Allow the Company's holdings in Mexican Portfolio Assets to diminish (either through natural collections or accelerated disposal methods), while exploring growth opportunities in other international markets, in particular Europe, to acquire, manage, service and resolve Portfolio Assets, either for the Company's own account or through special-purpose investment entities formed with one or more other co-investors.

•

Capitalize on the Company's servicing expertise to enter into new markets with servicing arrangements that provide for reimbursement of costs of entry and operations, plus an incentive servicing fee after certain economic thresholds are met, without requiring substantial equity investments.

Special Situations Platform Business

•

Generate current income and capital appreciation by growing our existing special situations investments, and potentially investing in additional opportunities involving privately-held lower middle-market companies to provide an attractive risk-adjusted return. Our special situations investments will primarily take the form of senior and junior financing arrangements, but may also include other types of investments, including direct equity investments, common equity warrants, leveraged buyouts and distressed debt transactions.

Overall

•

Identify and acquire, through non-traditional niche sources, distressed assets and other asset classes that meet the Company's investment criteria, which may involve the utilization of special-purpose investment structures.

•

Continue to maximize shareholder value through monetizing our Portfolio Asset and Special Situations investments.

Portfolio Asset Acquisition and Resolution Business Segment

        In the Portfolio Asset Acquisition and Resolution ("PAA&R") business, the Company acquires Portfolio Assets, generally at a discount to their legal principal balances or appraised values ("Face Value"), and services and resolves such Portfolio Assets in an effort to maximize the present value of the ultimate cash recoveries. The amounts paid for the Portfolio Assets reflect FirstCity's determination that it is probable the Company will be unable to collect all amounts due according to their underlying contractual terms.

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        The Company began operating in the financial services sector in 1986 as an acquirer of distressed assets from the Federal Deposit Insurance Corporation and the Resolution Trust Corporation. From its original office in Waco, Texas, with a staff of four professionals, the Company's asset acquisition and resolution business expanded to become an active participant in the financial services sector, an industry fueled by economic challenges experienced throughout the world. Through the years, the Company also began acquiring assets from healthy financial institutions interested in eliminating under-performing and non-performing assets from their portfolios.

        FirstCity acquires Portfolio Assets for its own account or through investment entities formed with one or more co-investors (each such entity, referred to as an "Acquisition Partnership"). Since inception, FirstCity and its Acquisition Partnerships have acquired over $12.7 billion in Face Value of Portfolio Assets, with FirstCity's equity investment approximating $1.0 billion. Information related to FirstCity's Portfolio Asset investments in 2012 and 2011 is included under the heading "Portfolio Asset Acquisitions—Portfolio Asset Acquisition and Resolution Business Segment" in Part II, Item 7 of this Annual Report on Form 10-K.

Portfolio Assets

        FirstCity acquires and manages Portfolio Assets, which are generally purchased at a discount to Face Value by FirstCity or through Acquisition Partnerships. The Portfolio Assets are generally non-homogeneous assets, including loans of varying qualities that are unsecured or secured by diverse collateral types and real estate. Some of the secured Portfolio Assets are loans for which resolution is tied primarily to the real estate securing the loan, while others may be collateralized business loans, the resolution of which may be based either on real estate, business assets or other collateral cash flow.

        FirstCity seeks to resolve Portfolio Assets through (i) a negotiated settlement with the borrower in which the borrower pays all or a discounted amount of the loan, (ii) conversion of the loan into a performing asset through servicing efforts followed by either a sale of the loan to a third party or retention of the loan by FirstCity or the Acquisition Partnerships, or (iii) foreclosure and sale of the collateral securing the loan. FirstCity typically resolves its Portfolio Assets within 12 to 60 months of acquisition, with a majority of such assets liquidated within the first 36 months.

        FirstCity has substantial experience acquiring, managing and resolving a wide variety of asset types and classes. As a result, the Company is not limited with regard to the types of Portfolio Assets it will evaluate and purchase. FirstCity's willingness to acquire Portfolio Assets is generally determined by factors including the information that is available regarding the assets in a Portfolio, the price at which the Portfolio can be acquired and the expected net cash flows from the resolution of such assets. FirstCity and the Acquisition Partnerships have acquired Portfolio Assets in virtually all states throughout the U.S., and various countries in Europe and Latin America.

Sources of Portfolio Assets

        FirstCity develops its Portfolio Asset opportunities through a variety of sources. Since the activities or contemplated activities of expected sellers are generally publicized in industry publications and through other similar sources, FirstCity monitors such publications and similar sources. FirstCity also maintains relationships with a variety of parties involved as sellers or as brokers or agents for sellers. Many of the brokers and agents concentrate by asset type and have become familiar with FirstCity's acquisition criteria and periodically approach FirstCity with identified opportunities. In addition, business referrals from other investors in Acquisition Partnerships, repeat business from previous sellers, focused marketing by FirstCity and the nationwide presence of FirstCity are important sources of business.

        FirstCity has historically identified investment opportunities in foreign markets in much the same manner as in the United States. In varying degrees of volume and efficiency, the markets in Europe

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and Latin America include sellers of under-performing and non-performing assets. FirstCity's established presence in Europe and Latin America provided a strong base for the identification, valuation, and acquisition of assets in those regions, as well as in adjacent markets. At this time, FirstCity's identification of distressed asset investment opportunities in international markets is more-selective and limited than the pursuit of such investment opportunities in the U.S. market.

Asset Analysis and Underwriting

        Prior to making an offer to acquire Portfolio Assets, FirstCity performs an evaluation of the underlying assets that comprise the Portfolio. For non-homogeneous Portfolio Assets, FirstCity evaluates all individual assets determined to be significant to the total of the proposed purchase. If the Portfolio Assets are homogenous in nature, a sample of the assets comprising the Portfolio may be selected for evaluation. The evaluation of individual assets generally includes analyzing the credit and collateral file or other due diligence information supplied by the seller. Based upon such seller-provided information, FirstCity undertakes additional evaluations of the asset, that, to the extent permitted by the seller, may include site visits to, and environmental reviews of, the property securing the loan or the asset proposed to be purchased. FirstCity also analyzes relevant local economic and market conditions based on information obtained from its prior experience in the market or from other sources, such as local appraisers, real estate principals, realtors and brokers.

        The evaluation includes an analysis of an asset's projected cash flow and sources of repayment, including the availability of third party guarantees. FirstCity values loans (and other assets included in a portfolio) on the basis of its estimate of the present value of estimated cash flow to be derived in the resolution process. Once the cash flow estimates for a proposed purchase and the financing and partnership structure, if any, are finalized, FirstCity can complete the determination of its proposed purchase price for the targeted Portfolio Assets. Portfolio Asset acquisitions are subject to purchase and sale agreements between the seller and the purchasing affiliate of FirstCity.

        The analysis and underwriting procedure in foreign markets follows the same due diligence process and philosophy as that employed by the Company domestically. Additional risks are evaluated in foreign markets, including economic factors (inflation or deflation), currency strength, short and long-term market stability and political concerns. These risks are evaluated and priced into the cost of the acquisition.

Servicing

Portfolio Assets

        After a Portfolio is acquired, FirstCity assigns the Portfolio Assets to account servicing officers who are independent of the personnel that performed the due diligence evaluation in connection with the purchase of the Portfolio. Portfolio Assets are serviced either at the Company's headquarters or in one of FirstCity's other offices. FirstCity may establish servicing operations in locations in close proximity to significant concentrations of Portfolio Assets. Such offices are reviewed for closing after the assets in the geographic region surrounding the office are substantially resolved. The assigned account servicing officer develops a business plan and budget for each asset based upon an independent review of the cash flow projections developed during the investment evaluation, physical inspections of assets or collateral underlying the related loans, evaluation of local market conditions and discussions with the relevant borrower. Budgets are periodically reviewed and revised as necessary. FirstCity employs loan-tracking software and other operational systems that are generally similar to systems used by commercial banks, but which have been enhanced to track both the collected and the projected cash flows from Portfolio Assets.

        The Company does not capitalize and carry on its balance sheet the servicing rights related to its Portfolio Assets because servicing is not contractually separated from the underlying assets by sale or

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securitization of the assets with servicing retained (or separate purchase or assumption of the servicing), and FirstCity does not have the risks and rewards of ownership of the servicing rights. FirstCity services, in all material respects, the Portfolio Assets owned for its own account, the Portfolio Assets owned by the Acquisition Partnerships and, to a very limited extent, certain Portfolio Assets owned by third parties. In connection with the Acquisition Partnerships in the United States, FirstCity generally earns a servicing fee, which is based on a percentage of gross cash collections generated (rather than a management fee based on the Face Value of the asset being serviced). The rate of servicing fee charged is generally a function of the average Face Value of the assets within each pool being serviced (the larger the average Face Value of the assets in a Portfolio, the lower the fee percentage within the prescribed range), the type of assets and the level of servicing required on each asset. Many of the servicing arrangements with U.S. Acquisition Partnerships also entitle FirstCity to additional compensation in the form of an incentive servicing fee after certain economic thresholds are met (refer to FirstCity's investment agreement with a co-investor under the heading "Relationship with Värde Investment Partners, L.P. "below). For the Mexican Acquisition Partnerships, FirstCity earns a servicing fee based on costs of servicing plus a profit margin. The Company also has certain consulting contracts with its Mexican investment entities pursuant to which the Company is entitled to additional compensation for servicing once a specified return to the investors has been achieved. The Acquisition Partnerships in Europe and South America are serviced by various servicing entities in which the Company holds a noncontrolling ownership interest. In all cases, service fees are recognized as they are earned in accordance with the servicing agreements.

Structure and Financing of Portfolio Asset Purchases

        Portfolio Assets are either acquired for the account of a FirstCity subsidiary or through the Acquisition Partnerships. Portfolio Assets acquired directly by a FirstCity subsidiary may be funded with equity contributions, financing provided by a third-party lender, loans made by FirstCity to its subsidiaries, and/or other secured debt that is recourse only to the FirstCity subsidiary acquiring the Portfolio Assets. Portfolio Assets acquired directly by an Acquisition Partnership may be funded with equity contributions, loans made by a co-investor and/or FirstCity (or one of its affiliates), financing provided by a third-party lender, and/or other secured debt that is recourse only to the Acquisition Partnership.

        Each U.S. Acquisition Partnership is a separate legal entity (generally a limited liability company, but may also take the form of a limited partnership, trust, corporation or other type of legal business structure). FirstCity and an investor typically form a new special-purpose investment entity that owns the Acquisition Partnership. FirstCity generally has an effective ownership interest ranging from 10%-50% in a majority of the U.S. Acquisition Partnerships. Värde Investment Partners, L.P. and its affiliates are the co-investors in a substantial majority of our U.S. Acquisition Partnerships currently in existence. In addition, since mid-2010, a majority of FirstCity's investments in Portfolio Assets through U.S. Acquisition Partnerships have been transacted under the terms of an investment agreement with Värde Investment Partners, L.P. ("VIP"—see additional discussion under the heading "Relationships with Värde Investment Partners, L.P." below).

        In foreign markets, FirstCity evaluates the establishment of the Acquisition Partnership ownership structures and, in conjunction with its co-investors, performs due diligence and planning on the tax, licensing, and other ownership issues of the particular country. As in the United States, each foreign Acquisition Partnership is a separate legal entity, generally formed as the equivalent of a limited liability company or a liquidating trust. For the Latin American Acquisition Partnerships, FirstCity generally has an effective ownership interest in the underlying entities ranging from 8%-50%. Since 2011, FirstCity has not had a minority ownership interest in European Acquisition Partnerships.

        When Acquisition Partnerships are funded with acquisition financing, the debt is usually secured only by the assets of the individual entity, and are non-recourse to the Company, its co-investors and

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the other Acquisition Partnerships. FirstCity believes that this legal structure insulates the Company and the other Acquisition Partnerships from certain potential risks, while permitting FirstCity to share in the economic benefits of each Acquisition Partnership.

        Historically, the Company's primary sources of funding for purchasing distressed loan portfolios have been loans under credit facilities with third-party lenders, other special purpose short-term borrowings, funds generated from operations, equity distributions from acquisition entities and other subsidiaries and interest and principal payments on subordinated intercompany debt. A substantial majority of the Company's portfolio investments prior to July 2010 were funded through loan facilities provided by Bank of Scotland and BoS(USA), Inc.

        Although Bank of Scotland had provided financing to the Company for several years, following Lloyds Banking Group's acquisition of Bank of Scotland, Bank of Scotland and BoS(USA), Inc. placed the Company's revolving loan facility in a wind-down structure. In June 2010, the facilities with Bank of Scotland and BoS(USA), Inc. were restructured into one facility with a principal amount of $268.6 million ("Reducing Note Facility"—further defined and described under the heading "Relationship with Bank of Scotland" below) under which Bank of Scotland and BoS(USA), Inc. had no further obligations to provide financing to the Company. The Reducing Note Facility permitted a monthly cash leak-through to the Company to cover the overhead of the ongoing business and a cash flow leak-through of 20% of cash flows up to a maximum amount of $20 million after the payment of interest and overhead allowance. The lack of a corporate line of credit substantially restricted the Company's ability to acquire loan portfolios. As a result, the Company's source of funding for acquisitions was primarily limited to its unencumbered cash flow from operations and the cash flow leak-through, and the Company began to seek alternative sources of funding, which ultimately proved to be unachievable as the Company was never able to replace this source of funding.

        Due to a lack of funding, the Company has been unable to pursue an aggressive acquisition strategy for its own account and almost all of the Company's new acquisitions have been off-balance sheet in the form of minority interests (ranging from 10% to 20%) in acquisition entities controlled by larger firms. The Company has been unable to obtain financing to purchase investments for its own account on reasonable terms. As a result, the Company's balance sheet has begun to shrink as its existing portfolios mature and new acquisitions are off-balance sheet and the value of its servicing platform diminishes.

        While management intends to continue utilizing the aforementioned financing arrangements, cash flow sources and investment agreements to provide FirstCity with the necessary financing and funding to support its current and future investment activities, FirstCity continues to actively seek additional sources of liquidity and alternative funding sources. FirstCity is working towards consummating the proposed merger with affiliates of private investment funds governed by Värde. We remain cognizant about the uncertainty and volatility in U.S. financial markets that currently present challenges for businesses in accessing liquidity and capital, and the resulting impact on our liquidity considerations and operations. Discussions related to FirstCity's liquidity are included under the heading "Liquidity and Capital Resources" in Part II, Item 7 of this Annual Report on Form 10-K.

Relationship with Värde Investment Partners, L.P.

        The Company and VIP, an affiliate of Värde, began jointly investing through acquisition entities in April 2009 as to specific transactions, with no investment obligation on either party. Since May 2010, the Company and VIP have been parties to an investment agreement pursuant to which VIP may invest, at its discretion, in distressed loan portfolios and similar investment opportunities with the Company, subject to the terms and conditions contained in the investment agreement. Through this arrangement, the Company has access to funding for acquisitions of distressed asset portfolios and is able to increase its servicing base. However, the Company's interest in any acquired asset portfolios are

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limited to a minority interest in the acquisition entity and "off-balance sheet," meaning that the portfolio assets are not consolidated on the Company's balance sheet. The primary terms of the investment agreement are:

•

FirstCity acts as the exclusive servicer for the investment portfolios;

•

FirstCity provides VIP with a right of first refusal with regard to distressed asset investment opportunities in excess of $3 million sourced by FirstCity;

•

FirstCity, at its determination, co-invests between 5% and 25% in each investment;

•

FirstCity receives a monthly fee of $200,000 and VIP pays FirstCity's pro rata share of due diligence expenses incurred in connection with proposed investments based upon its respective equity percentage of the acquisition entity;

•

FirstCity receives a base servicing fee (based on investment portfolio collections) and is eligible to receive additional incentive-based servicing fees (depending on the performance of the portfolios acquired); and

•

FirstCity is eligible to receive incentive-based management fees (depending on the aggregate amount and performance of the portfolios acquired).

        The investment agreement has a termination date of June 30, 2015, subject to certain renewals or earlier termination. The cash flows from the assets and equity interests in investments made pursuant to the investment agreement are held by FC Investment Holdings Corporation ("FC Investment") (a wholly-owned subsidiary of FirstCity) and its subsidiaries and are not subject to the security interest requirements of the Company's credit facilities.

Relationship with Bank of Scotland

        FirstCity has had a significant relationship with Bank of Scotland and its subsidiaries (including BoS(USA), Inc.) (collectively, "Bank of Scotland") since 1997. Bank of Scotland has provided various loan facilities to FirstCity and its subsidiaries since such time to finance the Company's senior debt and equity portion of Portfolio Asset purchases, to finance equity investments in new ventures and special situations investments, to provide for the issuance of letters of credit, and for working capital loans.

        In June 2010, FirstCity refinanced its then-existing acquisition loan facilities with Bank of Scotland and BoS(USA), Inc. and closed on a $268.6 million Reducing Note Facility Agreement ("Reducing Note Facility") that provided for repayment to Bank of Scotland over time as cash flows from the underlying assets securing the term loan facility were realized. The Company's outstanding indebtedness and letter of credit obligations under its then-existing loan facilities with Bank of Scotland were refinanced by the Reducing Note Facility. This term loan facility capped FirstCity's financing arrangements with Bank of Scotland, and as such, Bank of Scotland had no further obligation to provide financing to fund FirstCity's investment activities and operations after June 2010. The Reducing Note Facility was secured by substantially all of the assets of FirstCity's subsidiaries that were subject to the obligations of the former loan facilities with Bank of Scotland. FC Investment and its subsidiaries, which hold investments made in connection with FirstCity's investment agreement with VIP (discussed above), and various other investments that FirstCity originated subsequent to June 2010, are not subject to the security interest requirements of the Reducing Note Facility.

        In December 2011, FirstCity entered into an agreement to amend and restate the Reducing Note Facility with Bank of Scotland, which had an unpaid principal balance of approximately $173.2 million at closing. As a result, FirstCity's primary obligation under the Reducing Note Facility, as amended ("BoS Facility A"), was reduced by the assumption of $25.0 million of debt ("BoS Facility B") by a newly-formed, wholly-owned subsidiary of FirstCity, combined with a $53.4 million reduction primarily from proceeds obtained by FirstCity from its new $50.0 million credit facility with Bank of America and

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other cash payments at closing. FirstCity's remaining $94.8 million debt obligation under BoS Facility A (post-closing) carries a 0.25% annual interest rate through maturity (December 2014), and allows for repayment over time as cash flows from the underlying pledged assets are realized. FirstCity's $25.0 million debt obligation under BoS Facility B does not bear interest, and allows for repayment over time as cash flows from the underlying pledged assets, if any, are realized (FirstCity has not received any significant cash flows from these underlying assets and has not allocated any value to these assets for the past three years). As a result of its December 2011 debt refinancing arrangements, FirstCity was able to significantly reduce its aggregate future cash outlay to Bank of Scotland and Bank of America under these new loan facilities in comparison to the repayment terms under the former Reducing Note Facility with Bank of Scotland. Refer to Notes 2 and 9 of the Company's 2012 consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K ("2012 consolidated financial statements") for additional information related to the primary details and terms underlying these loan facilities.

Business Strategy of Portfolio Asset Acquisition and Resolution Business

        Historically, FirstCity has leveraged its expertise in asset resolution and servicing by investing in a wide variety of asset types across a broad geographic scope. FirstCity continues to follow this investment strategy and seeks expansion opportunities into new asset classes and geographic areas when it believes it can achieve attractive risk adjusted returns. The following items are significant elements of FirstCity's business strategy in its PAA&R business:

•

Traditional markets.  FirstCity believes it will continue to invest in Portfolio Assets acquired from financial institutions, governmental agencies and other sellers, either for its own account or through investment entities formed with one or more co-investors (i.e. Acquisition Partnerships).

•

Niche markets.  FirstCity believes it will continue to pursue investment opportunities in profitable private market niches. The niche investment opportunities that FirstCity has pursued to date include (i) the acquisition of improved or unimproved real estate, including excess retail sites, (ii) periodic purchases of single financial or real estate assets from financial institutions with which FirstCity has established relationships, and (iii) periodic purchases of single financial or real estate assets from a variety of other sellers that are familiar with the Company's reputation for acting quickly and efficiently.

•

SBA lending.  The Company believes that the ability to acquire and originate U.S. Small Business Administration ("SBA") loans through its wholly-owned subsidiary, American Business Lending, Inc. (a small business lending company licensed by the U.S. Small Business Administration), provides diversity that creates growth opportunity within the U.S. market.

Special Situations Platform Business Segment

        FirstCity's entry into its Special Situations Platform ("Special Situations" or "FirstCity Denver") business began in 2007 with the formation of FirstCity Denver—a majority-owned special-purpose investment entity which was designed to provide the Company with another investment platform to leverage the skills and expertise of management and other business partners by seeking out additional investment opportunities involving corporate restructurings and distressed debt, and negotiating and structuring such investments to manage our risk while providing attractive risk-adjusted returns. Through its Special Situations business, FirstCity provides investment capital to privately-held lower middle-market companies through flexible capital structuring arrangements. FirstCity's primary investment objective is to generate both current income and capital appreciation through debt and equity investments, and to generally structure the investments to be repaid or exited in 12 to 60 months. We invest primarily in U.S. lower middle-market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive.

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        Our investment opportunities in lower middle-market companies target restructurings, turnarounds, businesses with robust market positions, and other special situations. The nature of our capital investments primarily takes the form of senior and junior financing arrangements, but also includes direct equity investments and common equity warrants. FirstCity also engages in other investment activities, including leveraged buyouts and distressed debt transactions, through its Special Situations business. The composition of our investments will change over time given our views on, among other factors, the economic and credit environments that impact our operations.

        Since inception, FirstCity has been involved in lower middle-market transactions, through its Special Situations business, with total investment values approximating $89.2 million. In connection with these investments, FirstCity provided $61.4 million of investment capital to privately-held lower middle-market companies—$45.3 million in the form of debt investments and $16.1 million as equity investments. Information related to FirstCity's Special Situations investments in 2012 and 2011 is included under the heading "Lower Middle-Market Company Capital Investments—Special Situations Platform Business Segment" in Part II, Item 7 of this Annual Report on Form 10-K.

Market Opportunity

        We believe the environment for investing in lower middle-market companies is attractive for the following reasons:

•

We believe lower middle-market companies have faced increasing difficulty in accessing the capital markets due to the severe dislocation in the credit markets, and capital constraints and underwriting limitations experienced by commercial banks.

•

We believe recent disruptions within the credit markets generally have resulted in a reduction in competition and a more lender-friendly environment for our special situations platform due to a decline in the scope and availability of lower middle-market financing arrangements.

•

We believe consolidation among commercial financial institutions has reduced their service and product offerings to lower middle-market business.

•

We believe the recent economic downturn has resulted in defaults and covenant breaches by lower middle-market companies, which will require new capital to sustain liquidity or provide new capital through restructuring.

Sources of Investments

        FirstCity has established an extensive referral network comprised of investment bankers, private equity firms, trade organizations, commercial bankers, attorneys, businesses and financial brokers. Our origination efforts include calling on and visiting these contacts and other lower middle-market intermediaries to generate deal flow. In addition, we maintain an extensive database of lower middle-market professionals and participants, which enables us to monitor and evaluate the lower middle-market investing environment. This database is used to help us assess whether we are penetrating our target markets and accurately track terms and pricing. We expect that our ability to leverage these relationships and transaction information will continue to result in the referral of investment opportunities to us.

Investment Selection

        FirstCity Denver chooses investments based on the investment experience of its professionals and a detailed investment analysis for each investment opportunity. We selectively narrow prospective

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investment opportunities through a process designed to identify the most attractive opportunities. We follow a rigorous process based on:

•

a comprehensive analysis of the company's creditworthiness, including a quantitative and qualitative assessment of the company's business;

•

an evaluation of management and their economic incentives;

•

an analysis of business strategy and industry trends; and

•

an in-depth examination of capital structure, financial results and projections.

        We seek to identify companies that exhibit superior fundamental risk-reward profiles and strong defensible business franchises while focusing on the relative value of the security in the company's capital structure.

Due Diligence

        If an investment opportunity merits pursuit, FirstCity Denver engages in an intensive due diligence process that involves research into the target company, its management, its industry, its growth prospects, and its ability to withstand adverse conditions. Though each transaction involves a somewhat different approach, the due diligence steps that we generally undertake include:

•

meeting with the target company's management to get an insider's view of the business, and to probe for potential weaknesses in business prospects;

•

checking management's backgrounds and references;

•

performing a detailed review of historical financial performance and the quality of earnings;

•

visiting headquarters and company operations and meeting with top and middle-level executives;

•

contacting customers and vendors to assess both business prospects and standard practices;

•

conducting a competitive analysis, and comparing the company to its main competitors on an operating, financial, market share and valuation basis;

•

researching the industry for historic growth trends and future prospects as well as identifying future exit alternatives (including Wall Street research, industry association and general news);

•

assessing asset value and the ability of physical infrastructure and information systems to handle anticipated growth; and

•

investigating legal risks and financial and accounting systems.

        After completion of the due diligence process, the investment team involved in the transaction prepares a written investment analysis. Senior management involved in the transaction reviews the analysis, and if they are in favor of making the potential investment, the analysis is then presented to the investment committee for consideration. After an investment has been approved by the investment committee, a more-extensive due diligence process is employed by the transaction team. Additional due diligence with respect to any investment may be conducted on our behalf by attorneys, independent accountants, and other third-party consultants and research firms prior to the closing of the investment, as appropriate on a case-by-case basis.

Investment Structure

        FirstCity Denver's investments in lower middle-market companies primarily take the form of first- and second-lien loans and mezzanine debt. We tailor the terms of our debt investments to the facts and circumstances of the transaction and the prospective company, negotiating a structure that aims to

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protect our rights and manage our risk while creating incentives for the company to achieve its business plan and improve its profitability.

        For first- and second-lien senior loans, we generally obtain security interests in the company's assets that will serve as collateral in support of repayment of loans. This collateral may take the form of first- or second-priority liens on the assets of the company.

        We generally structure our mezzanine investments as subordinated loans that provide for relatively high, fixed interest rates that provide us with significant current income. These loans typically have interest-only payments in the early months, with amortization of principal deferred to the later term of the loans. In addition, our mezzanine investments will generally be collateralized by a subordinate lien on some or all of the assets of the company.

        In some cases, our debt investments may provide for a portion of the interest payable to be payment-in-kind interest. To the extent interest is payment-in-kind, it will be payable through the increase of the principal amount of the loan by the amount of interest due on the then-outstanding aggregate principal amount of the loan.

        In general, our debt investments include financial covenants and terms that require the company to reduce leverage over time, thereby enhancing credit quality. These methods may include, among other things: (i) maintenance leverage covenants; (ii) maintenance cash flow covenants; and (iii) indebtedness incurrence prohibitions. In addition, limitations on asset sales and capital expenditures prevent a company from changing the nature of its business or capitalization without our consent.

        Our debt investments may include equity features, such as carried interests and warrants to obtain or buy a minority interest in the company. Carried equity interests and warrants that we receive in connection with our debt investments may require only a nominal cost to obtain or exercise, and thus, as the lower middle-market company appreciates in value, we may achieve additional investment returns from these equity interests.

        When we provide financing, we may obtain equity interests in the company. We generally seek to structure our equity investments as non-control investments to provide us with minority rights and event-driven or time-driven economic incentives. On occasion, our equity investments may take the form of direct control-oriented investments in connection with buyout transactions.

Financing and Funding Investment Activity

        A substantial portion of FirstCity Denver's investment activities prior to July 2010 was funded under a senior-secured loan facility that was provided by Bank of Scotland. This senior loan facility and other outstanding loan facilities provided to FirstCity by Bank of Scotland were combined and refinanced in June 2010 into a single term loan facility, which provided for repayment to Bank of Scotland over time as cash flows from the underlying assets securing this term loan facility are realized. This term loan facility capped FirstCity's financing arrangements with Bank of Scotland, and as such, ended FirstCity's ability to fund FirstCity Denver's investment activities through Bank of Scotland's loan facility after June 2010. Additional information regarding this loan facility is included under the heading "Relationship with Bank of Scotland" above.

        Subsequent to June 2010, FirstCity Denver has supported (and intends to continue supporting) its investment activities with holdings in unencumbered cash and cash flows generated by its portfolio companies. In addition, FirstCity Denver typically seeks to refinance its loan facilities provided to portfolio companies in which it also holds an equity interest with non-recourse debt financing provided by third-party lenders. By subsequently seeking a third-party lender to refinance its debt investments to these portfolio companies, FirstCity Denver will receive debt repayment proceeds and possibly equity distributions, and use the monies to fund other investment opportunities.

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        While management intends to continue utilizing the aforementioned financing arrangements and cash flow sources to provide FirstCity Denver with the necessary financing and funding to support its current and future investment activities, FirstCity continues to actively seek additional sources of liquidity and alternative funding sources. Discussions related to FirstCity's liquidity are included under the heading "Liquidity and Capital Resources" in Part II, Item 7 of this Annual Report on Form 10-K.

Government Regulation

        The Company does not have a primarily regulatory or supervisory agency that governs and supervises the operations and activities conducted by its PAA&R and Special Situations business segments. However, certain aspects of the Company's business are subject to regulation under various U.S. federal, state and local statutes and regulations and various foreign laws and regulations that impose requirements and restrictions affecting, among other things, disclosures to obligors, the terms of secured transactions, collection, repossession and claims handling procedures, multiple qualification and licensing requirements for conducting business in various jurisdictions, and other trade practices. Furthermore, our small business lending platform is licensed by and subject to regulation and examination by the U.S. Small Business Administration. Additional laws and regulations, or amendments to existing laws and regulations, may be enacted that could impose additional restrictions on investment, lending and servicing activities—which in turn could adversely impact our results of operations.

        On July 21, 2010, the Dodd-Frank Wall Street Reform and Protection Act ("Dodd-Frank Act") was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as corporate governance, "say on pay" and proxy access. Our efforts to comply with these requirements are likely to result in an increase in expenses and a diversion of management's time from other business activities. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact profitability of business activities, require changes to certain business practices, or otherwise adversely affect our business.

        We are also subject to changing rules and regulations of federal and state governments as well as the stock exchange on which our common stock is listed. These entities, including the Public Company Accounting Oversight Board, the SEC and the NASDAQ Stock Market, have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations and requirements in response to laws enacted by Congress.

Competition

Portfolio Asset Acquisition and Resolution Business Segment

        The PAA&R business is highly competitive. Some of the Company's principal competitors are substantially larger and have considerably greater financial resources than the Company. As such, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some competitors may be better suited than the Company to acquire Portfolio Assets, to pursue new business opportunities, or to survive periods of industry consolidation. Generally, there are three aspects of the distressed asset acquisition and resolution business: due diligence, asset management, and servicing. The Company is a major participant in all three arenas. In comparison, certain of our competitors have historically competed primarily as portfolio purchasers and have customarily engaged other parties to conduct due diligence on potential purchases and to service

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acquired assets, and certain other competitors have historically competed primarily as servicing companies.

        The Company believes that its ability to acquire, service and resolve Portfolio Assets for its own account and through Acquisition Partnerships will be a significant component of the Company's overall future growth. Portfolio Asset acquisitions are often based on competitive bidding—which involves the risks of bidding too low (which generates no business) or bidding too high (which could result in the purchase of a Portfolio at an economically unattractive price).

        Furthermore, we believe that our management team's extensive and diverse experience and knowledge in acquiring distressed assets, combined with the skill and experience of our internal due diligence teams, provides FirstCity with a competitive position in our ability to move swiftly and speed the transaction process on distressed asset trading opportunities that meet our investment criteria.

Special Situations Platform Business Segment

        The Company's primary competition to provide financing to lower middle-market companies includes public and private funds, commercial and investment banks, commercial financing companies, insurance companies and, to the extent they provide an alternative form of financing, private equity funds. Many of our existing and potential competitors are substantially larger and have considerably greater financial and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. We use industry information available to our investment management team to assess investment risks and determine appropriate pricing for our investments in lower middle-market companies. Furthermore, we believe the relationships of our professionals enable us to learn about, and compete effectively for, investment opportunities with attractive lower middle-market companies in the industries in which we seek to invest.

Employees

        The Company had 286 employees as of December 31, 2012. The Company had 276 employees at December 31, 2011. FirstCity believes that it has been successful in attracting quality employees and that employee relations are good.

Foreign Operations

        We have investments in various Acquisition Partnerships and servicing entities in Europe and Latin America. Revenues outside of the U.S. are a material part of our business, as they accounted for more than 15% of our consolidated revenues and equity income from subsidiaries for each of the fiscal years ended December 31, 2012 and 2011. See Note 18 of the Company's 2012 consolidated financial statements for summarized information relating to the Company's foreign revenues.

        The Company has determined that the local currency is the functional currency for its operations outside the United States (primarily Europe and Latin America). We translate the results for our foreign subsidiaries and affiliates from the designated functional currency to the U.S. dollar using average exchange rates during the relevant period, while we translate assets and liabilities at the exchange rate in effect at the reporting date. Since our revenues in foreign operations are denominated in non-U.S. currencies, fluctuations in exchange rates relative to the U.S. dollar could have a material adverse effect on our earnings and assets. In addition, changes in exchange rates associated with U.S. dollar-denominated assets and liabilities result in foreign currency transaction gains and losses.

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        Since we report our results of operations in U.S. dollars, changes in relative foreign currency valuations from our foreign operations may result in reductions in our reported revenues, operating income and earnings, as well as a reduction in the carrying value of our foreign-related assets. Accordingly, if the values of local currencies in foreign countries in which certain of our subsidiaries and affiliates conduct business depreciate relative to the U.S. dollar, we would expect our operating results in future periods, and the value of our assets held in local currencies, to be adversely impacted.

        Refer to Note 18 of the Company's 2012 consolidated financial statements for financial information on our revenues and assets by geographic area.

Item 1A.    Risk Factors.

        As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item. Notwithstanding the foregoing, as a result of entering into the merger agreement, we are disclosing certain risk factors as set forth below. Any investment in our common stock involves a high degree of risk. Investors should carefully consider the risks and uncertainties described below.

         Termination of the merger agreement or failure to complete the merger on a timely basis or at all may have a material adverse effect on our business, financial condition or results of operations.

        If the merger agreement between the Company, Parent and Merger Subsidiary is terminated or if the parties fail to consummate the merger on a timely basis or at all, there may be a material adverse effect on the Company's business, financial condition or results of operations. For example, our business may have been adversely affected by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. If the merger agreement is terminated and the Company's Board of Directors seeks another merger or business combination, our stockholders cannot be certain that we will be able to find a party willing to pay the equivalent or greater consideration than that which Parent and Merger Subsidiary have agreed to pay with respect to the merger. In addition, if the Company, Parent and Merger Subsidiary do not complete the merger on a timely basis or at all, the market price of the Company's common stock may decline to the extent that the current market prices of those shares reflect a market assumption that the merger will be completed. If the merger is not completed on a timely basis or at all, additional risks could materialize, which could materially and adversely affect the business, financial results, financial condition and stock price of the Company.

         The merger agreement limits the Company's ability to pursue an alternative acquisition proposal and requires the Company to pay a termination fee of $2 million under limited circumstances relating to alternative acquisition proposals.

        The merger agreement prohibits the Company from soliciting, initiating, endorsing or knowingly encouraging or facilitating certain alternative acquisition proposals with any third party, subject to exceptions set forth in the merger agreement. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing such an acquisition. Additionally, the Company is limited in its ability to entertain or accept another offer from an entity that is superior to the offer of Parent. In the event the Company were to accept such an alternative acquisition proposal, the Company could be required to pay a termination fee of $2 million and to reimburse Parent and Merger Subsidiary up to $1 million of expenses incurred by them in connection with the merger, which could materially adversely affect the financial condition of the Company.

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         We will be subject to business uncertainties and contractual restrictions while the merger is pending.

        Uncertainty about the effect of the merger on employees may have an adverse effect on us and our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the merger is completed, and could cause others that deal with the Company to seek to change existing business relationships. Retention of certain employees by the Company may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with the Company. In addition, subject to certain exceptions, we have agreed to operate our business in the ordinary course prior to closing of the merger.

         Some of the directors and executive officers of FirstCity have interests in the merger that may be different from, or in addition to, those of the other FirstCity stockholders.

        Some of the Company's directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of our stockholders generally, including accelerated vesting and cash-out of in-the-money stock options and accelerated vesting of restricted stock held by executive officers, non-employee directors and employees of the Company. Certain of our executive officers are parties to agreements with Parent or the Company that provide for employment and consulting arrangements or severance benefits, and certain of such persons will become the initial executive officers of the surviving corporation and be entitled to equity compensation of the Parent upon closing of the merger. The surviving corporation will provide our directors and officers with continued indemnification and advancement rights and directors' and officers' liability insurance. Our directors and certain of our executive officers have entered into a support agreement with Parent, pursuant to which they agreed to vote all of their shares of the Company's common stock, approximately 16.63% of our outstanding shares as of March 11, 2013, in favor of the adoption of the merger agreement, among other things.

         Pending litigation against FirstCity, members of the FirstCity Board of Directors, Parent, Merger Subsidiary and Värde could result in an injunction preventing completion of the merger and/or may adversely affect FirstCity's business, financial condition or results of operations.

        FirstCity, members of the FirstCity board of directors, Parent, Merger Subsidiary and Värde are named as defendants in lawsuits purportedly brought by and on behalf of FirstCity stockholders challenging the proposed merger, seeking, among other things, to enjoin the defendants from completing the merger on the agreed-upon terms. If completion of the merger is prevented or delayed, it could result in substantial costs to FirstCity. In addition, FirstCity could incur costs and expenses, including reasonable attorneys' fees, associated with the indemnification of FirstCity's directors and officers and the defense and settlement of any such legal proceedings.

Item 1B.    Unresolved Staff Comments.

        None.

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Item 2.    Properties.

        The Company occupies approximately 72,000 square feet of office space, all of which is leased. The following is a list as of December 31, 2012 of the principal physical properties that are used by our significant business segments.

Location	Purpose	Business Segment
Waco, Texas	Corporate and Servicing Offices	Corporate and Portfolio Asset Acquisition and Resolution
Guadalajara, Mexico	Servicing Offices	Portfolio Asset Acquisition and Resolution
Mexico City, Mexico	Servicing Offices	Portfolio Asset Acquisition and Resolution
Dallas, Texas	Servicing Offices	Portfolio Asset Acquisition and Resolution
Greenwood Village, Colorado	Servicing Offices	Special Situations Platform

        The Company leases its principal executive offices and primary U.S. servicing offices under a non-cancellable operating lease, which expires October 31, 2020. All other office and facility leases of the Company and its consolidated subsidiaries expire in various years through 2016 (one exception is a freight railway lease that extends through 2057). We believe that these facilities are suitable and adequate for the business that we currently conduct. However, we periodically review our space requirements and may acquire new space to meet the needs of our business, or consolidate and dispose of facilities that are no longer required.

Item 3.    Legal Proceedings.

        FirstCity and certain of its subsidiaries and affiliates (including Acquisition Partnerships) are involved in various claims and legal proceedings which are incidental to the ordinary course of our business. We initiate lawsuits against borrowers and are occasionally countersued by them in such actions. From time to time, other types of lawsuits are brought against us. In view of the inherent difficulty of predicting the outcome of pending legal actions and proceedings, the Company cannot state with certainty the eventual outcome of any such proceedings. Based on current knowledge, management does not believe that liabilities, if any, arising from any ordinary course proceeding will have a material adverse effect on the consolidated financial condition, operations, results of operations or liquidity of the Company.

Class Action Litigation

        On January 15, 2013, a putative class action lawsuit was filed in the District Court in McLennan County, Texas against the Company, its directors, Parent, Merger Subsidiary and Värde purportedly on behalf of the Company's stockholders, under the caption Eric J. Drayer v. James T. Sartain, et. al., Cause No. 2013-246-5. The lawsuit alleges, among other things, that the director defendants breached their fiduciary duties to the Company's stockholders in connection with Värde's merger proposal and that Värde, Parent and Merger Subsidiary have aided and abetted such breaches. The plaintiff seeks declaratory and injunctive relief, reasonable attorneys' and experts' fees and, in the event the transaction is consummated, rescission of the transaction or rescissory damages and an accounting of all damages, profits and special benefits. On February 13, 2013, a first amended petition was filed. The amended petition alleges that the director defendants breached their fiduciary duties by (i) failing to maximize the value of the Company, (ii) taking steps to avoid competitive bidding, (iii) failing to properly value the Company and (iv) omitting material information and providing materially misleading information in the preliminary proxy statement, and seeks the same relief and asserts the same claims as the original petition.

        On January 29, 2013, a putative class action lawsuit was filed in the Court of Chancery of the State of Delaware against the Company, its directors, Parent, Merger Subsidiary and Värde purportedly on behalf of the Company's stockholders, under the caption Paul Perry v. FirstCity Financial Corporation,

22

et. al., Case No. 8259-VCG. The lawsuit alleges, among other things, that the director defendants breached their fiduciary duties to the Company's stockholders by entering into the merger agreement and that the Company, Värde, Parent and Merger Subsidiary have aided and abetted such breaches. The plaintiff seeks declaratory and injunctive relief, reasonable attorneys' and experts' fees and, in the event the transaction is consummated, rescission of the transaction and an accounting of all damages, profits and special benefits. On February 15, 2013, a first amended complaint was filed adding Värde Management, L.P. as a defendant. The amended complaint alleges that the director defendants breached their fiduciary duties by (i) agreeing to the merger consideration which undervalues the Company, (ii) agreeing to the terms of the merger agreement which deter other bidders and (iii) omitting material information and providing materially misleading information in the preliminary proxy statement, and seeks the same relief and asserts the same claims as the original complaint.

        Defendants have not yet filed any responsive pleadings or motions to the amended petitions. In the Perry lawsuit, the plaintiff has moved for a preliminary injunction and sought expedited discovery, but no hearings or proceedings have been scheduled on either motion. The Company believes that the claims in these lawsuits are without merit and intends to vigorously defend itself against them. However, there can be no assurance as to the outcome of these lawsuits.

Wave Tec Pools, Inc. Litigation

        FH Partners LLC (formerly FH Partners, L.P.) and FirstCity Servicing Corporation (both wholly-owned subsidiaries of FirstCity), and FirstCity Financial Corporation, were defendants in a suit that was originally filed by Superior Funding, Inc., Wave Tec Pools, Inc. and Nations Pool Supply, Inc. (collectively, the "Obligors") against State Bank and Cole Harmonson in March 2007. The Obligors alleged that they sustained actual damages of $165 million as a result of alleged breaches by FH Partners LLC and FirstCity Servicing Corporation under a loan-related agreement from State Bank to Obligors that was purchased by FH Partners LLC from State Bank in December 2006. Following various court rulings and proceedings (including Prosperity Bank's settlement with the Obligors in 2009), FirstCity entered into an agreement with the Obligors in August 2011, which provided for the settlement of the pending lawsuit and provided for a payment by FH Partners LLC to the Obligors and their attorneys of $100,000. The final settlement is non-appealable, and all FirstCity parties were released from all claims and liability related to the loan and lawsuit. FH Partners LLC continues to pursue collection of the loan.

Item 4.    Mine Safety Disclosures.

        Not applicable.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Stock Price Information

        The Company's common stock is traded on the NASDAQ Global Select Market under the symbol "FCFC." The following table displays the high and low sales prices for the Company's common stock, as reported by the NASDAQ Global Select Market, for the periods indicated:

	2012				2011
	Market Price				Market Price
Quarter Ended	High		Low		High		Low
March 31	$	10.09	$	7.25	$	8.20	$	6.25
June 30		10.83		7.81		7.44		6.30
September 30		9.20		7.28		7.24		6.09
December 31		9.81		7.00		8.50		5.79

        As of March 13, 2012, there were 666 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of underlying stockholders represented by these stockholders of record.

Dividend Policy

        The Company has never declared or paid a dividend on its common stock. The Company currently intends to retain future earnings to finance its future growth and reduce debt, and does not anticipate that it will declare or pay any dividends on its common stock in the foreseeable future. Any future determination regarding payment of cash dividends will be at the discretion of our Board of Directors, and will depend upon our operating results, financial condition, capital requirements, general business conditions and other factors that our Board of Directors deems relevant. In addition, our ability to declare and pay cash dividends is restricted by certain loan facilities of the Company and its subsidiaries.

Recent Sales of Unregistered Securities

        None.

Issuer Purchases of Equity Securities

        None.

Item 6.    Selected Financial Data.

        As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

        The following discussion and analysis should be read in conjunction with the Company' consolidated financial statements and related footnotes.

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Overview

        FirstCity is a multi-national specialty financial services company headquartered in Waco, Texas with offices throughout the United States and Mexico and a presence in Europe and South America. FirstCity, as an opportunistic investor, focuses on distressed asset investment opportunities in both the United States and, to a lesser extent, international markets, and distressed transaction and special situations investment opportunities in U.S. lower middle-market companies. The Company has strategically aligned its operations into two major business segments—Portfolio Asset Acquisition and Resolution and Special Situations Platform.

        The Portfolio Asset Acquisition and Resolution business has been the Company's core business segment since it commenced operations in 1986. In the Portfolio Asset Acquisition and Resolution business, the Company acquires portfolios of under-performing and non-performing loans, and to a lesser extent, performing loans and other assets (collectively, "Portfolio Assets" or "Portfolios"), generally at a discount to their legal principal balances or appraised values, and services and resolves (i.e. liquidates) such Portfolio Assets in an effort to maximize the present value of the ultimate cash recoveries. FirstCity acquires the Portfolio Assets for its own account or through investment entities formed with co-investors (each such entity, an "Acquisition Partnership").

        Through its Special Situations Platform business, the Company provides investment capital to privately-held lower middle-market companies through flexible capital structuring arrangements to generate an attractive risk-adjusted return. These capital investments primarily take the form of senior and junior financing arrangements, but also include direct equity investments and common equity warrants. The Company also engages in other investment activities, including leveraged buyouts and distressed debt transactions, through its Special Situations Platform business.

        Our revenues consist primarily of (1) income and gains from our Portfolio Assets and loan investments (including SBA lending activities); (2) equity income from our Acquisition Partnerships; (3) servicing fee income and incentive fee income from Acquisition Partnerships based on the performance of our servicing activities on the assets held by these unconsolidated partnerships; and (4) income generated by our debt and equity investments (consolidated and unconsolidated) in privately-held lower middle-market companies.

        In December 2012, the Company entered into a definitive merger agreement with Parent and Merger Subsidiary pursuant to which the Company will become a private company that is wholly owned by Parent. Parent and Merger Subsidiary are affiliates of certain private investment funds governed by Värde. Under the terms of the merger agreement, FirstCity stockholders will receive $10.00 per share in cash for each share of FirstCity stock they own. The transaction is expected to close in the second quarter of 2013. Consummation of the merger is subject to various customary conditions, including the adoption of the merger agreement by the holders of at least a majority of the outstanding shares of the Company's common stock. The Company has filed a preliminary proxy statement with the Securities and Exchange Commission recommending that the Company's stockholders adopt the merger agreement.

Summary Financial Results

        In 2012, FirstCity recorded net earnings of $14.3 million, or $1.35 per common share on a fully diluted basis (compared to net earnings of $24.2 million, or $2.33 per common share on a fully diluted

25

basis, in 2011). Components of FirstCity's results of operations for the fiscal years ended December 31, 2012 and 2011 are presented in the tables below.

	Year Ended December 31, 2012
	Portfolio Asset Acquisition and Resolution			Special Situations Platform			Corporate and Other			Total
	(Dollars in thousands)
Revenues	$	55,577		$	14,117		$	887		$	70,581
Costs and expenses		(37,880	)		(17,926	)		(12,383	)		(68,189	)
Equity income from unconsolidated subsidiaries		8,958			6,286			—			15,244
Other income		1,451			935			—			2,386
Income tax expense		(490	)		(326	)		(158	)		(974	)
Net income attributable to noncontrolling interests		(3,531	)		(1,179	)		—			(4,710	)
Net earnings (loss)	$	24,085		$	1,907		$	(11,654	)	$	14,338

	Year Ended December 31, 2011
	Portfolio Asset Acquisition and Resolution			Special Situations Platform			Corporate and Other			Total
	(Dollars in thousands)
Revenues	$	63,877		$	10,190		$	250		$	74,317
Costs and expenses		(52,481	)		(7,796	)		(8,322	)		(68,599	)
Equity income (loss) from unconsolidated subsidiaries		(624	)		2,855			—			2,231
Gain on debt extinguishment		26,543			—			—			26,543
Other income		2,096			155			—			2,251
Income tax (expense) benefit		(3,807	)		(166	)		271			(3,702	)
Net income attributable to noncontrolling interests		(7,654	)		(1,170	)		—			(8,824	)
Net earnings (loss)	$	27,950		$	4,068		$	(7,801	)	$	24,217

        As an opportunistic investor in the distressed asset and special situations markets, FirstCity's mix of revenues and earnings in its business segments will significantly fluctuate from period to period. Refer to the heading "Results of Operations" below for a detailed review of the Company's operations for the comparative periods presented in the table above.

        Portfolio Asset Acquisition and Resolution.    The Company's net earnings related to its Portfolio Asset Acquisition and Resolution business segment decreased to $24.1 million in 2012 from $28.0 million in 2011. The decrease in earnings in 2012 compared to 2011 was attributed primarily to a $26.5 million debt extinguishment gain that the Company recognized in the fourth quarter of 2011 ("Q4 2011") as a result of refinancing its debt obligation with Bank of Scotland in December 2011. Other factors contributing to the net earnings decrease in 2012 compared to 2011 included a decrease in income from Portfolio Assets of $13.9 million, off-set partially by a $9.6 million increase in equity income from unconsolidated subsidiaries (Q4 2011 included a $7.4 million write-down to our unconsolidated Mexican Acquisition Partnerships), a $5.9 million increase in servicing fee revenue, an $8.8 million decrease in interest and fees on notes payable, a $4.3 million decrease in other costs and expenses (Q4 2011 included a $3.1 million impairment charge to a consolidated Mexican subsidiary), a $3.3 million decrease in income tax expense, a $2.4 million decrease in asset-level expenses, and a $4.1 million decrease in net income attributable to noncontrolling interests. On a combined basis,

26

revenues from our core business operations (servicing fees, income and gains from Portfolio Assets and loans, and equity income (loss) from unconsolidated subsidiaries) remained relatively steady at $55.6 million in 2012 compared to $56.3 million in 2011—despite our recognition of a $7.4 impairment charge in 2011 on certain equity-method investments in Latin American (Mexico) Acquisition Partnerships to write down the investments to fair value (included in "equity income (loss) of unconsolidated subsidiaries"). Refer to the heading "Results of Operations" below for a detailed review of the Company's operations in this business segment for the comparative periods presented in the table above.

        Special Situations Platform.    The Company's net earnings related to its Special Situations Platform business segment decreased to $1.9 million in 2012 from $4.1 million in 2011. The decrease in net earnings in 2012 compared to 2011 was primarily due to a $6.1 million increase in promote fees paid, off-set partially by a $3.4 million increase in equity income from unconsolidated subsidiaries. Refer to the heading "Results of Operations" below for a detailed review of the Company's operations in this business segment for the comparative periods presented in the table above.

        Corporate and Other.    Net costs and expenses not allocable to our Portfolio Asset Acquisition and Resolution and Special Situations Platform business segments, consist primarily of certain corporate salaries and benefits, accounting fees and legal expenses. These costs and expenses increased to $11.7 million in 2012 compared to $7.8 million in 2011, primarily due to $3.2 million of additional costs incurred in 2012 relating to the Board of Directors' review of potential strategic alternatives to secure funding for the Company. Corporate salaries and benefits also increased by $1.0 million due primarily to additional compensation recognized in 2012 compared to 2011 under the Company's executive management compensation plans.

Summary Investment Activity

        In 2012, FirstCity and its investment partners acquired $215.3 million of U.S. Portfolio Asset investments and $0.4 million of European Portfolio Asset investments with an aggregate face value of approximately $464.9 million—of which FirstCity's investment acquisition share was $37.4 million. In addition to its Portfolio Asset acquisitions in 2012, FirstCity invested $18.0 million in non-Portfolio Asset investments, consisting of $14.8 million in the form of SBA loan originations and advances; $0.7 million of equity investments (U.S. and South American Acquisition Partnerships); $1.0 million in the form of debt investments under its Special Situations Platform; and $1.5 million in the form of other loan investments. In 2011, FirstCity and its investment partners acquired $284.9 million of U.S. Portfolio Asset investments and $2.4 million of European Portfolio Asset investments with an aggregate face value of approximately $558.1 million—of which FirstCity's investment acquisition share was $58.0 million. In addition to its Portfolio Asset acquisitions in 2011, FirstCity invested $36.0 million in non-Portfolio Asset investments, consisting of $27.5 million in the form of SBA loan originations and advances; $1.3 million of equity investments (U.S., European and South American Acquisition Partnerships); $3.3 million in the form of debt investments and a railroad business acquisition under its Special Situations Platform; and $3.9 million in the form of investment security purchases.

        At December 31, 2012, the carrying value of FirstCity's earning assets (primarily Portfolio Assets, equity investments, loans receivable, and entity-level earning assets) approximated $190.2 million—compared to $308.7 million a year ago. The global distribution of FirstCity's earning assets (at carrying value) at December 31, 2012 included $177.6 million in the United States; $6.1 million in Europe; and $6.5 million in Latin America. Since mid-2010, the vast majority of our Portfolio Asset investments have been acquired through minority-owned, unconsolidated U.S. Acquisition Partnerships (instead of majority-owned, consolidated Portfolio Asset investments) under terms of an investment agreement with VIP. As such, total footings of our consolidated earning assets experienced a corresponding decrease in 2012, resulting primarily from a $68.9 million decline in our holdings of consolidated Portfolio Assets during the year.

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        Refer to the headings "Portfolio Asset Acquisitions—Portfolio Asset Acquisition and Resolution Business Segment" and "Lower Middle-Market Company Capital Investments—Special Situations Platform Business Segment" below for additional information related to our investment activities and composition.

Management's Outlook

        Our revenues consist primarily of (1) income and gains from our Portfolio Assets and loan investments (including SBA lending activities); (2) equity income from our Acquisition Partnerships; (3) servicing fee income and incentive fee income from Acquisition Partnerships based on the performance of our servicing activities on the assets held by these unconsolidated partnerships; and (4) income generated by our debt and equity investments (consolidated and unconsolidated) in privately-held lower middle-market companies. Our ability to maintain and grow revenues depends on our ability to secure investment opportunities, obtain financing for transactions, and to consummate investments and deliver attractive risk-adjusted returns. Our ability to execute this strategy depends upon a number of market conditions—including the strength and liquidity of U.S. and global economies and financial markets.

        While we continue to see signs of improvement and stabilization in U.S. and global economic conditions and financial markets, these conditions and markets remain challenging and their recovery has been imbalanced. More recently, U.S. debt ceiling and fiscal policy concerns, together with uncertainty related to sovereign debt conditions in Europe, have increased volatility and uncertainty that could adversely affect the U.S. and global financial markets and economic conditions. The recent economic recession in general, combined with the disruptions in the financial and capital markets in particular, have negatively impacted market liquidity and increased the cost of debt and equity capital.

        Market commentators and analysts have expressed the belief that it will take some time for the U.S. and global economies and financial markets to fully recover, but it is not clear if adverse conditions will again intensify. As a result, the continued challenging economic conditions could still materially and adversely impact (i) our ability to price and fund new distressed asset and lower middle-market capital investment opportunities on attractive terms; (ii) the ability of our borrowers to repay or refinance their debt obligations to us; (iii) the value of the underlying real estate properties and other assets securing our purchased and originated loan investments; and/or (iv) the financial condition, operations and liquidity of the underlying servicing and operating entities in which we have an equity investment. There can be no assurance that the value of our Portfolio Assets, loan investments and other investment assets, or the performance of our equity-method investees and consolidated subsidiaries, will not be negatively impacted by challenging economic conditions which could have a negative impact on our future results.

        Despite substantial losses reported in the financial services sector in recent years, and continued volatility and uncertainty in U.S. and global economies and financial markets, management remains positive on the outlook of the business of acquiring distressed portfolio assets and believes that current market conditions should not hinder FirstCity's ability to expand its business. While disruptions and uncertainty in the markets may adversely affect our existing positions, we believe such conditions generally present significant new investment opportunities for distressed asset acquisition and special situations transactions. Our ability to profit in our industry, however, depends on our ability to acquire sufficient funding for our operations.

        As a specialty finance company, the Company depends on third-party financing to fund (i) acquisitions of distressed asset portfolios in the U.S. and Europe and equity investments in acquisition entities in connection with its Portfolio Asset Acquisition and Resolution business and (ii) capital investments in other companies in connection with its Special Situations Platform business acquisitions. Since 1986, the Company has acquired for its own account or through investment entities

28

formed with co-investors more than $12.2 billion face value amount of portfolio assets, with the Company's equity investment of approximately $1.0 billion, focusing principally on commercial real estate loans and commercial and industrial loan portfolios.

        Following the economic crisis in 2008, management believed that the purchasing environment for distressed loan portfolios was more attractive than it had been at any time in the Company's history due to the conditions listed below. Management believed that the following factors would increase the trend of financial institutions, government agencies and other sellers to package and sell asset portfolios to investors, generally at a discount as a means of disposing of under-performing and non-performing loans or other surplus or non-strategic assets:

•

an increase generally in the amount of loans that were considered under-performing or non-performing following the economic crisis;

•

the fact that the sale by financial institutions of under-performing and non-performing loans would improve their regulatory capital position;

•

the opportunities that might arise if any of the significant corporate real estate loans maturing within a few years were not repaid or refinanced; and

•

the opportunities that might arise in Europe as a result of European banks selling non-performing loans following the debt crisis there.

        Historically, the Company's primary sources of funding for purchasing distressed loan portfolios were loans under credit facilities with third-party lenders, other special purpose short-term borrowings, funds generated from operations, equity distributions from acquisition entities and other subsidiaries and interest and principal payments on subordinated intercompany debt. A substantial majority of the Company's portfolio investments prior to July 2010 were funded through loan facilities provided by Bank of Scotland and BoS(USA), Inc.

        Although Bank of Scotland had provided financing to the Company for several years, following Lloyds Banking Group's acquisition of Bank of Scotland, Bank of Scotland and BoS(USA), Inc. placed the Company's revolving loan facility in a wind-down structure. In June 2010, the facilities with Bank of Scotland and BoS(USA), Inc. were restructured into one facility with a principal amount of $268.6 million ("Reducing Note Facility") under which Bank of Scotland and BoS(USA), Inc. had no further obligations to provide financing to the Company. The Reducing Note Facility permitted a monthly cash leak-through to the Company to cover the overhead of the ongoing business and a cash flow leak-through of 20% of cash flows up to a maximum amount of $20 million after the payment of interest and overhead allowance. The lack of a corporate line of credit substantially restricted the Company's ability to acquire loan portfolios. As a result, the Company's source of funding for acquisitions was primarily limited to its unencumbered cash flow from operations and the cash flow leak-through, and the Company began to seek alternative sources of funding, which ultimately proved to be unachievable as the Company was never able to replace this source of funding.

        Due to a lack of funding, the Company was unable to pursue an aggressive acquisition strategy for its own account and almost all of the Company's new acquisitions were off-balance sheet in the form of minority interests (ranging from 10% to 20%) in acquisition entities controlled by larger firms. The Company was unable to obtain financing to purchase investments for its own account on reasonable terms. As a result, the Company's balance sheet began to shrink as its existing portfolios matured and new acquisitions were off-balance sheet and the value of its servicing platform diminished.

        In addition to various other debt and equity investment opportunities, we continue to seek distressed asset investment opportunities under our investment agreement with VIP (see Note 2 of the Company's 2012 consolidated financial statements for additional information). The Company's involvement in these investments will come in the form of minority ownership (ranging from 5% to

29

25% at FirstCity's determination) of an acquisition entity formed by FirstCity and VIP. FirstCity will also be the servicer for the acquisition entities formed with VIP. FirstCity's increased holdings in minority-owned, unconsolidated acquisition entities under this investment agreement since mid-2010 represent a shift in the Company's portfolio asset acquisition history—which primarily consisted of consolidated portfolio assets prior to such time. As such, in the context of the Company's Portfolio Asset Acquisition and Resolution business segment, management expects to see a gradual shift in the composition of FirstCity's income attributed to distressed asset investments to "Equity income from unconsolidated subsidiaries" (unconsolidated equity-method investments) from "Income from Portfolio Assets" (consolidated portfolio assets). Management also expects to see a gradual increase in service fee income over time related to the performance of our servicing responsibilities related to these unconsolidated acquisition entities. Refer to the heading "Results of Operations" below for additional information related to our Portfolio Asset Acquisition and Resolution operations.

        Our ability to make new investments and fund operations is dependent on (1) anticipated cash flows from unencumbered Portfolio Assets and equity investments; (2) our current holdings of unencumbered cash; (3) residual cash flows from the pledged assets and equity investments after full repayment of our term loan facilities with Bank of Scotland and Bank of America (see Note 9 of the Company's 2012 consolidated financial statements for additional information); (4) cash leak-through provisions included in our term loan facilities with Bank of Scotland and Bank of America; and (5) our investment agreement in place with VIP (see Note 2 of the Company's 2012 consolidated financial statements for additional information). While management believes that these cash flow sources will provide FirstCity with funding and liquidity to support its operations and investment activities, FirstCity continues to actively seek additional sources of liquidity and alternative funding sources. We remain cognizant about the uncertainty and volatility in U.S. financial markets that currently present challenges for businesses in accessing liquidity and capital, and the resulting impact on our liquidity considerations and operations.

Results of Operations

        The following discussion and analysis are based on the segment reporting information presented in Note 18 to the Company's 2012 consolidated financial statements, and should be read in conjunction with the consolidated financial statements (including the notes thereto) included elsewhere in this Form 10-K.

        As a result of significant period-to-period fluctuations in our revenues and earnings, period-to-period comparisons of the results of our operations may not be meaningful. The Company's business and results of operations are impacted by the availability of liquidity to fund its investment activity and operations, and its access to credit and capital markets. The Company's business and results of operations are also impacted by many other factors including, but not limited to, general economic, political and industry conditions; volatility and disruptions in the functioning of financial markets; fluctuations in interest rates and foreign currency exchange rates; fluctuations in the underlying values of real estate and other collateral securing our loan portfolios; the timing and ability to collect and liquidate assets; changes in the performance and creditworthiness of our borrowers and other counterparties; increased competition from other market participants in the industries in which we operate; the availability, pricing and terms of Portfolio Assets, lower middle-market transactions and other investment opportunities in all of the Company's businesses; and changes in government regulations, statutes and tax or fiscal policies. Such factors, individually or combined with other factors, may result in significant fluctuations in our reported operations and in the trading price of our common stock.

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Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

        FirstCity's net earnings to common stockholders totaled $14.3 million in 2012 compared to $24.2 million in 2011. On a per share basis, diluted net earnings to common stockholders were $1.35 in 2012 compared to $2.33 in 2011.

Portfolio Asset Acquisition and Resolution Business Segment

        Through our Portfolio Asset Acquisition and Resolution ("PAA&R") business segment in 2012, FirstCity and its investment partners acquired $215.3 million of U.S. Portfolio Asset investments and $0.4 million of European Portfolio Asset investments with an aggregate face value of approximately $464.9 million, compared to the Company's involvement in 2011 in acquiring $284.9 million of U.S. Portfolio Asset investments and $2.4 million of European Portfolio Asset investments with an aggregate face value of approximately $558.1 million. In 2012, FirstCity's investment acquisition share in the Portfolio Asset acquisitions was $37.4 million—consisting of $4.3 million acquired through consolidated Portfolios and $33.1 million acquired through unconsolidated Portfolios. In 2011, FirstCity's investment acquisition share in the Portfolio Asset acquisitions was $58.0 million—consisting of $14.2 million acquired through consolidated Portfolios and $43.8 million acquired through unconsolidated Portfolios. Generally speaking, income recognized from our investments in consolidated Portfolio Assets is reported as "Income from Portfolio Assets" on our consolidated statements of earnings, whereas income from our investments in unconsolidated subsidiaries that acquire Portfolio Assets is reported as "Equity income from unconsolidated subsidiaries." Furthermore, since we function as the servicer for the vast majority of our U.S. and Latin American unconsolidated Portfolio Assets, we also recognize fee income related to the performance of our servicing responsibilities. This fee income is reported as "Servicing fees" on our consolidated statements of earnings. We also generate service fee income from our U.S. and Latin American consolidated Portfolio Assets that we service; however, this income is eliminated in consolidation and, as such, is not included on our consolidated statements of earnings.

        In 2012, FirstCity invested an additional $17.0 million in non-Portfolio Asset investments in the form of SBA loan originations and advances, direct equity investments, and other loan investments, compared to $32.7 million of additional non-Portfolio Asset investments in the form of SBA loan originations and advances, direct equity investments, and other investments in 2011. Refer to the heading "Portfolio Asset Acquisitions—Portfolio Asset Acquisition and Resolution Business Segment" below for additional information related to our investment activities and composition in our PAA&R segment.

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        Our PAA&R business segment reported $24.1 million of earnings in 2012 compared to $28.0 million of earnings in 2011. The following is a summary of the results of operations for the Company's PAA&R business segment for 2012 and 2011:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Portfolio Asset Acquisition and Resolution:
Revenues:
Servicing fees	$	16,918		$	11,065
Income from Portfolio Assets		26,707			40,622
Gain on sale of SBA loans held for sale, net		1,481			2,261
Gain on sale of investment securities		343			90
Interest income from SBA loans		1,507			1,433
Interest income from loans receivable—affiliates		—			1,562
Interest income from loans receivable—other		35			—
Other income		8,586			6,844
Total revenues		55,577			63,877
Costs and expenses:
Interest and fees on notes payable to banks and other		5,229			13,994
Salaries and benefits		17,604			16,545
Provision for loan and impairment losses, net of recoveries		3,930			4,165
Asset-level expenses		3,077			5,448
Other costs and expenses		8,040			12,329
Total expenses		37,880			52,481
Equity income (loss) from unconsolidated subsidiaries		8,958			(624	)
Gain on business combination		—			278
Gain on debt extinguishment		—			26,543
Gain on sale of subsidiaries		1,451			1,818
Income tax expense		(490	)		(3,807	)
Net income attributable to noncontrolling interests		(3,531	)		(7,654	)
Net earnings	$	24,085		$	27,950

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        Servicing fee revenues.    Servicing fee revenues increased to $16.9 million in 2012 from $11.1 million in 2011. Servicing fees from U.S. Acquisition Partnerships totaled $8.7 million in 2012 compared to $4.9 million in 2011, while servicing fees from Latin American Acquisition Partnerships totaled $5.4 million in 2012 and $5.5 million in 2011. Servicing fees from U.S. Acquisition Partnerships are generally based on a percentage of the collections received from Portfolio Assets held by these unconsolidated partnerships; whereas servicing fees from Latin American Acquisition Partnerships are generally based on the cost of servicing plus a profit margin. The increase in servicing fees from U.S. Acquisition Partnerships was due primarily to the impact of an increase in collections from unconsolidated U.S. partnerships to $277.3 million for 2012 from $155.2 million for 2011. The decline in servicing fees from the Latin American Acquisition Partnerships was attributable to a lower effective profit margin related to those unconsolidated partnerships in 2012 compared to 2011. In addition, FirstCity recognized $2.2 million of additional compensation in the form of incentive fee income in 2012 (compared to $-0- in 2011) resulting from the achievement of an investor return threshold from a U.S. Acquisition Partnership.

        Since mid-2010, a majority of the Company's U.S. Portfolio Asset investments have been acquired through equity-method investments in unconsolidated Acquisition Partnerships under the VIP investment agreement (see Note 2 of the Company's 2012 consolidated financial statements) instead of consolidated Portfolio Assets. As such, the Company expects service fee income from its unconsolidated U.S. Acquisition Partnerships to gradually increase over time. Refer to the heading "Equity income (loss) from unconsolidated subsidiaries" below for information on our unconsolidated U.S. Acquisition Partnership activities.

        Income from Portfolio Assets.    Income from Portfolio Assets, comprised primarily of liquidation income and gains and accretion income from Portfolio Assets, decreased to $26.7 million in 2012 compared to $40.6 million in 2011. The following tables provide a summary of the Company's income from Portfolio Assets by income-recognition method for 2012 and 2011.

	Year Ended December 31, 2012
	(Dollars in thousands)
	Income-Accruing Loans					Non-Accrual Loans
						Purchased Credit- Impaired Loans
												Other
	Purchased Credit- Impaired Loans
				Other		Cash basis			Cost recovery basis			Cash basis		Cost recovery basis		Real Estate			Total
United States	$	2,692	(1)	$	312	$	13,983	(2)	$	5,540	(3)	$	169	$	—	$	2,877		$	25,573
France		—			—		—			—			—		—		—			—
Germany		—			—		631			—			—		—		(14	)		617
Mexico		—			—		—			517			—		—		—			517
Total	$	2,692		$	312	$	14,614		$	6,057		$	169	$	—	$	2,863		$	26,707

(1)

Includes $1.8 million of liquidation income generated from loan sales.

(2)

Includes $8.7 million of liquidation income generated from loan sales.

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(3)

Includes $2.0 million of liquidation income generated from loan sales.

	Year Ended December 31, 2011
	(Dollars in thousands)
	Income-Accruing Loans					Non-Accrual Loans
						Purchased Credit- Impaired Loans
												Other
	Purchased Credit- Impaired Loans
				Other		Cash basis			Cost recovery basis			Cash basis		Cost recovery basis		Real Estate		Total
United States	$	9,810	(1)	$	445	$	7,122	(2)	$	6,632	(3)	$	192	$	—	$	731	$	24,932
France		—			—		7,874			1,986			—		1,760		—		11,620
Germany		—			—		252			129			—		—		13		394
Mexico		—			—		—			3,676			—		—		—		3,676
Total	$	9,810		$	445	$	15,248		$	12,423		$	192	$	1,760	$	744	$	40,622

(1)

Includes $4.3 million of liquidation income generated from loan sales and $4.3 million of accretion income.

(2)

Includes $0.4 million of liquidation income generated from loan sales.

(3)

Includes $2.7 million of liquidation income generated from loan sales.

        Income from Portfolio Assets from our consolidated U.S. Portfolio Assets increased by $0.6 million from year to year; however, income from our income-accruing loans decreased by $7.3 million in 2012 compared to 2011, while income from our non-accrual loans increased by $5.8 million in 2012 compared to 2011, due primarily to a shift in the income recognition method of accounting applied to our existing Portfolio Assets from an interest-accrual income method to a non-accrual income method (cost-recovery or cash basis) over the past year. Our average holdings in income-accruing credit-impaired Portfolio Assets decreased to $3.5 million for 2012 from $23.2 million for 2011. We apply the interest-accrual income method to Portfolio Assets, as applicable, only when management has the ability to reasonably estimate both the timing and amount of collections. Refer to Note 1 of the consolidated financial statements for a summary of our income-recognition accounting policies related to Portfolio Assets. In addition, income from real estate increased by $2.1 million in 2012 compared to 2011. FirstCity's average investment holdings in consolidated U.S. Portfolio Assets for 2012 were $80.9 million, compared to $141.8 million for 2011. The decline in our consolidated U.S. Portfolio Asset holdings in 2012 was due to the majority of our U.S. Portfolio Asset purchases since mid-2010 being made through equity-method investments in unconsolidated U.S. Acquisition Partnerships under the VIP investment agreement. In light of this, the Company expects equity income from U.S. Acquisition Partnerships (and service fee income) to gradually increase over time in comparison to income from consolidated Portfolio Assets. Refer to the heading "Equity income (loss) from unconsolidated subsidiaries" below for information on our unconsolidated U.S. Acquisition Partnership activities.

        Income from Portfolio Assets from our consolidated European Portfolio Assets decreased by $11.4 million from year to year, due primarily to a significant decline in our consolidated European Portfolio Asset holdings since 2011. FirstCity's average investment holdings in consolidated European Portfolio Assets for 2012 were $4.3 million, compared to $9.7 million for 2011. The decline in our consolidated European Portfolio Asset holdings in 2012 was due primarily to the sale of Portfolio Assets held by our German Acquisition Partnerships in February 2011, and the sale of our controlling interests in French Acquisition Partnerships in November 2011 (see Note 3 of the consolidated financial statements).

        Income from Portfolio Assets from our consolidated Portfolio Assets in Mexico decreased by $3.2 million from year to year, due primarily to the sale of two consolidated Mexican subsidiaries in

34

July 2012. Collections from Mexican Portfolio Assets decreased to $0.5 million in 2012 compared to $4.5 million in 2011. FirstCity's average investment holdings in consolidated Latin America Portfolio Assets for 2012 were $3.3 million, compared to $9.0 million for 2011. The decline in our consolidated Latin American Portfolio Asset holdings in 2012 was due primarily to a $3.1 million write-down on our net investment in a majority-owned Mexican portfolio entity in the fourth quarter of 2011, as well as the sale of two consolidated Mexican subsidiaries mentioned above (refer to Note 4 of the consolidated financial statements for additional information).

        Gain on sale of SBA loans held for sale, net.    The Company recorded $1.5 million of gains on the sales of SBA loans in 2012 with an $18.5 million net basis in the loans sold, compared to $2.3 million of gains recorded in 2011 with a $26.9 million net basis in the loans sold. Gains on SBA loan sales reflect the Company's participation in the SBA guaranteed loan program. Under the SBA 7(a) program, the SBA guarantees up to 90 percent of the principal on a qualifying loan. The Company generally sells the guaranteed portions of originated loans into the secondary market and retains the unguaranteed portion for investment.

        The Company's recognition of SBA loan sales was higher in 2011 compared to 2012 as a result of the Company's required adoption of certain accounting guidance in 2010 (related to transfers of financial assets), combined with a change in the SBA loan sales agreements in 2011 that impacted the Company's recognition of SBA loan sales in light of the aforementioned adopted accounting guidance (further explained below).

        Effective January 1, 2010, the Company adopted accounting guidance that required SBA loan transactions subject to the SBA's premium recourse provision to be accounted for initially as secured borrowings rather than asset sales. After the premium recourse provisions had elapsed, the transaction was recorded as a sale and the resulting net gain on sale was recognized—which was based on the difference between the proceeds received and the allocated carrying value of the loan sold. However, effective January 31, 2011, the SBA removed the recourse provisions contained in its loan sales agreements for guaranteed portions of SBA loans. As a result, SBA loan sales transacted by the Company under these revised agreements were accounted for initially as a sale, with the corresponding gain recognized at the time of sale. The gains recognized on these loan sales were based on the difference between the sales proceeds received and the allocated carrying value of the loans sold (which included deferred premiums and net origination fees and costs).

        Gain on sale of investment securities.    In 2012, the Company recognized a $0.3 million gain related to the sale of an investment security (based on $1.5 million of sales proceeds), compared to a $0.1 million gain recognized in 2011 related to an investment security sale (based on $2.0 million of sales proceeds).

        Interest income from SBA loans.    Interest income from SBA loans increased to $1.5 million in 2012 compared to $1.4 million in 2011. FirstCity's average investment level in SBA loans held-for-investment approximated $19.7 million for 2012 compared to $17.1 million for 2011.

        Interest income from loans receivable—affiliates.    Interest income from loans receivable—affiliates was $1.6 million for 2011. FirstCity's average investment in loans receivable—affiliates in its PAA&R segment approximated $7.4 million for 2011. The Company did not recognize interest income from loans receivable—affiliates in 2012. The Company's only remaining affiliated loan was sold in the third quarter of 2012 (see Note 3 of the consolidated financial statements).

        Interest income from loans receivable—other.    Interest income from loans receivable—other was $35,000 for 2012. The Company did not recognize interest income from loans receivable—other in 2011 because management accounted for these loans under the non-accrual method of accounting during the entire period. FirstCity's average investment in loans receivable—other in its PAA&R segment was $2.9 million in 2012 compared to $3.5 million in 2011.

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        Other income.    Other income for 2012 increased by $1.7 million in comparison to 2011 primarily due to the recognition of an additional $1.2 million of previously deferred income in 2012 relating to sale of our controlling interests in French Acquisition Partnerships in November 2011. The Company also recognized $0.5 million in previously deferred income associated with a Latin American subsidiary that was sold in July 2012.

        Costs and expenses.    Operating costs and expenses approximated $37.9 million in 2012 compared to $52.5 million in 2011. The following is a discussion of the major components of the Company's operating costs and expenses in its PAA&R business segment:

        Interest expense and fees on notes payable and other debt obligations decreased to $5.2 million in 2012 from $14.0 million in 2011 due to 2012 being the Company's first full year under the terms of the Bank of Scotland loan facilities that were refinanced in December 2011 (see Note 9 of the consolidated financial statements). The Company recorded $2.4 million of interest, loan fee and discount amortization expense on its Bank of Scotland loan facilities in 2012 (based on average debt holdings of $67.4 million) compared to $10.7 million of interest and fee expense in 2011 (based on average debt holdings of $191.7 million). Excluding the Company's debt obligations with Bank of Scotland, the average nonaffiliated debt outstanding in its PAA&R segment was $62.8 million in 2012 (with a 4.5% average cost of funds) compared to $41.1 million in 2011 (with a 4.5% average cost of funds).

        Salaries and benefits expense in our PAA&R segment increased to $17.6 million in 2012 from $16.5 million in 2011, due primarily to additional compensation recognized in 2012 compared to 2011 under the Company's executive management compensation plans. The total number of personnel within the PAA&R segment was 201 and 207 at December 31, 2012 and 2011, respectively.

        Net provisions for loan and impairment losses on our consolidated Portfolio Assets and loans receivable in our PAA&R segment totaled $3.9 million in 2012 compared to $4.2 million in 2011. The $3.9 million of net impairment provisions in 2012 were attributed primarily to declines in values of loan collateral and real estate properties related to our U.S. Portfolio Asset investments. The net impairment provisions were identified in connection with management's quarterly evaluation of the collectibility of the Company's Portfolio Assets and loans receivable. The process for evaluating and measuring impairment is critical to our financial results, as it requires subjective and complex judgments due to the need to make estimates about the impact of matters that are uncertain. This process also requires estimates that are susceptible to significant revision as more information becomes available. It remains unclear what impact the continuance of challenging economic conditions and disruptions in the financial, capital and real estate markets will ultimately have on our financial results. These conditions could adversely impact our business if commercial real estate properties experience a significant and prolonged decline in value or if borrowers cannot refinance their loans and/or continue to make payments (which in turn could lead to rising loan defaults and foreclosures on loan collateral). Therefore, we cannot provide assurance that, in any particular future period, we will not incur additional impairment provisions.

        Asset-level expenses, which generally represent costs incurred by FirstCity to manage consolidated Portfolio Assets, support foreclosed properties, and protect its security interests in loan collateral, decreased to $3.1 million in 2012 from $5.4 million in 2011. The decline in asset-level expenses was attributed primarily to a decline in the Company's average holdings in consolidated Portfolio Assets in its PAA&R segment to $88.5 million for 2012 from $160.5 million for 2011 (a majority of FirstCity's Portfolio Asset investments have been acquired through unconsolidated Acquisition Partnerships since mid-2010).

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        Other costs and expenses in the Company's PAA&R segment decreased by $4.3 million in 2012 compared to 2011, due primarily to the recognition of a $3.1 million write-down on our net investment in a majority-owned Mexican Acquisition Partnership in Q4 2011. This write-down to our consolidated subsidiary resulted from a lower-of-cost-or-market adjustment upon the subsidiary's classification as "held for sale" in Q4 2011, which was subsequently sold in the second quarter of 2012 (see Note 4 of the Company's 2012 consolidated financial statements). Approximately $1.3 million of this write-down was attributed to the noncontrolling investor's share (included in "Net income attributable to noncontrolling interests"); as such, the net impact of this write-down to FirstCity approximated $1.8 million. Further contributing to the decrease in other costs and expenses was a $1.2 million decrease in costs incurred in Europe, primarily as a result of the restructure and deconsolidation of UBN, SAS in the second quarter of 2012 and a $0.7 million decrease in foreign currency exchange losses attributed to our consolidated Latin America operations. These decreases in costs were partially offset by a $0.8 million increase in asset valuation costs in 2012 compared to 2011.

        Equity income (loss) from unconsolidated subsidiaries.    Equity income from unconsolidated subsidiaries (Acquisition Partnership and servicing entities) from our PAA&R segment increased by $9.6 million in 2012 compared to 2011. Equity income from our unconsolidated Acquisition Partnerships totaled $4.8 million in 2012 compared to $6.5 million in equity losses in 2011, whereas equity income from our unconsolidated servicing entities decreased to $4.2 million in 2012 compared to $5.8 million in 2011. Our share of equity income and losses from these equity-method investees will vary period-to-period depending on the profitability of the underlying entities and the composition of FirstCity's ownership mix in the respective entities that report earnings or losses in a period. The following is a discussion of equity income (loss) from FirstCity's Acquisition Partnerships (by geographic region) and servicing entities. Refer to Note 7 of the Company's 2012 consolidated financial statements for a summary of revenues, earnings and equity income (loss) of FirstCity's equity-method investments by region.

•

United States—Total combined revenues reported by our U.S. Acquisition Partnerships (FirstCity share 10%-50%) increased to $75.6 million in 2012 compared to $39.5 million in 2011. In addition, total combined net earnings reported by our U.S. partnerships increased to $39.4 million in 2012 compared to $19.4 million in 2011. The increase in total revenues and net earnings in 2012 compared to 2011 was attributable primarily to an increase in Portfolio Asset collections to $277.3 million in 2012 from $155.2 million in 2011, off-set partially by increases of $7.1 million in asset-level expenses, $6.1 million in service fee expense, and $2.0 million in net impairment provisions in 2012 compared to 2011. The collective activity described above translated to an increase in FirstCity's share of U.S. partnership net earnings to $5.6 million in 2012 compared to $3.7 million in 2011.

FirstCity's average investment in U.S. Acquisition Partnerships increased to $54.9 million for 2012 from $47.4 million for 2011, due primarily to increased investment activity in newly-formed U.S. Acquisition Partnerships under FirstCity's investment agreement with VIP. In light of FirstCity's increased holdings in U.S. Portfolio Assets acquired through equity-method investments in unconsolidated Acquisition Partnerships instead of consolidated Portfolio Assets over the past year, the Company expects equity income from U.S. Acquisition Partnerships (and service fee income) to gradually increase over time in comparison to income from consolidated Portfolio Assets.

•

Latin America—Total combined revenues reported by our Latin American Acquisition Partnerships (FirstCity's share 8%-50%) decreased to $15.1 million in 2012 compared to $18.9 million in 2011. However, total combined net losses reported by our Latin American partnerships decreased to $0.9 million in 2012 compared to $22.2 million in 2011. The decrease in net losses reported by these partnerships in 2012 compared to 2011 was attributable primarily to $20.7 million of additional foreign currency exchange gains recorded in 2012 compared to

37

2011—including $17.5 million of additional foreign currency exchange gains recorded in the fourth quarter of 2012 ("Q4 2012"), compared to Q4 2011. The significant increase in foreign currency exchange gains recorded by these partnerships in Q4 2012 compared to Q4 2011 stemmed the translation impact to the U.S. dollar-denominated debt held by certain Latin American partnerships (due to the higher appreciation in value of the Mexican peso relative to the U.S. dollar in Q4 2012 compared to Q4 2011. The collective activity described above translated to a decrease in FirstCity's share of Latin American partnership net losses to $0.8 million in 2012 from $2.8 million in 2011.

In Q4 2011, the Company recognized a $7.4 million impairment charge on certain Latin American (Mexico) Acquisition Partnerships to write-down the investments to fair value, primarily due to the fair value being significantly lower than the cost basis of these investments and management's belief that the fair value of these investments will not recover (as evidenced by low transaction volumes in the distressed asset market in Mexico). This impairment charge was included in equity income (loss) from unconsolidated subsidiaries in our consolidated statements of earnings. Based on this investor-level impairment charge, combined with FirstCity's share of Latin American partnership net losses described above, FirstCity recognized a combined equity loss of $10.2 million attributed to its Latin American Acquisition Partnerships in 2011.

The Company's equity losses from its Latin America partnerships in 2012 included $0.6 million of foreign currency transaction gains, whereas its equity losses from these partnerships in 2011 included $0.9 million of foreign currency transaction losses. Our financial position and results of operations may fluctuate significantly due to the impact of currency exchange rate fluctuations on our Latin American Acquisition Partnerships. Due to the constantly changing currency exposures impacting these partnerships and the volatility of currency exchange rates, we cannot provide assurance that, in any particular period, we will not incur foreign currency transaction losses.

FirstCity's average investment in Latin American Acquisition Partnerships was $4.4 million for 2012 compared to $13.5 million for 2011.

•

Europe—The Company did not carry any equity-method investments in European Acquisition Partnerships at December 31, 2012 or 2011, attributable primarily to (1) the Company's step-acquisition transaction and resulting consolidation of a German partnership entity in the second quarter of 2011 (see Note 3 of the Company's 2012 consolidated financial statements); and (2) the Company's sale of its minority equity interest in a French partnership entity in the first quarter of 2011 (see Note 3 of the Company's 2012 consolidated financial statements). As a result, during the respective periods that we carried equity-method investments in European Acquisition Partnerships, total combined revenues reported by these partnerships were zero in 2012 and $0.3 million in 2011, and these partnerships reported no income in 2012 and nominal income in 2011.

In February 2011, the Company sold a substantial majority of its interests in the Portfolio Assets held by eight consolidated German partnership entities (along with its wholly-owned equity interest in another German partnership entity) to a European securitization entity (formed by an affiliate of Värde). FirstCity has a 13% beneficial interest in this securitization entity, and accounts for this investment as an available-for-sale investment security.

•

Servicing Entities—Total combined revenues (mainly service fee income and investment income) reported by our foreign unconsolidated servicing entities (FirstCity's share 25%-50%) decreased to $53.7 million in 2012 from $64.6 million in 2011, and total combined net earnings reported by these entities decreased to $8.9 million in 2012 from $11.9 million in 2011. The decrease in total net earnings reported by the underlying servicing entities was attributed primarily to a restructure and ultimate sale of the Company's investment in a French servicing entity in 2012

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(see Note 3 of the Company's 2012 consolidated financial statements). The collective activity described above translated to a decrease in FirstCity's share of net earnings (i.e. equity income) from its foreign servicing entities to $4.2 million in earnings for 2012 from $5.8 million in earnings for 2011.

        Gain on business combinations.    In 2011, the Company recognized a $0.3 million business combination gain attributable to a step-acquisition transaction in which the Company acquired a controlling interest in a European Acquisition Partnership from a foreign equity-method investee. The Company owned a noncontrolling equity interest in this entity prior to the transaction. Under business combination accounting guidance, the Company's previously-held noncontrolling interest in the entity was re-measured to fair value on the acquisition date—which resulted in the Company's recognition of the gain. The Company's PAA&R segment did not consummate any business combination transactions in 2012. Refer to Note 3 of the Company's 2012 consolidated financial statements for additional information on these transactions.

        Gain on debt extinguishment.    In December 2011, FirstCity refinanced its senior credit facility with Bank of Scotland, which had an unpaid principal balance of approximately $173.2 million at closing. As a result, FirstCity's primary obligation under this loan facility, as amended ("BoS Facility A"), was reduced by the assumption of $25.0 million of debt ("BoS Facility B") by a newly-formed, wholly-owned subsidiary of FirstCity, combined with a $53.4 million reduction from proceeds obtained by FirstCity from its new $50.0 million credit facility with Bank of America and other cash payments at closing. FirstCity's remaining $94.8 million debt obligation under BoS Facility A (post-closing) carries a 0.25% annual interest rate through maturity (December 2014), and allows for repayment over time as cash flows from the underlying pledged assets are realized. FirstCity's $25.0 million debt obligation under BoS Facility B does not bear interest, and allows for repayment over time as cash flows from the underlying pledged assets, if any, are realized (FirstCity has not received any significant cash flows from these underlying assets and has not allocated any value to these assets for the past three years). As a result of this debt refinancing arrangements, FirstCity was able to significantly reduce its aggregate future cash outlay to Bank of Scotland and Bank of America under these new loan facilities in comparison to the repayment terms under its former senior credit facility with Bank of Scotland. FirstCity accounted for this debt refinancing transaction with Bank of Scotland as a "debt extinguishment" under FASB's debt modifications and extinguishment guidance, and recognized a $26.5 million debt extinguishment gain in Q4 2011, as FirstCity effectively reduced the carrying amount of debt on its balance sheet. Refer to Note 2 of the Company's 2012 consolidated financial statements for additional information on this transaction.

        Gain on sale of subsidiaries.    In 2012, the Company sold its interests in the following foreign investments—1) two Mexican subsidiaries for $5.5 million, resulting in a gain of $0.7 million on this transaction; 2) a French Acquisition Partnership for $26.3 million, resulting in a gain of $0.4 million; and 3) a Brazilian Acquisition Partnership for $0.4 million, resulting in a gain of $0.3 million.

        In 2011, the Company sold its equity interests in sixteen French Acquisition Partnerships to a foreign equity-method investee of FirstCity (i.e. unconsolidated equity investment) for $3.4 million. Prior to this transaction, the Company held a controlling interest in these Acquisition Partnerships through its combined direct and indirect majority ownership. FirstCity realized a $2.8 million gain from the sale of these Acquisition Partnerships, of which $1.0 million was deferred (portion attributable to FirstCity's ownership interests in the foreign equity-method investee) and recognized into other income through 2012. Refer to Note 3 of the Company's 2012 consolidated financial statements for additional information on these transactions.

        Income tax expense.    Our PAA&R segment reported an income tax provision of $0.5 million in 2012 (comprised primarily of foreign income tax provisions) compared to an income tax provision of $3.8 million in 2011 (comprised primarily of foreign income tax provisions). This decline is primarily

39

attributed to the restructure and sale of the Company's investment in a French consolidated subsidiary in 2012 (Refer to Note 3 of the Company's 2012 consolidated financial statements for additional information on this transaction). Refer to Note 14 of Company's 2012 consolidated financial statements for additional information on income taxes.

        Net income attributable to noncontrolling interests.    Net income attributable to noncontrolling interests represents the portions of net earnings that are attributable to the noncontrolling equity interests held by co-investors in our consolidated Acquisition Partnerships (FirstCity's ownership in these consolidated partnerships ranges from 50%-90%). The amount of net income attributable to noncontrolling interests in these consolidated Acquisition Partnerships decreased to $3.5 million for 2012 from $7.7 million for 2011. This decrease is primarily related to a $6.8 million decline in net income attributable to noncontrolling interests in our French Acquisition Partnerships, as we sold our controlling interests in most of these entities in November 2011, and we deconsolidated another French Acquisition Partnership in June 2012 as a result of an ownership restructure within that entity (see Note 3 of the consolidated financial statements). This decrease was offset partially by the attribution of loss in Q4 2011 approximating $1.3 million to a noncontrolling investor for its share of a write-down on our majority-owned Mexican Acquisition Partnership (refer to the heading "Costs and expenses" above for additional information). This decrease was also offset partially by an increase in the net earnings of consolidated U.S. Acquisition Partnerships in 2012 compared to 2011 (i.e. an increase in the amount of net earnings reported by these consolidated entities translates to an increase in the amount of net earnings apportioned to the noncontrolling investors).

Special Situations Platform Business Segment

        Our Special Situations Platform business segment ("Special Situations" or "FirstCity Denver") reported net earnings of $1.9 million in 2012 compared to $4.1 million in 2011. In 2012, FirstCity Denver invested $1.0 million in the form of debt investments, compared to $3.3 million in the form of debt investments and a railroad business acquisition in 2011. Since its inception in April 2007, FirstCity Denver has been involved in U.S. lower middle-market transactions with total investment values of $89.2 million, and has provided $61.4 million of investment capital and other financings in connection with these investments.

40

        The following is summary of the results of operations (continuing and discontinued operations) for the Company's Special Situations Platform business segment for 2012 and 2011:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Special Situations Platform:
Revenues:
Interest income from loans receivable	$	1,174		$	1,986
Revenue from railroad operations		12,481			6,989
Other income		462			1,215
Total revenues		14,117			10,190
Costs and expenses—railroad operations:
Interest and fees on notes payable		236			181
Salaries and benefits		2,596			1,710
Other		6,706			2,692
Total railroad costs and expenses		9,538			4,583
Costs and expenses—other:
Interest and fees on notes payable		200			540
Salaries and benefits		745			813
Other costs and expenses		7,443			1,860
Total other expenses		8,388			3,213
Total expenses		17,926			7,796
Equity income from unconsolidated subsidiaries		6,286			2,855
Gain on business combination		935			155
Income tax expense		(326	)		(166	)
Net income attributable to noncontrolling interests		(1,179	)		(1,170	)
Net earnings	$	1,907		$	4,068

        Interest income from loans receivable.    Interest income from loans receivable decreased to $1.2 million in 2012 from $2.0 million in 2011. FirstCity Denver's average investment in loans receivable was $12.7 million for 2012—including $5.5 million accounted for under the non-accrual method of accounting. For 2011, FirstCity Denver's average investment in loans receivable was $16.3 million—including $6.0 million accounted for under the non-accrual method of accounting.

        Revenue, costs and expenses from railroad operations.    Revenue, costs and expenses from railroad operations represent the results of operations recorded by FirstCity Denver's majority-owned railroad companies (engaged primarily in interchanging rail cars with connecting carriers, providing rail freight services for on-line customers, operating a transload facility, and operating a rail-served debris transfer station). Revenue from railroad operations increased to $12.5 million in 2012 from $7.0 million in 2011. Total costs and expenses attributable to the railroad operations approximated $9.5 million in 2012 compared to $4.6 million in 2011. The additional revenue, costs and expenses recorded by our majority-owned railroad operations was due primarily to an increase in rail car movement services provided to new and existing customers in 2012 compared to 2011 from its existing operations, combined with activities from its railroad and transload facility operations that FirstCity Denver acquired in August 2011 and a rail-served debris transfer station acquired in June 2012, as well as activities from a railroad

41

signal construction company that FirstCity Denver acquired in July 2012 (refer to Note 3 of Company's 2012 consolidated financial statements).

        Other income.    Other income, which relates primarily to income generated by FirstCity Denver's consolidated commercial real estate property and other ancillary activities, decreased by $0.8 million in 2012 compared to 2011. In March 2012, FirstCity Denver removed the commercial real estate property from its balance sheet after the property was acquired by the creditor holding the mortgage secured by this property (refer to Note 5 of the consolidated financial statements).

        Costs and expenses—other.    Other costs and expenses increased by $5.2 million in 2012 compared to 2011 primarily due to $6.1 million increase in promote fees paid.

        Equity income from unconsolidated subsidiaries.    Equity income from unconsolidated subsidiaries increased to $6.3 million in 2012 from $2.9 million in 2011. This increase was due primarily to a $2.4 million increase in equity income recorded by FirstCity Denver in 2012 compared to 2011 from its equity-method investment in a manufacturing concern involved in the prefabricated building industry. In December 2012, this manufacturing entity sold substantially all of its net assets for a gain of $8.0 million. As a result of this transaction, we do not expect significant future operations from this investment.

        Gain on business combinations.    In 2012, FirstCity Denver acquired certain assets from a company that operated a rail-served debris transfer station, as partial payment of the company's debt obligation to FirstCity Denver. The acquisition of the operating assets by FirstCity Denver was accounted for as a business combination, and accordingly, all of the assets acquired and liabilities assumed were measured at fair value on the acquisition date and included in the Company's consolidated balance sheet. The estimated fair value of the net assets acquired exceeded the $2.5 million purchase price by approximately $0.9 million, which FirstCity Denver recognized as "Gain on business combination" in its consolidated statement of earnings in 2012.

        In 2011, the Company recognized a $0.2 million business combination gain attributable to a transaction in which the Company acquired certain net assets from a company that provided short-line rail services and operated a transload facility. The transaction was accounted for as a business combination, and accordingly, all of the assets acquired and liabilities assumed were measured at fair value on the acquisition date—which resulted in the Company's recognition of the gain. Refer to Note 3 of the consolidated financial statements for additional information.

        Net income attributable to noncontrolling interests.    Net income attributable to noncontrolling interests represents the portions of net earnings related to FirstCity Denver (a FirstCity 80%-owned subsidiary) and its consolidated, less-than-wholly-owned subsidiaries (FirstCity Denver's ownership in these consolidated entities ranges from 70%-90%) that are attributable to the noncontrolling equity interests held by co-investors. The amount of net income attributable to noncontrolling interests under our Special Situations platform remained constant in 2012 compared to 2011.

Corporate and Other

        Net costs and expenses not allocable to our Portfolio Asset Acquisition and Resolution and Special Situations Platform business segments consist primarily of certain corporate salaries and benefits, accounting fees and legal expenses. These costs and expenses increased to $11.7 million in 2012 compared to $7.8 million in 2011, primarily due to $3.2 million of additional costs incurred in 2012 relating to the Board of Directors' review of potential strategic alternatives to secure funding for the Company. Corporate salaries and benefits also increased by $1.0 million due primarily to additional compensation recognized in 2012 compared to 2011 under the Company's executive management compensation plans.

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Portfolio Asset Acquisitions—Portfolio Asset Acquisition and Resolution Business Segment

        Revenues with respect to the Company's PAA&R business segment consist primarily of (1) income and gains from our Portfolio Assets and loan investments (including SBA lending activities); (2) equity income from our Acquisition Partnerships; and (3) servicing fee income and incentive fee income from Acquisition Partnerships based on the performance of our servicing activities on the assets held by these unconsolidated partnerships. Generally speaking, income recognized from our investments in consolidated Portfolio Assets is reported as "Income from Portfolio Assets" on our consolidated statements of earnings, whereas income from our investments in unconsolidated subsidiaries that acquire Portfolio Assets is reported as "Equity income from unconsolidated subsidiaries." Furthermore, since we operate as the servicer for the vast majority of our U.S. and Latin American unconsolidated Portfolio Assets, we also recognize fee income related to the performance of our servicing responsibilities. This fee income is reported as "Servicing fees" on our consolidated statements of earnings. We also generate service fee income from our U.S. and Latin American consolidated Portfolio Assets that we service; however, this income is eliminated in consolidation and, as such, is not included on our consolidated statements of earnings.

        The following table includes information related to Portfolio Assets acquired by the Company in 2012 and 2011.

	Year Ended December 31, 2012
	Wholly-Owned Consolidated		Majority-Owned Consolidated		Unconsolidated		Total
	(Dollars in thousands)
Face Value	$	11,524	$	—	$	453,354	$	464,878
Total purchase price	$	4,267	$	—	$	211,413	$	215,680
Total equity invested by all investors	$	4,299	$	—	$	213,359	$	217,658
Total equity invested by FirstCity	$	4,299	$	—	$	33,082	$	37,381
Total number of Portfolio Assets		155		—		682		837

	Year Ended December 31, 2011
	Wholly-Owned Consolidated		Majority-Owned Consolidated		Unconsolidated		Total
	(Dollars in thousands)
Face Value	$	18,170	$	15,437	$	524,522	$	558,129
Total purchase price	$	4,285	$	10,960	$	272,078	$	287,323
Total equity invested by all investors	$	4,305	$	11,031	$	274,079	$	289,415
Total equity invested by FirstCity	$	4,305	$	9,928	$	43,806	$	58,039
Total number of Portfolio Assets		65		19		768		852

        The table below provides a summary of our Portfolio Assets as of December 31, 2012 and 2011, respectively. Our Purchased Credit-Impaired Loans are categorized based on the common risk

43

characteristics that management generally uses for pooling purposes (when management elects to pool groups of purchased loans).

	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	28,487		$	73,154
Business assets		4,047			10,742
Other		3,087			3,754
Latin America—commercial real estate		1,034			50
Europe—commercial real estate		3,449			4,267
Other		5,194			5,904
Outstanding balance		45,298			97,871
Allowance for loan losses		(394	)		(781	)
Total Loan Portfolios, net		44,904			97,090
Real estate held for sale, net		10,171			26,856
Total Portfolio Assets, net	$	55,075		$	123,946

        The following tables provide a summary of the changes in the allowance for loan losses related to our loan Portfolio Assets for the years ended December 31, 2012 and 2011:

	Purchased Credit-Impaired Loans															Other
	Domestic									Latin America				Europe
(dollars in thousands)	Commercial Real Estate			Business Assets			Other			Commercial Real Estate		Residential Real Estate		Commercial Real Estate		UBN		Other			Total
Beginning balance,
January 1, 2012	$	553		$	185		$	38		$	—	$	—	$	—	$	—	$	5		$	781
Provisions		1,996			329			15			100		—		—		—		130			2,570
Recoveries		(21	)		(87	)		—			—		—		—		—		—			(108	)
Charge offs		(2,528	)		(401	)		(53	)		—		—		—		—		(94	)		(3,076	)
Transfer from "held for sale" classification (see Note 4)		—			—			—			210		—		—		—		—			210
Translation adjustments		—			—			—			17		—		—		—		—			17
Ending balance,
December 31, 2012	$	—		$	26		$	—		$	327	$	—	$	—	$	—	$	41		$	394

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	Purchased Credit-Impaired Loans																		Other
	Domestic									Latin America						Europe
(dollars in thousands)	Commercial Real Estate			Business Assets			Other			Commercial Real Estate			Residential Real Estate			Commercial Real Estate			UBN			Other			Total
Beginning balance,
January 1, 2011	$	354		$	252		$	90		$	260		$	—		$	866		$	43,291		$	49		$	45,162
Provisions		1,702			519			24			103			64			—			—			199			2,611
Recoveries		(164	)		(13	)		(7	)		—			—			—			(719	)		(28	)		(931	)
Charge offs		(1,339	)		(573	)		(69	)		—			—			(856	)		(701	)		(215	)		(3,753	)
Removal upon sale of loans		—			—			—			—			—			—			(45,002	)		—			(45,002	)
Transfer to "held for sale" classification (see Note 4)		—			—			—			(317	)		(62	)					—			—			(379	)
Translation adjustments		—			—			—			(46	)		(2	)		(10	)		3,131			—			3,073
Ending balance,
December 31, 2011	$	553		$	185		$	38		$	—		$	—		$	—		$	—		$	5		$	781

        Due to uncertainties related primarily to estimating the timing and/or amount of collections on Purchased Credit-Impaired Loans as a result of the current economic environment, the Company accounts for certain of these loans and loan pools on a non-accrual income-recognition method of accounting (cost-recovery or cash basis). Under U.S. GAAP, the interest method (i.e. accrual method) of accounting is not appropriate for Purchased Credit-Impaired Loans if management does not have the ability to develop a reasonable expectation of both the timing and amount of future cash flows to be collected. Refer to Note 1 of the Company's 2012 consolidated financial statements for additional information and accounting policies related to our Purchased Credit-Impaired Loans. The following tables provide a summary of the Company's loan Portfolio Assets, including Purchased Credit-Impaired Loans, by income-recognition method as of December 31, 2012 and 2011 (dollars in thousands):

	December 31, 2012
	Income-Accruing Loans				Non-Accrual Loans
					Purchased Credit- Impaired Loans
									Other
	Purchased Credit- Impaired Loans
			Other		Cash basis		Cost recovery basis		Cash basis		Total
United States	$	—	$	4,914	$	14,685	$	20,910	$	239	$	40,748
Germany		—		—		2,927		522		—		3,449
Mexico(1)		—		—		—		707		—		707
Total	$	—	$	4,914	$	17,612	$	22,139	$	239	$	44,904

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	December 31, 2011
	Income-Accruing Loans				Non-Accrual Loans
					Purchased Credit- Impaired Loans
									Other
	Purchased Credit- Impaired Loans
			Other		Cash basis		Cost recovery basis		Cash basis		Total
United States	$	9,429	$	4,749	$	50,133	$	27,313	$	1,149	$	92,773
Germany		—		—		3,700		567		—		4,267
Mexico(1)		—		—		—		4,851		—		4,851
Total	$	9,429	$	4,749	$	53,833	$	32,731	$	1,149	$	101,891

(1)

Classified and reported as "Assets held for sale" on FirstCity's consolidated balance sheets. In July 2012, the Company sold certain Mexican subsidiaries with holdings in these held-for-sale loan Portfolio Assets. See Note 4 of the consolidated financial statements for additional information.

Lower Middle-Market Company Capital Investments—Special Situations Platform Business Segment

        Revenues with respect to the Company's Special Situations business segment consist primarily of (i) interest and fee income from loan investments; (ii) revenues from majority-owned operating entities; and (iii) equity income from unconsolidated investments accounted for under the equity method of accounting.

        Investments by FirstCity Denver since its inception in April 2007 are summarized below:

			FirstCity Denver's Investment
	Total Investment
(Dollars in thousands)			Debt		Equity		Total
Total 2012	$	1,000	$	1,000	$	—	$	1,000
Total 2011		3,301		1,200		2,101		3,301
Total 2010		13,739		8,825		4,395		13,220
Total 2009		20,058		12,023		392		12,415
Total 2008		28,750		16,650		3,256		19,906
Total 2007		22,314		5,630		5,900		11,530

Liquidity and Capital Resources

Overview

        The Company requires liquidity to fund its operations, Portfolio Asset acquisitions, investments in and advances to Acquisition Partnerships, capital investments in privately-held lower middle-market companies, other debt and equity investments, repayments of bank borrowings and other debt, and working capital to support our growth. Historically, our primary sources of liquidity have been funds generated from operations (primarily loan and real estate collections and service fees), equity distributions from the Acquisition Partnerships and other subsidiaries, interest and principal payments on subordinated intercompany debt, dividends from the Company's subsidiaries, borrowings from credit facilities with external lenders, and other special-purpose short-term borrowings. The majority of the Company's assets remain pledged to secure bank debt, making it more difficult to obtain third-party financing. As of December 31, 2012, the Company had $39.9 million of cash on its consolidated balance sheet, but $24.1 million of this cash could only be used to settle the liabilities of certain consolidated variable interest entities (see Note 19 of the Company's 2012 consolidated financial statements for additional information) and was not available for our general operations.

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        Our ability to fund operations and make new investments is dependent on (1) anticipated cash flows from our unencumbered Portfolio Assets and equity investments; (2) our current holdings of unencumbered cash; (3) residual cash flows from the pledged assets and equity investments after full repayment of our term loan facilities with Bank of Scotland and Bank of America (as discussed below); (4) cash leak-through provisions included in our term loan facilities with Bank of Scotland and Bank of America (as discussed below); and (5) our investment agreement with VIP (as discussed below). Many factors, including general economic conditions, are essential to our ability to generate cash flows. Fluctuations in our collections, investment income, credit availability, and adverse changes in other factors could have a negative impact on our ability to generate sufficient cash flows to support our business.

        Historically, the Company's primary sources of funding for purchasing distressed loan portfolios were loans under credit facilities with third-party lenders, other special purpose short-term borrowings, funds generated from operations, equity distributions from acquisition entities and other subsidiaries and interest and principal payments on subordinated intercompany debt. A substantial majority of the Company's portfolio investments prior to July 2010 were funded through loan facilities provided by Bank of Scotland and BoS(USA), Inc.

        Although Bank of Scotland had provided financing to the Company for several years, following Lloyds Banking Group's acquisition of Bank of Scotland, Bank of Scotland and BoS(USA), Inc. placed the Company's revolving loan facility in a wind-down structure. In June 2010, the facilities with Bank of Scotland and BoS(USA), Inc. were restructured into one facility with a principal amount of $268.6 million ("Reducing Note Facility") under which Bank of Scotland and BoS(USA), Inc. had no further obligations to provide financing to the Company. The Reducing Note Facility permitted a monthly cash leak-through to the Company to cover the overhead of the ongoing business and a cash flow leak-through of 20% of cash flows up to a maximum amount of $20 million after the payment of interest and overhead allowance. The lack of a corporate line of credit substantially restricted the Company's ability to acquire loan portfolios. As a result, the Company's source of funding for acquisitions was primarily limited to its unencumbered cash flow from operations and the cash flow leak-through, and the Company began to seek alternative sources of funding, which ultimately proved to be unachievable as the Company was never able to replace this source of funding.

        Due to a lack of funding, the Company was unable to pursue an aggressive acquisition strategy for its own account and almost all of the Company's new acquisitions were off-balance sheet in the form of minority interests (ranging from 10% to 20%) in acquisition entities controlled by larger firms. The Company was unable to obtain financing to purchase investments for its own account on reasonable terms. As a result, the Company's balance sheet began to shrink as its existing portfolios matured and new acquisitions were off-balance sheet and the value of its servicing platform diminished.

Bank of Scotland and Bank of America Loan Facilities

        The Reducing Note Facility capped FirstCity's financing arrangements with Bank of Scotland, and as such, Bank of Scotland had no further obligation to provide financing to fund FirstCity's Portfolio Asset investments after June 2010. In December 2011, FirstCity refinanced the Reducing Note Facility with Bank of Scotland. As a result, FirstCity's debt obligation under the Reducing Note Facility was divided into two separate term loan facilities with Bank of Scotland, and the Company concurrently closed on a new $50.0 million term loan facility with Bank of America (net proceeds from this term loan were applied against the Reducing Note Facility at closing). The assets and related cash flows that had served as collateral under the Reducing Note Facility with Bank of Scotland, were allocated and respectively pledged as collateral among the Company's new term loan facilities with Bank of Scotland and Bank of America (i.e. FirstCity did not pledge additional assets as security interests in these new loan facilities). Given the nature of the term loan facilities, Bank of Scotland and Bank of America have no obligation to provide FirstCity with financing to fund new Portfolio Assets investments under

47

terms of their respective credit facilities that resulted from the December 2011 debt refinancing arrangement. However, FirstCity was able to significantly reduce its aggregate future cash outlay to Bank of Scotland and Bank of America under these new loan facilities in comparison to the repayment terms under the former Reducing Note Facility with Bank of Scotland—which, in turn, will provide more liquidity to fund future investment opportunities. Additional information regarding our debt refinancing arrangement with Bank of Scotland and the resulting two new term loan facilities with them, along with our new loan facility with Bank of America, is included under the heading "Credit Facilities" below.

FNBCT Loan Facility

        FC Investment has a $15.0 million revolving loan facility with FNBCT for the purpose of financing the purchase of loans and other assets, to make investments in equity interests in or capital contributions to affiliates which are owned with other investors, and for working capital. At December 31, 2012, the unpaid principal balance under this revolving loan facility was $2.0 million. Additional information regarding this loan facility is included under the heading "Credit Facilities" below.

Investment Agreement with Värde Investment Partners, L.P. ("VIP")

        FirstCity and VIP are parties to an investment agreement, effective April 1, 2010, whereby VIP may invest, at its discretion, in distressed loan portfolios and similar investment opportunities alongside FirstCity, subject to the terms and conditions contained in the agreement. The primary terms of the investment agreement are as follows:

•

FirstCity acts as the exclusive servicer for the investment portfolios;

•

FirstCity provides VIP with a "right of first refusal" with regard to distressed asset investment opportunities in excess of $3 million sourced by FirstCity;

•

FirstCity, at its determination, co-invests between 5% and 25% in each investment;

•

FirstCity receives a $200,000 monthly fee and VIP pays FirstCity's pro rata share of due diligence expenses incurred in connection with proposed investments based upon its respective equity percentage of the acquisition entity;

•

FirstCity receives a base servicing fee (based on investment portfolio collections) and is eligible to receive additional incentive-based servicing fees (depending on the performance of the portfolios acquired); and

•

FirstCity is eligible to receive incentive-based management fees (depending on the aggregate amount and performance of the portfolios acquired).

        The investment agreement has a termination date of June 30, 2015, which is subject to consecutive automatic one-year extensions without any action by FirstCity and VIP. FirstCity Servicing Corporation ("FC Servicing") will be the servicer for all of the acquisition entities formed by FC Diversified Holdings LLC ("FC Diversified") and VIP (subject to removal by VIP on a pool-level basis under certain conditions). The parties may terminate the Investment Agreement prior to June 30, 2015 under certain conditions.

        The cash flows from the assets and equity interests from the Company's Portfolio Asset investments made in connection with the investment agreement with VIP, which are held by FC Investment and its subsidiaries, are not subject to the security interest requirements of the Bank of Scotland and Bank of America loan facilities described below.

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Cash Flow Activity

Consolidated Cash Flows

        The following table summarizes our consolidated cash flow activity for the years ended December 31, 2012 and 2011 (in thousands):

	Year Ended December 31,
	2012			2011
Net cash used in operating activities	$	(4,588	)	$	(21,801	)
Net cash provided by investing activities		129,458			114,401
Net cash used in financing activities		(119,906	)		(103,914	)
Effect of exchange rate changes on cash and cash equivalents		175			(481	)
Net increase (decrease) in cash and cash equivalents	$	5,139		$	(11,795	)

        Our operating activities from continuing operations used cash of $4.6 million in 2012 and $21.8 million in 2011. Net cash used by operations in 2012 was comprised primarily of $19.0 million of net earnings; an $8.9 million net increase from activity related to SBA loans held for sale; $26.1 million of net non-cash reductions for Portfolio Asset income accretion and gains; a $15.2 million non-cash deduction for equity income from our unconsolidated subsidiaries; $4.2 million of non-cash deductions for gains attributed primarily to SBA loan sales, sale of subsidiaries, and a business combination; and $7.6 million of non-cash add-backs related to provisions for loan and impairment losses, depreciation and amortization. Net cash used by operations in 2011 was comprised primarily of $33.0 million of net earnings; a $7.3 million net increase from activity related to SBA loans held for sale; $36.2 million of net non-cash reductions for Portfolio Asset income accretion and gains; $32.6 million of non-cash deductions for gains attributed primarily to debt extinguishment, SBA loan sales and subsidiary sales; and $9.8 million of non-cash add-backs related to provisions for loan and impairment losses, depreciation and amortization. The remaining changes in all periods were due to net changes in other accounts related to our operating activities.

        Our investing activities from continuing operations provided cash of $129.5 million in 2012 and $114.4 million in 2011. Net cash provided by investing activities in 2012 was attributable primarily to $85.4 million of Portfolio Asset principal collections (net of purchases) and $48.6 million of distributions from our unconsolidated subsidiaries, and $32.2 million in proceeds from the sale of equity investments and consolidated subsidiaries, off-set partially by $33.6 million of contributions to our unconsolidated subsidiaries (to fund Portfolio Asset investments acquired by our Acquisition Partnerships), and a $2.9 million decrease in cash upon the deconsolidation of a subsidiary. Net cash provided by investing activities in 2011 was attributable primarily to $118.1 million of Portfolio Asset principal collections (net of purchases) and $43.5 million of distributions from our unconsolidated subsidiaries, off-set partially by $44.7 million of contributions to our unconsolidated subsidiaries. The remaining changes in all periods were due to net changes in other accounts related to our investing activities.

        Our financing activities from continuing operations used cash of $119.9 million in 2012 and $103.9 million in 2011. In 2012, net cash used by financing activities was attributable primarily to $107.5 million of net principal payments on notes payable (net of borrowings), and $12.0 million of cash distributions to noncontrolling interests. In 2011, net cash used by financing activities was attributable primarily to $78.4 million of net principal payments on notes payable (net of borrowings), $19.9 million of cash distributions to noncontrolling interests, and a $4.3 million reduction in secured borrowings related to SBA loan sales activity. The remaining changes in all periods were due to net changes in other accounts related to our financing activities.

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        Cash paid for interest on our credit facilities and other borrowings approximated $2.8 million and $10.9 million in 2012 and 2011, respectively. Substantially all of our interest expense was paid on our credit facilities and other borrowings. FirstCity's average outstanding debt decreased to $139.5 million for 2012 from $252.5 million for 2011, while the average cost of borrowings decreased to 4.1% in 2012 compared to 5.8% in 2011. The decrease in the Company's debt level since 2011 is a result of principal repayments on our Bank of Scotland loan facility, combined with the results from our refinancing this loan facility with Bank of Scotland in December 2011. The decrease in the Company's average cost of borrowings was due primarily to the lower interest charged on our Bank of Scotland loan facility (as refinanced in December 2011) compared to the interest rate under the loan facility that we had with Bank of Scotland in 2011. See discussion under the heading "Credit Facilities" below for more information on the Company's loan facilities with Bank of Scotland.

Cash Flows from Consolidated Railroad Operations

        The following is an analysis of the cash flows related to FirstCity's majority-owned railroad operation for 2012 and 2011. The cash flow effects described below are included in the Company's analysis of its consolidated cash flows from continuing operations for 2012 and 2011, as applicable, as discussed above. All significant intercompany balances and transactions have been eliminated in consolidation.

        The operating activities of the railroad subsidiary provided cash of $4.6 million for the year ended December 31, 2012, due primarily to net earnings of $3.7 million and $0.9 million of net increases related to changes in operating assets and liabilities, off-set partially by $0.9 million of non-cash deductions attributed to gains recognized on a business combination. The railroad subsidiary's investing activities used cash of $6.0 million in 2012, primarily for the $2.4 million purchase of a rail-served debris transfer station and $3.6 million for purchases of property and equipment. The railroad subsidiary's financing activities provided cash of $1.5 million in 2012, attributable to $1.9 million of net borrowings on bank notes payable; off-set partially by $0.4 million of distributions to the noncontrolling equity owners and FirstCity (eliminated in consolidation).

        The operating activities of the railroad subsidiary provided cash of $2.4 million for the year ended December 31, 2011—attributable primarily to $2.5 million of net earnings, a $0.6 million decrease in operating assets, a $0.3 million increase in operating liabilities, and $0.2 million of non-cash add-backs related to depreciation and amortization; off-set partially by a $1.1 million add-back for the gain on sale of property and equipment. The railroad subsidiary's investing activities used cash of $2.8 million in 2011, comprised primarily of $2.1 million due to purchase of a business, and $2.1 million of property and equipment purchases; off-set partially by a $1.4 million proceeds from the sale of property and equipment. The railroad subsidiary's financing activities provided cash of $0.8 million for 2011, attributable to $2.0 million of net borrowings on bank notes payable; offset partially by $0.4 million of distributions to the noncontrolling equity owners and FirstCity (eliminated in consolidation), and providing $0.8 million of capital to FirstCity (parent company) through principal repayments on a capital note (eliminated in consolidation).

Credit Facilities

Bank of Scotland Credit Facilities

Reducing Note Facility—Bank of Scotland

        In June 2010, FirstCity refinanced its then-existing acquisition loan facilities with Bank of Scotland and BoS(USA), Inc. and closed on a $268.6 million Reducing Note Facility Agreement ("Reducing Note Facility") that provided for repayment to Bank of Scotland over time as cash flows from the underlying assets securing the term loan facility were realized. The Company's outstanding indebtedness and letter of credit obligations under its then-existing loan facilities with Bank of Scotland were

50

refinanced by the Reducing Note Facility. This term loan facility capped FirstCity's financing arrangements with Bank of Scotland, and as such, Bank of Scotland had no further obligation to provide financing to fund FirstCity's investment activities and operations after June 2010. The Reducing Note Facility was secured by substantially all of the assets of FirstCity's subsidiaries that were subject to the obligations of the former loan facilities with Bank of Scotland. FC Investment and its subsidiaries, which hold investments made in connection with FirstCity's investment agreement with VIP (discussed above), and various other investments that FirstCity originated subsequent to June 2010, were not subject to the security interest requirements of the Reducing Note Facility.

        In December 2011, FirstCity entered into an agreement to amend and restate the Reducing Note Facility with Bank of Scotland, which had an unpaid principal balance of approximately $173.2 million at closing. As a result, FirstCity's primary obligation under the Reducing Note Facility, as amended ("BoS Facility A"), was reduced by the assumption of $25.0 million of debt ("BoS Facility B") by a newly-formed, wholly-owned subsidiary of FirstCity, combined with a $53.4 million reduction primarily from proceeds obtained by FirstCity from its new $50.0 million credit facility with Bank of America ("BoA Loan") and other cash payments at closing. FirstCity's remaining $94.8 million debt obligation under BoS Facility A (post-closing) carries a 0.25% annual interest rate through maturity (December 2014), and allows for repayment over time as cash flows from the underlying pledged assets are realized. FirstCity's $25.0 million debt obligation under BoS Facility B does not bear interest, and allows for repayment over time as cash flows from the underlying pledged assets, if any, are realized (FirstCity has not received any significant cash flows from these underlying assets and has not allocated any value to these assets for the past three years). As a result of its December 2011 debt refinancing arrangements, FirstCity was able to significantly reduce its aggregate future cash outlay to Bank of Scotland and Bank of America under these new loan facilities in comparison to the repayment terms under the former Reducing Note Facility with Bank of Scotland—which, in turn, will provide more liquidity in the future to fund investment opportunities.

BoS Facility A—Bank of Scotland

        At December 31, 2012, the unpaid principal balance on BoS Facility A was $31.1 million and the unamortized fair value discount was $1.1 million. Prior to December 2012, a portion of the unpaid principal balance included Euro-denominated debt that FirstCity used to partially off-set its business exposure to foreign currency exchange risk attributable to its net equity investments in Europe (see Note 12). The Euro-denominated debt was paid off in December out of proceeds from the sale of the Company's investment in UBN, SAS (see Note 3). The primary terms and conditions of FC Commercial's loan facility with Bank of Scotland under BoS Facility A are as follows:

•

Release of assets of FH Partners LLC (the "FH Partners Assets") which secured the Reducing Note Facility to allow FH Partners LLC to pledge the FH Partners Assets as collateral for the BoA Loan (Bank of Scotland was granted a subordinated security interest in these assets);

•

Repayment will be made over time (no scheduled amortization) as cash flows are realized from the pledged assets (primarily loans, real estate and equity investments) other than the FH Partners Assets;

•

Additional repayment will be made from residual cash flows from the FH Partners Assets from excess cash flow released to FH Partners LLC under the loan facility for the BoA Loan ("FH Partners Excess Cash Flow") and after the payment of the BoA Loan;

•

Fixed annual interest rate equal to 0.25%;

•

Maturity date of December 19, 2014;

•

Unlimited guaranty provided by FirstCity for the repayment of the indebtedness under BoS Facility A;

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•

No advances will be made under this loan facility, except for draws on an outstanding letter of credit in the amount of $5.4 million;

•

FirstCity will receive a management fee after payment to Bank of Scotland of interest and fees, certain expenses and other items, which is equal to 10% of the monthly collections from the underlying pledged assets other than the FH Partners Assets, and 5% of the of the monthly collections from the FH Partners Assets as FH Partners Excess Cash Flow is paid to Bank of Scotland (i.e. cash "leak-through"), which fees are not required to be applied to the debt owed to Bank of Scotland; the 5% management fee related to the FH Partners Assets is in addition to a 5% servicing fee paid under the loan facility for the BoA Loan and is deferred on a cumulative basis until the FH Partners Excess Cash Flow is paid to Bank of Scotland;

•

After payment of the BoA Loan, FirstCity will receive a management fee equal to 10% of any monthly collections from the FH Partners Assets, after payment to Bank of Scotland of interest and fees, certain expenses and other items;

•

FirstCity must maintain a minimum tangible net worth (as defined in the amended and restated reducing note facility agreement with Bank of Scotland) of $90.0 million;

•

Release of FC Commercial, FH Partners LLC, FLBG Corp, FirstCity, and certain FirstCity subsidiaries obligated under the Reducing Note Facility from liability for payment to Bank of Scotland or BoS-USA for the $25.0 million loan principal amount assumed by FLBG2 (under BoS Facility B with BoS-USA); and

•

Guaranty provided by FLBG Corp. and a substantial majority of its subsidiaries, which are the entities that were primarily subject to the obligations of the Reducing Note Facility (the "Covered Entities").

        This loan facility is secured by substantially all of the assets of the Covered Entities. FH Partners LLC provides a subordinated guaranty of the BoS Facility A (subordinated to the BoA Loan) and a subordinated security interest in the FH Partners Assets. FC Servicing does not guarantee the BoS Facility A, but provides a non-recourse security interest in certain equity interests owned by it and in most of the servicing fees from agreements entered into prior to the execution of the Reducing Note Facility.

        BoS Facility A contains covenants, representations and warranties on the part of FirstCity, FC Commercial and FLBG Corp. that are typical for a loan facility of this type. In addition, BoS Facility A contains customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, Bank of Scotland may accelerate the indebtedness under this loan facility. At December 31, 2012, FirstCity was in compliance with all covenants or other requirements set forth in BoS Facility A.

BoS Facility B—Bank of Scotland

        At December 31, 2012, the Company did not have a recorded carrying value on its consolidated balance sheet for BoS Facility B (as described under the heading Reducing Note Facility—Bank of Scotland above). The primary terms and conditions of FLBG2's $25.0 million debt obligation with BoS-USA under BoS Facility B are as follows:

•

Source of repayment will be derived solely from future cash flows, if any, from the assets of FLBG2 (loans with nominal value—see discussion below);

•

No interest accrues under this loan facility (subject to default interest provisions);

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•

Maturity date of December 19, 2014 (see discussion below); and

•

FirstCity will receive a management fee equal to 10% of the monthly collections on the assets of FLBG2 (i.e. cash "leak-through"), if any, after payment to BoS-USA of any fees.

        The assets of FLBG2 consist of loans transferred to it by the Covered Entities for nominal consideration. FirstCity has not received any significant cash flows from the assets of FLBG2 and has not allocated any value to such assets for the past three years. FLBG2 has no assets other than the loans pledged to this loan facility, and has no intent to actively pursue collection of these assets. FLBG2 has no alternative sources of income or liquidity. FirstCity and its other subsidiaries are not obligated to provide any additional funds or capital to FLBG2, do not guaranty the repayment of BoS Facility B, and do not intend to contribute any funds to FLBG2 or pay any amounts owed by FLBG2 under BoS Facility B (before or after its maturity).

        At maturity of the BoS Facility B, there will likely be a default by FLBG2 as no collections are projected by FirstCity to be received from the assets of FLBG2. The sole recourse of Bank of Scotland on any such default will be to foreclose on the assets of FLBG2. Any default will not have a material adverse effect on FirstCity, as there is no carrying value for this loan facility on FirstCity's consolidated balance sheet.

        BoS Facility B contains limited covenants, representations and warranties on the part of FLGB2 in light of the nature of the assets of FLBG2 and the lack of liquidity or sources of funds for FLBG2. In addition, BoS Facility B contains customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, Bank of Scotland may accelerate the indebtedness under this loan facility. At December 31, 2012, FLBG2 was in compliance with all covenants or other requirements set forth in BoS Facility B.

Bank of America

        On December 20, 2011, FH Partners LLC, as borrower, and Bank of America, as lender, entered into a $50.0 million term loan facility ("BoA Loan") that allows for repayment over time as cash flows from the underlying assets securing this loan facility are realized. FirstCity used the proceeds from this loan facility to reduce the principal balance outstanding under the Reducing Note Facility (as described above). At December 31, 2012, the unpaid principal balance under this loan facility was $16.2 million. The primary terms and conditions under the BoA Loan are as follows:

•

Minimum principal payments through maturity so that the total principal balance outstanding does not exceed the following amounts on the dates indicated: $45.0 million at June 30, 2012; $30.0 million at December 31, 2012; $25.0 million at June 30, 2013; $20.0 million at December 31, 2013; $15.0 million at June 30, 2014; and $10.0 million at December 31, 2014 (initial maturity);

•

Initial maturity date of December 31, 2014, which may be extended one year (subject to certain terms and conditions);

•

Variable annual interest rate based on LIBOR daily floating rate plus 2.75%;

•

FirstCity will receive a servicing fee equal to 5% of the monthly collections (i.e. cash "leak-through") from the pledged assets after payment to Bank of America of interest, fees and required principal payment reductions;

•

Minimum debt service coverage ratio (defined) of 1.4 to 1.0 (beginning with the quarterly period ended March 31, 2012); and

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•

FC Servicing must maintain a minimum net worth of $1.0 million.

        The BoA Loan contains covenants, representations and warranties on the part of FH Partners LLC that are typical for a loan facility of this type. In addition, the BoA Loan contains customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, Bank of America may accelerate the indebtedness under this loan facility. At December 31, 2012, FH Partners LLC was in compliance with all covenants or other requirements set forth in the BoA Loan.

Wells Fargo Capital Finance

        At December 31, 2012, American Business Lending, Inc. ("ABL"), a wholly-owned subsidiary of FirstCity, had a $25.0 million revolving loan facility with Wells Fargo Capital Finance ("WFCF") for the purpose of financing and acquiring SBA loans. The unpaid principal balance on this loan facility at December 31, 2012 was $15.2 million. This credit facility matures in January 2015, and is secured by substantially all of the assets of ABL. In addition, FirstCity provides WFCF with an unconditional guaranty for all of ABL's obligations up to a maximum of $5.0 million plus enforcement costs. The primary terms and key covenants of the $25.0 million revolving loan facility, as amended, are as follows.

•

Provides for maximum outstanding borrowings of up to $25.0 million ("Maximum Credit Line");

•

Provides for a borrowing base for originating loans based on the amount by which the sum of (i) ABL-originated SBA guaranteed loans (up to 100%) and non-guaranteed loans (60%-80%) plus (ii) certain previously-purchased performing loans (up to 80%), exceeds the aggregate amount, if any, of loan reserves established by ABL and/or WFCF on the borrowing base loans;

•

Outstanding borrowings bear interest at alternate annual rates equal to (i) LIBOR rate plus 3.50% for LIBOR rate loans; (ii) base rate (higher of LIBOR rate or Wells Fargo prime rate) plus 0.75% for base rate loans; or (iii) base rate plus 0.75% otherwise;

•

Provides for a prepayment fee in the event of ABL's termination of the credit facility equal to 3.0% of the Maximum Credit Line if prepayment is made on or before January 31, 2013, or 2.0% of the Maximum Credit Line if prepayment is made between January 31, 2013 and January 30, 2015; and

•

Provides for an initial maturity date of January 31, 2015 (which may be extended upon agreement by WFCF and ABL).

        The WFCF credit facility includes covenants that are customary for a loan facility of this type, including maximum capital expenditure levels and financial covenants related to minimum tangible net worth levels, maximum indebtedness to tangible net worth ratio, maximum delinquent and defaulted loan levels, maximum loan charge-off levels, and minimum net interest coverage levels.

        In addition, the WFCF credit facility contains representations and warranties of ABL that are typical for a loan facility of this type. The WFCF credit facility also contains customary events of default, including but not limited to, failure to make required payments; failure to comply with certain agreements or covenants; change of control; certain events of bankruptcy and insolvency; and failure to pay certain judgments. In the event that an event of default occurs and is continuing, WFCF may accelerate the indebtedness under this loan facility. At December 31, 2012, ABL was in compliance with all covenants or other requirements set forth in the WFCF credit facility.

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First National Bank of Central Texas (FC Investment Holdings Corporation)

        On May 21, 2012, FC Investment Holdings Corporation ("FC Investment"), a FirstCity wholly-owned subsidiary, as borrower, and FirstCity, as guarantor, and First National Bank of Central Texas ("FNBCT"), as lender, entered into a loan agreement dated May 16, 2012 (the "FNBCT Loan Facility"). In addition, on May 21, 2012, FirstCity executed a guaranty agreement that provided for its unlimited guaranty for repayment of the indebtedness of FC Investment including, without limitation, under the FNBCT Loan Facility. The FNBCT Loan Facility is a $15.0 million revolving loan facility that provides funding for FC Investment and its subsidiaries to finance the purchase of loans and other assets, to make investments in equity interests in or capital contributions to affiliates which are owned with other investors, and for working capital. The primary terms and conditions of the FNBCT Loan Facility are as follows:

•

Provides maximum outstanding borrowings up to $15.0 million;

•

The loan facility is secured by security interests in substantially all of the assets of FC Investment and its subsidiaries (the "Covered Entities"). FC Servicing, a FirstCity wholly-owned subsidiary, provides a security interest in servicing fees payable to it by the Covered Entities and the non-wholly owned portfolio entities owned by the Covered Entities. FC Servicing does not provide a security interest in servicing agreements entered into with the Covered Entities, or in any of its other assets and does not guaranty the obligations under this loan facility;

•

Provides that no advance will be made that causes the outstanding balance of the loan facility to exceed an amount equal to 25.0% of the net present value of the equity interests and loans and other assets owned by the Covered Entities which are pledged to secure the loan facility reduced by any reserves established by FNBCT related to the pledged loans and other assets and the pledged equity interests ("Net Present Collateral Value");

•

Provides for a fluctuating interest rate equal to the greater of (i) the rate of interest published in the Wall Street Journal as the prime rate of commercial banks, or (ii) 4.0%;

•

Provides for a maturity date of August 15, 2013;

•

Provides that all net cash flow from the pledged assets be deposited into a pledged account with FNBCT on a monthly basis, and for funds to be distributed out of the pledged account and applied in the following manner and priority: (i) to interest due under the loan facility, (ii) to fees and expenses due under the loan facility, (iii) payment of principal outstanding under the loan facility in an amount required to reduce the outstanding principal balance of the loan as is required so that the principal balance of the loan is equal to 25.0% of the Net Present Collateral Value, (iv) payment of principal if an event of default has occurred, (v) payment of the principal in such additional amount as may be determined by FNBCT in its discretion, and (vi) any remaining balance to FC Investment;

•

Provides that FNBCT is only required to fund up to $7.5 million, with the balance of the commitment under the revolving loan facility to be funded by a participating bank in the loan facility;

•

Provides for (i) an administration fee of $25,000 for the period through the maturity date, which fee was paid at closing, (ii) a facility fee in the amount of $93,750 for the period through the maturity date, which fee was paid at closing, and (iii) a non-utilization fee payable following each calendar quarter equal to 0.50% of the average daily amount by which the outstanding principal amount of the revolving loan during the preceding calendar quarter is less than $15.0 million, provided, in the event the financial institution participating in the revolving loan fails to advance its pro-rata share of any advance in a circumstance in which FNBCT is funding the advance, the non-utilization fee shall be calculated based on the average daily amount by

55

which the total amount funded by FNBCT from its own funds during the preceding calendar quarter is less than $7.5 million;

•

FC Investment must maintain a minimum interest coverage ratio, based on net cash flows from the pledged assets, of 2.0 to 1.0 (on a consolidated basis);

•

FC Investment must maintain a minimum tangible net worth (defined) of $75.0 million (on a consolidated basis); and

•

The FNBCT Loan Facility and other loan documents do not create any security interest in the property of, or impose any contractual limitations upon, FirstCity Commercial Corporation, FH Partners LLC, FLBG Corporation or any of their subsidiaries, which are FirstCity subsidiaries and are parties to, or provide guaranties or security interests with respect to, FirstCity's loan facility with Bank of Scotland.

        In addition to the foregoing, the FNBCT Loan Facility contains representations, warranties and certain other covenants on the part of FC Investment, FirstCity and the other Covered Entities that are typical for a loan facility of this type. Furthermore, the FNBCT Loan Facility and related loan documents contain customary events of default, including, failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, FNBCT may accelerate the indebtedness under this loan facility. At December 31, 2012, FC Investment was in compliance with all covenants or other requirements set forth in the FNBCT Loan Facility.

Discussion of Critical Accounting Policies

        The preparation of financial statements in conformity with U.S. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. The continuance of challenging economic conditions and disruptions in the financial, capital, real estate and foreign currency markets, have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's consolidated financial position and results and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Loan Portfolio Assets—Revenue and Impairment Recognition

        A substantial majority of the Company's Portfolio Assets include acquired loans and loan portfolios with evidence of credit deterioration since origination ("Purchased Credit-Impaired Loans") at fair value on the acquisition date. The amounts paid for Purchased Credit-Impaired Loans reflect the Company's determination that the loans have experienced deterioration in credit quality since origination and that it is probable the Company will be unable to collect all amounts due according to the contractual terms of the underlying loans. At acquisition, the Company reviews each individual loan to determine whether there is evidence of deterioration of credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan's

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contractual terms. If both conditions exist, the Company determines whether each such loan is to be accounted for individually or whether such loans will be assembled into static pools based on common risk characteristics (primarily loan type and collateral). Static pools of individual loan accounts may be established and accounted for as a single economic unit for the recognition of income, principal payments and loss provision. Once a static loan pool is established, individual accounts are generally not added to or removed from the pool (unless the Company sells, forecloses or writes off the loan). At acquisition, the Company determines the excess of the scheduled contractual payments over all cash flows expected to be collected for the loan or loan pool as an amount that should not be accreted ("nonaccretable difference"). The excess of the cash flows from the loan or loan pool expected to be collected at acquisition over the initial investment ("accretable difference") is recognized as interest income over the remaining life of the loan or loan pool on a level-yield basis ("accretable yield"). The discount (i.e. the difference between the cost of each loan or loan pool and the related aggregate contractual receivable balance) is not recorded because the Company does not expect to fully collect each contractual receivable balance. As a result, these loans and loan pools are recorded at cost (which approximates fair value) at the time of acquisition.

        The Company accounts for Purchased Credit-Impaired Loans using either the interest method or a non-accrual method (through application of the cost-recovery or cash basis method of accounting). Application of the interest method is dependent on management's ability to develop a reasonable expectation as to both the timing and amount of cash flows expected to be collected. In the event the Company cannot develop or establish a reasonable expectation as to both the timing and amount of cash flows expected to be collected, the Company uses the cost-recovery or cash basis method of accounting.

        Interest method of accounting.    Under the interest method, an effective interest rate, or IRR, is applied to the cost basis of the loan or loan pool. The excess of the contractual cash flows over expected cash flows cannot be recognized as an adjustment of income or expense or on the balance sheet. The IRR that is calculated when the loan is purchased remains constant as the basis for subsequent impairment testing (performed at least quarterly) and income recognition. Significant increases in actual, or expected future cash flows, are used first to reverse any existing valuation allowance for that loan or loan pool; and any remaining increase may be recognized prospectively through an upward adjustment of the IRR over the remaining life of the loan or loan pool. Any increase to the IRR then becomes the new benchmark for impairment testing and income recognition. Subsequent decreases in projected cash flows do not change the IRR, but are recognized as an impairment of the cost basis of the loan or loan pool (to maintain the then-current IRR), and are reflected in the consolidated statements of earnings through provisions charged to operations, with a corresponding valuation allowance offsetting the loan or loan pool in the consolidated balance sheets. FirstCity establishes valuation allowances for loans and loan pools acquired with credit deterioration to reflect only those losses incurred after acquisition—that is, the cash flows expected at acquisition that are no longer expected to be collected. Income from loans and loan pools accounted for under the interest method is accrued based on the IRR of each loan or loan pool applied to their respective adjusted cost basis. Gross collections in excess of the interest accrual and impairments will reduce the carrying value of the loan or loan pool, while gross collections less than the interest accrual will increase the carrying value. The IRR is calculated based on the timing and amount of anticipated cash flows using the Company's proprietary collection models.

        Cost-recovery method of accounting.    If the amount and timing of future cash collections on a loan are not reasonably estimable, the Company accounts for such asset on the cost-recovery method. Under the cost-recovery method, no income is recognized until the Company has fully collected the cost of the loan, or until such time as the Company considers the timing and amount of collections to be reasonably estimable and begins to recognize income based on the interest method as described above. At least quarterly, the Company performs an evaluation to determine if the remaining amount that is probable of collection is less than the carrying value of the loan or loan pool, and if so, recognizes impairment through provisions charged to operations, with a corresponding valuation allowance offsetting the loan or loan pool in the consolidated balance sheets.

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        Cash basis method of accounting.    If only the amount of future cash collections on a loan is reasonably estimable, the Company accounts for such asset on an individual loan basis under the cash basis method of accounting. Under the cash basis method, no income is recognized unless collections are received during the period, or until such time as the Company considers the timing of collections to be reasonably estimable and begins to recognize income based on the interest method as described above. Income is recognized for the difference between the collections and a pro-rata portion of cost on a loan. Cost allocation is based on a proration of actual collections divided by total projected collections on the loan. Significant increases in future cash flows may be recognized prospectively as income over the remaining life of the loan through increased amounts allocated to income when collections are subsequently received. Subsequent decreases in projected cash flows are recognized as impairment of the loan's cost basis to maintain a constant cost allocation based on initial projections. The Company evaluates the projected cash flows for these loans and loan pools at least quarterly to determine if impairment exists, and if so, recognizes the impairment through provisions charged to operations, with a corresponding valuation allowance offsetting the loan or loan pool in the consolidated balance sheets. Management uses the cash basis method of accounting for such eligible loans primarily due to the increased uncertainty in the timing of future collections (attributable primarily to the borrowers' inability to obtain financing to refinance the loans).

        Troubled debt restructurings (TDRs):    Modified Purchased Credit-Impaired Loans are not removed from a loan pool even if those loans would otherwise be deemed TDRs. Modified Purchased Credit-Impaired Loans that are accounted for on an individual basis are considered TDRs if there has been a concession granted to the borrower and the Company does not expect to recover its recorded investment in the loan. Purchased Credit-Impaired Loans that are classified as TDRs are measured for impairment. See Troubled Debt Restructurings (TDRs) below for accounting guidance on loan modifications that result in classification as TDRs.

Real Estate Portfolio Assets—Valuation and Impairment Recognition

        Real estate Portfolio Assets consist of real estate properties purchased from a variety of sellers or acquired through loan foreclosure. Rental income, net of expenses, is generally recognized when received. The Company accounts for its real estate properties on an individual-asset basis as opposed to a pool basis.

        Real estate held for sale primarily includes real estate acquired through loan foreclosure. The Company classifies a property as held for sale if (1) management commits to a plan to sell the property; (2) the Company actively markets the property in its current condition for a price that is reasonable in comparison to its fair value; and (3) management considers the sale of such property within one year of the balance sheet date to be probable. Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at the lower of cost (i.e. the underlying loan's carrying value) or estimated fair value less disposition costs at the date of foreclosure—establishing a new cost basis. The amount, if any, by which the carrying value of the underlying loan exceeds the property's fair value less estimated disposition costs at the foreclosure date, is charged as a loss against operations. Expenditures for repairs, maintenance, and other holding costs are charged to operations as incurred. Real estate properties acquired through loan foreclosure are classified as held for sale, and carried on the Company's consolidated balance sheet at the lower of cost or fair value less estimated disposition costs. Real estate is not depreciated while it is classified as held for sale. Impairment losses are recorded if a property's fair value less estimated disposition costs is less than its carrying amount, and charged to operations in the period the impairment is identified.

        Real estate held for investment generally includes acquired properties and is carried at cost less depreciation and amortization, as applicable. The Company classifies a property as held for investment if the property is still under development and/or management does not expect the property to be sold within one year of the balance sheet date. Real estate properties acquired through a purchase

58

transaction are initially recorded at the cost of the acquisition. The cost of acquired property includes the purchase price of the property, legal fees, and certain other acquisition costs. Subsequent to acquisition, the Company capitalizes capital improvements and expenditures related to significant betterments and replacements, including costs related to the development and improvement of the property for its intended use. Expenditures for repairs, maintenance, and other holding costs are charged to operations as incurred. The Company periodically reviews its property held for investment for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Recoverability of property held for investment is measured by comparison of the carrying amount of the asset to future net undiscounted cash flows expected to be generated by the property. If the property is considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property exceeds its fair value. Fair value is determined by discounted cash flows or market comparisons.

Loans Receivable—Valuation and Impairment Recognition

SBA Loans Held for Sale

        The portions of U.S. Small Business Administration ("SBA") loans that are guaranteed by the SBA are classified by management as loans held for sale. These loans are recorded at the lower of aggregate cost or estimated fair value. The fair value of SBA loans held for sale is based primarily on prices that secondary markets are currently offering for loans with similar characteristics. Net unrealized losses, if any, are recognized through a valuation allowance through a charge to income. The carrying value of SBA loans held for sale is net of premiums as well as deferred origination fees and costs. Premiums and net origination fees and costs are deferred and included in the basis of the loans in calculating gains and losses upon sale. SBA loans are generally secured by the borrowing entities' assets such as accounts receivable, property and equipment, and other business assets. The Company generally sells the guaranteed portion of each loan to a third-party investor and retains the servicing rights. The non-guaranteed portion of SBA loans is classified as held for investment (discussed below). Effective January 1, 2010, the Company adopted accounting guidance that required SBA loan transactions subject to the SBA's premium recourse provision to be accounted for initially as secured borrowings rather than asset sales. After the premium recourse provisions had elapsed, the transaction was recorded as a sale and the resulting net gain on sale was recognized—which was based on the difference between the proceeds received and the allocated carrying value of the loan sold. However, effective January 31, 2011, the SBA removed the recourse provisions contained in its loan sales agreements for guaranteed portions of SBA loans. As a result, SBA loan sales transacted by the Company under these revised agreements were accounted for initially as a sale, with the corresponding gain recognized at the time of sale. The gains recognized on these loan sales were based on the difference between the sales proceeds received and the allocated carrying value of the loans sold (which included deferred premiums and net origination fees and costs).

Loans Held for Investment

        Loans receivable consisting of loans made to affiliated entities (including Acquisition Partnerships and other equity-method investees) and non-affiliated entities, and the non-guaranteed portions of SBA loans, are classified by management as held for investment. These loans are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and unamortized premiums or discounts on purchased loans. Loan origination fees and costs, as well as purchase premiums and discounts, are amortized as level-yield adjustments over the respective loan terms. Unamortized net fees, costs, premiums or discounts are recognized upon early repayment or sale of the loan. Repayment of the loans is generally dependent upon future cash flows of the borrowers, future cash flows of the underlying collateral, and distributions made from affiliated entities. Interest is accrued when earned in accordance with the contractual terms

59

of the loans, except for loans on non-accrual status. Interest is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding.

        The Company has established an allowance for loan losses to absorb probable, estimable losses inherent in its portfolio of loans receivable held for investment. This allowance for loan losses includes specific allowances, based on individual evaluations of certain loans and loan relationships, and allowances for pools of loans with similar risk characteristics. Management's determination of the adequacy of the allowance is a quarterly process and is based on evaluating the collectibility of the loans in light of various factors, as applicable, such as quality and composition of the loan portfolio segments, estimated future cash receipts of the borrower's operations or underlying collateral, historical experience, estimated value of underlying collateral, prevailing economic conditions, industry concentrations and conditions, and other relevant factors. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Actual losses experienced in the future may vary from management's estimates. Management attributes portions of the allowance to loans that it evaluates and determines to be impaired and to groups of loans that it evaluates collectively.

        In determining the appropriate level of allowance, management uses information to stratify its portfolio of loans receivable held for investment into loan pools with common risk characteristics. Classes in the affiliated and non-affiliated portfolio asset and commercial loan portfolio segments are generally disaggregated by accrual status (which is generally based on management's assessment on the probability of default). Classes in the non-guaranteed SBA commercial loan portfolio segment are disaggregated based upon underlying credit quality. Certain portions of the allowance are attributed to loan pools based on various factors and analyses, including but not limited to, current and historical loss experience trends, collateral, region, current economic conditions, and industry concentrations and conditions. Loans deemed to be impaired, including loans with an increased probability of default as determined by management, are evaluated individually rather than on a pool basis as described above. We consider a loan to be impaired when, based on current information and events, we determine it is probable that we will not be able to collect all amounts due according to the loan's contractual terms (including scheduled interest payments). When management identifies a loan as impaired, we measure the impairment based on discounted future cash flows, except when foreclosure is probable or the source of repayment is the operation or liquidation of the collateral. In these cases, we use the current fair value of the collateral, less estimated selling costs, instead of discounted cash flows. When a loan is determined to be impaired, we cease to accrue interest on the note and interest previously accrued but not collected becomes part of our recorded investment in the loan and is collectively reviewed for impairment. When ultimate collectibility of the impaired note is in doubt, all collections are applied to reduce the principal amount of such notes until the principal has been recovered, and collections thereafter are recognized as interest income. We return a loan to accrual status when we determine that the collectibility of principal and interest is reasonably assured. Impairment losses are charged against an allowance account through provisions charged to operations in the period impairment is identified. Loans are written-off against the allowance when all possible means of collection have been exhausted and the potential for recovery is considered remote.

        Troubled Debt Restructurings (TDRs):    In situations where, for economic or legal reasons related to a borrower's financial difficulties, the Company grants a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a TDR. Modification of loan terms that may be considered a concession to the borrower may include rate reductions, principal forgiveness, term extensions, payment forbearance and other actions intended to minimize our economic loss and to avoid foreclosure or repossession of the collateral. For modifications where we may forgive loan principal, the entire amount of such principal forgiveness is immediately charged off. Loans classified as TDRs are considered impaired loans.

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Deferred Tax Assets—Valuation

        The Company recognizes deferred tax assets and liabilities in both the U.S. and non-U.S. jurisdictions based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates, if any, would be recognized in earnings in the period that includes the enactment date. We reduce the carrying amounts of deferred tax assets through a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically by the Company based on the more-likely-than-not realization threshold criterion. In this assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other factors, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, excess of appreciated asset value over the tax basis of net assets, impact of gains or charges from one-time events, the duration of statutory carryforward periods, the Company's experience with utilizing available operating loss and tax credit carryforwards, and tax planning strategies. In making such assessments, significant weight is given to evidence that can be objectively verified. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws between our projected operating performance, our actual results and other factors.

        For purposes of evaluating the need for a deferred tax valuation allowance, significant weight is given to evidence that can be objectively verified. At December 31, 2012 and 2011, the Company established a full valuation allowance for its U.S. deferred tax assets due to the lack of sufficient objective evidence regarding the realization of these assets in the foreseeable future. Regardless of the deferred tax valuation allowance established at December 31, 2012, the Company continues to retain net operating loss carryforwards for U.S. federal income tax purposes of approximately $7.8 million available to offset future federal taxable income, if any, through the year 2027. To the extent that the Company generates taxable income in the future to utilize the tax benefits of the related deferred tax assets, subject to certain potential limitations, it may be able to reduce its effective tax rate by reducing the valuation allowance.

        We believe that the accounting estimate for the valuation of deferred tax assets is a critical accounting estimate because judgment is required in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect actual tax results and future business results, including further market deterioration, may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Changes that are not anticipated in our current estimates could have a material period-to-period impact on our financial position or results of operations.

Estimates of Cash Flows from Portfolio Assets

        The Company uses estimates to determine future cash flows from Portfolio Assets. These estimates of future cash flows from Portfolio Assets are utilized in four primary ways:

(i)

to calculate the allocation of cost of certain under-performing and non-performing Portfolios Assets;



(ii)

to determine the effective yield of performing Portfolios Assets;

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(iii)

to determine the reasonableness of settlement offers received in the liquidation of the Portfolio Assets; and



(iv)

to determine whether or not there is impairment in our Portfolio Assets.

        The Company uses proprietary programs and collection models to manage the Portfolio Assets that it owns and services. Each asset within a pool is analyzed by an account manager who is responsible for analyzing the asset's underlying characteristics. The account manager projects future cash receipts and expenses related to each asset, the sum of which provides the total estimated future net cash receipts related to a particular asset or loan pool. These estimates are routinely monitored by the Company to determine reasonableness of the cash flow estimates.

Consolidation Policy

        The Company's consolidated financial statements include the accounts of FirstCity, its wholly-owned and majority-owned subsidiaries, and certain variable interest entities where we are the primary beneficiary as prescribed by the Financial Accounting Standards Board's (the "FASB") accounting guidance on variable interest entities.

Consolidated Subsidiaries

        If we determine that we have a controlling financial interest in an entity, then we must consolidate the assets, liabilities and noncontrolling interests of the entity in our consolidated financial statements. A controlling financial interest typically arises as a result of ownership of a majority of the voting interests of an entity. However, we may also have a controlling financial interest in an entity through an arrangement that does not involve voting interests, such as a variable interest entity ("VIE"). In general, a VIE is an entity that has one or more of the following characteristics (1) the entity has total equity at risk that is not sufficient to finance its principal activities without additional subordinated financial support from other entities; (2) the group of equity owners does not have the ability to make significant decisions about the entity's activities; (3) the group of equity owners does not have the obligation to absorb losses or the right to receive residual returns generated by its operations, or both; or (4) the voting rights of some investors are not proportional to their obligations to absorb the losses or the right to receive residual returns of the entity, or both, and substantially all of the entity's activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. If any of these characteristics is present, the entity is subject to a variable interests consolidation analysis, and consolidation is based on variable interests, and not solely on ownership of the entity's outstanding voting stock.

        Variable interests are generally defined as contractual, ownership or other economic interests in an entity that change with fluctuations in the entity's net asset value. If certain characteristics are present in these transactions, the entity is subject to a variable interests consolidation analysis, and consolidation is based on variable interests, and not solely on ownership of the entity's outstanding voting stock. In making the determination as to whether an entity is considered to be a VIE, we first perform a qualitative analysis, which requires certain subjective decisions regarding our assessments, including, but not limited to, the design of the entity, the variability that the entity was designed to create and pass along to its interest holders, the rights of the parties, and the purpose of the arrangement. If we cannot conclude after a qualitative analysis whether an entity is a VIE, we perform a quantitative analysis.

        If an entity is determined to be a VIE, we determine if our variable interest causes us to be considered the primary beneficiary. We are the primary beneficiary and are required to consolidate the entity if we have the power to direct the activities of the VIE that most-significantly impact the entity's economic performance and we have the obligation to absorb losses or the right to receive returns that could be significant to the entity. The assessment of the party that has the power to direct the activities

62

of the VIE may require significant management judgment when more than one party has power, or more than one party is involved in the design of the VIE but no party has the power to direct the ongoing activities that could be significant. We are required to continually assess whether we are the primary beneficiary and, therefore, may consolidate a VIE through the duration of our involvement. Examples of certain events that may change whether or not we consolidate the VIE include a change in the design of the entity or a change in our ownership. Generally, if we are the primary beneficiary of a VIE, then we initially record the assets, liabilities and noncontrolling interests of the VIE in our consolidated financial statements at fair value. If we cease to be deemed the primary beneficiary of a consolidated VIE, then we deconsolidate the VIE.

Unconsolidated Subsidiaries

        The Company does not consolidate investments in entities that are not VIEs where the Company does not have an effective controlling interest, or investments in entities that are VIEs where the Company is not the primary beneficiary. Rather, such investments, which represent equity investments in non-publicly-traded entities, are accounted for under the equity method of accounting since the Company has the ability to exercise significant influence (but not control) over operating and financial policies of such subsidiaries (including certain entities where we have less than 20% ownership). FirstCity has the ability to exercise significant influence over the operating and financial policies of its less-than-20%-owned entities, despite its comparatively smaller ownership percentage, due primarily to its active participation in the policy-making process as well as its involvement in the daily management activities of the entities.

        Under the equity method of accounting, the Company's investments in these unconsolidated entities are carried at the cost of acquisition, plus the Company's share of equity in undistributed earnings or losses since acquisition. We eliminate transactions with our equity-method subsidiaries to the extent of our ownership in such subsidiaries. Accordingly, our share of the income or losses of these equity-method subsidiaries is included in our consolidated net income.

        The Company follows the accounting guidance for the equity method of accounting to determine if there has been an other-than-temporary decline in value of its investments in unconsolidated entities. The Company reviews its investments in unconsolidated entities for impairment whenever events or changes indicate that the fair value may be less than the carrying value of its investment. A loss in value of an investment which is other-than-temporary is recognized as a component of equity income (loss) of unconsolidated subsidiaries in the consolidated statements of earnings. This determination is based on the extent and/or length of time to which fair value was less than carrying value, our intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment, and other relevant factors and circumstances. When evaluating for impairment on investments that are not actively traded on a public market, we generally use a discounted cash flow approach to estimate the fair value of our unconsolidated investments and/or look to comparable activities in the marketplace (if available). Management judgment is required in developing the assumptions for the discounted cash flow approach. These assumptions include, among others, net asset values, internal rates of return and discount rates.

Fair Value Measurements

        We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value for applicable fair value disclosures. Investment securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value certain other assets and liabilities on a non-recurring basis, Portfolio Assets, loans receivable, real estate investments, servicing assets, investments in unconsolidated subsidiaries, and various other assets held for sale (including liabilities related to the assets held for sale). These non-recurring fair value adjustments typically involve lower-of-cost-or-market accounting or write-downs of individual assets.

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        The accounting guidance on fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). We group our assets and liabilities measured at fair value in three levels of the fair value hierarchy, based on the fair value measurement technique, as described below:

•

Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets and liabilities in active exchange markets that the Company has the ability to access at the measurement date.

•

Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques with significant assumptions and inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

•

Level 3—Valuation is derived from model-based techniques that use inputs and significant assumptions that are supported by little or no observable market data. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of pricing models, discounted cash flow models and similar techniques.

        The level of fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is most-significant to the fair value measurement in its entirety. In the determination of the classification of assets and liabilities in Level 2 or Level 3 of the fair value hierarchy, we consider all available information, including observable market data, indications of market conditions, and our understanding of the valuation techniques and significant inputs used. Based upon the specific facts and circumstances, judgments are made regarding the significance of the Level 3 inputs to the fair value measurements of the respective assets and liabilities in their entirety. If the valuation techniques that are most-significant to the fair value measurements are principally derived from assumptions and inputs that are corroborated by little or no observable market data, the asset or liability is classified as Level 3.

        We attempt to base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs, when reasonably available, and minimize the use of unobservable inputs when developing fair value measurements. However, active market pricing information and other observable market data are not available for a significant portion of the Company's financial instruments (primarily distressed assets and non-public debt instruments). In instances where there is limited or no observable market data, fair value measurements are based principally upon our own valuation models and estimates, or combination of our own valuation models and estimates plus independent vendor or broker pricing, and the measurements are often calculated, as applicable, based on current pricing adjusted for the economic and competitive environment, the characteristics of the asset or liability, and other such factors. As with any valuation technique used to estimate fair value, changes in underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. Accordingly, these fair value estimates may not be realized in an actual sale or immediate settlement of the asset or liability. The Company believes the imprecision of an estimate could significantly impact the fair value measurement.

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Effects of Newly Adopted Accounting Standards

Comprehensive Income Presentation

        In June 2011, the FASB issued guidance on the presentation of other comprehensive income. This guidance requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity was eliminated. In December 2011, the FASB issued updated guidance that defers indefinitely certain requirements from its June 2011 guidance that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. We adopted this guidance for the quarterly period ended March 31, 2012. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Finance Receivables and Allowance for Credit Losses Disclosure

        In July 2010, the FASB issued accounting guidance related to disclosures about the credit quality of financing receivables and the allowance for credit losses. The objective of the amendment is disclosure of information that enables financial statement users to understand the nature of inherent credit risks, the entity's method of analysis and assessment of credit risk in estimating the allowance for credit losses, and the reasons for changes in both the receivables and allowances when examining a creditor's portfolio of financing receivables and its allowance for losses. We adopted the period-end disclosure requirements of this guidance related to an entity's credit quality of financing receivables and the related allowance for loan losses in the consolidated financial statements for the year ended December 31, 2010. We adopted the activity-related provisions of this guidance for the quarterly period ended March 31, 2011. Since the activity-related provisions of this guidance were disclosure-only in nature, the adoption of this updated guidance did not have a material impact on our financial condition and results of operations.

Loan Modifications and Loan Pool Accounting

        In April 2011, the FASB issued accounting guidance that clarifies when creditors should classify loan modifications as troubled debt restructurings ("TDRs"). The guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after January 1, 2011. The guidance on measuring the impairment of a receivable restructured in a TDR is effective on a prospective basis. This guidance supersedes the FASB's previous deferral of additional disclosures about TDRs. For a loan restructuring to constitute a TDR, a creditor must conclude that the restructuring constitutes a concession and the debtor is experiencing financial difficulties. We adopted this guidance on July 1, 2011, as required. Under this clarified guidance, we do not report loans modified in a TDR that had been fully paid-down, charged-off or foreclosed upon by period-end. The adoption of this guidance did not have a material impact on our financial statements.

Fair Value Measurements Disclosure

        In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately, a reconciliation for fair value measurements using significant unobservable inputs (Level 3) information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). We adopted this guidance for the quarterly period ended March 31, 2011. Since this guidance was disclosure-only in nature, the adoption of this updated guidance did not have a material impact on our financial condition and results of operations.

        In May 2011, the FASB issued guidance clarifying how to measure and disclose fair value. This guidance amends the application of the "highest and best use" concept to be used only in the

65

measurement of fair value of nonfinancial assets, clarifies that the measurement of the fair value of equity-classified financial instruments should be performed from the perspective of a market participant who holds the instrument as an asset, clarifies that an entity that manages a group of financial assets and liabilities on the basis of its net risk exposure can measure those financial instruments on the basis of its net exposure to those risks, and clarifies when premiums and discounts should be taken into account when measuring fair value. This guidance also requires new and enhanced disclosures on the quantification and valuation processes for significant unobservable inputs, transfers between Levels 1 and 2, and the categorization of all fair value measurements into the fair value hierarchy, even where those measurements are only for disclosure purposes. We adopted this guidance for the quarterly period ended March 31, 2012. Since this guidance was disclosure-only in nature, and since the Company's Level 3 fair value measurements were not significant for the quarterly period ended March 31, 2012, the adoption of this updated guidance did not have a material impact on our financial condition and results of operations.

Effect of Newly Issued Accounting Standards

        In July 2012, the FASB issued guidance on testing indefinite-lived intangible assets for impairment. This guidance simplifies the testing for indefinite lived intangible assets impairment by allowing an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount before proceeding to the quantitative impairment test. The effective date of this guidance was January 1, 2013. We believe that the adoption of this guidance will not have a significant impact on our financial condition and results of operations.

        In December 2011, the FASB issued guidance on disclosures about offsetting assets and liabilities. This guidance requires an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. This effective date of guidance is effective for annual and interim periods beginning on January 1, 2013. We believe that the adoption of this guidance will not have a significant impact on our financial condition and results of operations.

        In February 2013, the FASB issued guidance on reporting of amounts reclassified out of accumulated other comprehensive income. This guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. This guidance is effective prospectively for annual and interim periods beginning after December 15, 2012. We believe that the adoption of this guidance will not have a significant impact on our financial condition and results of operations.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

        As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

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Item 8.    Financial Statements and Supplementary Data.

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

	December 31, 2012			December 31, 2011
ASSETS
Cash and cash equivalents	$	39,941		$	34,802
Restricted cash		1,154			1,229
Portfolio Assets:
Loan portfolios, net of allowance for loan losses of $394 and $781		44,904			97,090
Real estate held for sale, net		10,171			26,856
Total Portfolio Assets		55,075			123,946
Loans receivable:
Loans receivable—affiliates		6,584			6,719
Loans receivable—SBA held for sale		1,087			7,614
Loans receivable—SBA held for investment, net of allowance for loan losses of $518 and $333		19,372			19,151
Loans receivable—other, net of allowance for loan losses of $1,083		7,530			12,212
Total loans receivable, net		34,573			45,696
Investment securities available for sale		1,670			3,798
Investments in unconsolidated subsidiaries		77,466			109,393
Service fees receivable ($793 and $834 from affiliates)		872			913
Servicing assets—SBA loans		1,131			1,090
Assets held for sale		—			9,886
Other assets		32,755			25,593
Total Assets(1)	$	244,637		$	356,346
LIABILITIES AND EQUITY
Liabilities:
Notes payable to banks and other debt obligations	$	76,945		$	189,936
Liabilities associated with assets held for sale		—			5,317
Other liabilities		30,425			23,690
Total Liabilities(2)		107,370			218,943
Commitments and contingencies (Note 21)
Stockholders' equity:
Optional preferred stock (par value $.01 per share; 98,000,000 shares authorized; no shares issued or outstanding)		—			—
Common stock (par value $.01 per share; 100,000,000 shares authorized; shares issued: 12,056,197 and 11,890,590, respectively; shares outstanding: 10,556,197 and 10,390,590, respectively)		121			119
Treasury stock, at cost: 1,500,000 shares		(10,923	)		(10,923	)
Paid in capital		107,378			106,330
Retained earnings		32,729			18,391
Accumulated other comprehensive loss		(577	)		(1,941	)
FirstCity Stockholders' Equity		128,728			111,976
Noncontrolling interests		8,539			25,427
Total Equity		137,267			137,403
Total Liabilities and Equity	$	244,637		$	356,346

(1)

Our consolidated assets at December 31, 2012 and December 31, 2011 include the following assets of certain variable interest entities ("VIEs") that can only be used to settle the liabilities of those VIEs: Cash and cash equivalents, $24.1 million and $20.4 million; Portfolio Assets, $42.1 million and $98.4 million; Loans receivable, $33.1 million and $45.7 million; Equity investments, $21.6 million and $51.7 million; various other assets, $32.9 million and $35.9 million; and Total assets, $153.8 million and $252.2 million, respectively.

(2)

Our consolidated liabilities at December 31, 2012 and December 31, 2011 include the following VIE liabilities for which the VIE creditors do not have recourse to FirstCity: Notes payable, $26.5 million and $70.2 million; Other liabilities, $18.2 million and $19.0 million; and Total liabilities, $44.6 million and $89.2 million, respectively.

See accompanying notes to consolidated financial statements.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Dollars in thousands, except per share data)

	Year Ended December 31,
	2012		2011
Revenues:
Servicing fees ($15,893 and $10,151 from affiliates, respectively)	$	16,918	$	11,065
Income from Portfolio Assets		26,707		40,622
Gain on sale of SBA loans held for sale, net		1,481		2,261
Gain on sale of investment securities		343		90
Interest income from SBA loans		1,507		1,433
Interest income from loans receivable—affiliates		840		2,942
Interest income from loans receivable—other		369		606
Revenue from railroad operations		12,481		6,989
Other income		9,935		8,309
Total revenues		70,581		74,317
Costs and expenses:
Interest and fees on notes payable to banks and other		5,429		13,032
Interest and fees on notes payable to affiliates		—		1,502
Salaries and benefits		24,756		22,794
Provision for loan and impairment losses		3,930		4,165
Asset-level expenses		3,370		6,094
Costs and expenses from railroad operations		9,538		4,583
Other costs and expenses		21,166		16,429
Total costs and expenses		68,189		68,599
Earnings before other revenue and income taxes		2,392		5,718
Equity income from unconsolidated subsidiaries		15,244		2,231
Gain on business combinations		935		433
Gain on debt extinguishment		—		26,543
Gain on sale of subsidiaries		1,451		1,818
Earnings before income taxes		20,022		36,743
Income tax expense (benefit)		974		3,702
Net earnings		19,048		33,041
Less: Net income attributable to noncontrolling interests		4,710		8,824
Net earnings attributable to FirstCity	$	14,338	$	24,217
Basic earnings per share of common stock	$	1.36	$	2.34
Diluted earnings per share of common stock	$	1.35	$	2.33

See accompanying notes to consolidated financial statements.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

	Year Ended December 31,
	2012			2011
Net earnings	$	19,048		$	33,041
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on securities available for sale		561			(868	)
Reclassification adjustment for gains on securities available for sale included in net earnings, net of tax		(501	)		(97	)
Foreign currency translation adjustments		54			(1,237	)
Reclassification adjustment for foreign currency losses included in net earnings, net of tax		1,028			—
Total other comprehensive income, net of tax		1,142			(2,202	)
Total comprehensive income		20,190			30,839
Less comprehensive income attributable to noncontrolling interests:
Net income		(4,710	)		(8,824	)
Net unrealized (gain) loss on securities available for sale, net of tax		(15	)		202
Foreign currency translation adjustments		237			124
Comprehensive income attributable to FirstCity	$	15,702		$	22,341

See accompanying notes to consolidated financial statements.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Dollars in thousands)

	FirstCity Stockholders
	Common Stock		Treasury Stock			Paid in Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Non-controlling Interests			Total Equity
Balances, December 31, 2010	$	118	$	(10,923	)	$	105,038		$	(5,826	)	$	(65	)	$	36,398		$	124,740
Net earnings		—		—			—			24,217			—			8,824			33,041
Change in net unrealized gain on securities available for sale, net of tax		—		—			—			—			(763	)		(202	)		(965	)
Foreign currency translation adjustments		—		—			—			—			(1,113	)		(124	)		(1,237	)
Issuance of common stock under stock-based compensation plans		1		—			69			—			—			—			70
Stock-based compensation expense		—		—			739			—			—			—			739
Sales of subsidiary shares in noncontrolling interests		—		—			484			—			—			207			691
Distributions to noncontrolling interests		—		—			—			—			—			(19,904	)		(19,904	)
Other		—		—			—			—			—			228			228
Balances, December 31, 2011		119		(10,923	)		106,330			18,391			(1,941	)		25,427			137,403
Net earnings		—		—			—			14,338			—			4,710			19,048
Change in net unrealized gain on securities available for sale, net of tax		—		—			—			—			45			15			60
Foreign currency translation adjustments		—		—			—			—			1,319			(237	)		1,082
Issuance of common stock under stock-based compensation plans		2		—			(2	)		—			—			—			—
Stock-based compensation expense		—		—			1,050			—			—			—			1,050
Deconsolidation and disposition of majority-owned entities (see Note 3)		—		—			—			—			—			(9,334	)		(9,334	)
Distributions to noncontrolling interests		—		—			—			—			—			(11,990	)		(11,990	)
Other		—		—			—			—			—			(52	)		(52	)
Balances, December 31, 2012	$	121	$	(10,923	)	$	107,378		$	32,729		$	(577	)	$	8,539		$	137,267

See accompanying notes to consolidated financial statements.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Year Ended December 31,
	2012			2011
Cash flows from operating activities:
Net earnings	$	19,048		$	33,041
Adjustments to reconcile net earnings to net cash used in operating activities:
Net principal advances on SBA loans held for sale		(11,034	)		(21,801	)
Proceeds from sales of SBA loans held for sale, net		19,937			29,146
Proceeds applied to income from Portfolio Assets		600			4,470
Income from Portfolio Assets		(26,707	)		(40,622	)
Provision for loan and impairment losses		3,930			7,258
Foreign currency transaction gains, net		(185	)		533
Equity income from unconsolidated subsidiaries		(15,244	)		(2,231	)
Gain on sale of SBA loans held for sale, net		(1,481	)		(2,261	)
Gain on sale of subsidiaries and equity investments		(1,451	)		(2,172	)
Gain on debt extinguishment		—			(26,543	)
Gain on sale of railroad property		—			(1,087	)
Gain on business combinations		(935	)		(433	)
Gain on sale of investment securities		(343	)		(90	)
Depreciation and amortization, net		3,631			2,533
Increase in other assets		(1,707	)		(2,778	)
Increase in other liabilities		7,941			815
Other, net		(588	)		421
Net cash used in operating activities		(4,588	)		(21,801	)
Cash flows from investing activities:
Purchases of property and equipment, net		(3,880	)		(1,734	)
Proceeds from sale of railroad property		—			1,372
Proceeds from sale of equity investments and consolidated subsidiaries		32,189			253
Proceeds from sale and deconsolidation of subsidiaries, net of cash disposed		—			2,561
Cash paid for business combinations, net of cash acquired		123			(2,599	)
Decrease in cash from deconsolidation of subsidiary		(2,855	)		—
Net principal payments on loans receivable		1,897			2,206
Purchases of SBA loans held for investment		—			(696	)
Net principal advances on SBA loans held for investment		(1,083	)		(3,685	)
Purchase of investment securities available for sale		—			(3,843	)
Net principal payments on investment securities available for sale		1,170			1,789
Proceeds from sale of investment securities		1,459			1,980
Purchases of Portfolio Assets		(4,720	)		(14,894	)
Proceeds applied to principal on Portfolio Assets		90,139			132,947
Contributions to unconsolidated subsidiaries		(33,606	)		(44,723	)
Distributions from unconsolidated subsidiaries		48,625			43,467
Net cash provided by investing activities		129,458			114,401
Cash flows from financing activities:
Borrowings under notes payable to affiliates		—			696
Borrowings under notes payable to banks and other		22,429			96,796
Principal payments of notes payable to affiliates		—			(3,237	)
Principal payments of notes payable to banks and other		(129,937	)		(172,641	)
Proceeds from secured borrowings, net		—			(4,302	)
Distributions to noncontrolling interests		(11,990	)		(19,904	)
Other, net		(408	)		(1,322	)
Net cash used in financing activities		(119,906	)		(103,914	)
Effect of exchange rate changes on cash and cash equivalents		175			(481	)
Net increase (decrease) in cash and cash equivalents		5,139			(11,795	)
Cash and cash equivalents, beginning of period		34,802			46,597
Cash and cash equivalents, end of period	$	39,941		$	34,802
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	2,825		$	10,869
Cash paid during the period for income taxes, net of refunds		1,698			3,473

See accompanying notes to consolidated financial statements.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies

(a) Description of Business

        FirstCity Financial Corporation, a Delaware corporation, is a multi-national specialty financial services company headquartered in Waco, Texas with offices throughout the United States and Mexico and a presence in Europe and South America. When we refer to "FirstCity," "the Company," "we," "our" or "us" in this Form 10-K, we mean FirstCity Financial Corporation and subsidiaries (consolidated).

        The Company engages in two major business segments—Portfolio Asset Acquisition and Resolution and Special Situations Platform. The Portfolio Asset Acquisition and Resolution business has been the Company's core business segment since it commenced operations in 1986. In the Portfolio Asset Acquisition and Resolution business, the Company acquires portfolios of under-performing and non-performing loans, and to a lesser extent, performing loans and other assets (collectively, "Portfolio Assets" or "Portfolios"), generally at a discount to their legal principal balances or appraised values, and services and resolves such Portfolio Assets in an effort to maximize the present value of the ultimate cash recoveries. FirstCity acquires the Portfolio Assets for its own account or through investment entities formed with one or more other co-investors (each such entity, an "Acquisition Partnership"). The Company engages in its Special Situations Platform business through its majority ownership in a subsidiary that was formed in April 2007. Through its Special Situations Platform, the Company provides investment capital to privately-held lower middle-market companies through flexible capital structuring arrangements to generate an attractive risk-adjusted return. These capital investments primarily take the form of senior and junior financing arrangements, but also include direct equity investments and common equity warrants. In addition, our Special Situations Platform business engages in distressed debt transactions and leveraged buyouts. Refer to Note 18 for additional information on the Company's major business segments.

        In December 2012, the Company entered into a definitive merger agreement with Hotspurs Holdings LLC ("Parent") and Hotspurs Acquisition Corporation ("Merger Subsidiary") pursuant to which the Company will become a private company that is wholly owned by Parent. Parent and Merger Subsidiary are affiliates of certain private investment funds governed by Värde Partners, Inc. ("Värde"). Under the terms of the merger agreement, FirstCity stockholders will receive $10.00 per share in cash for each share of FirstCity stock they own. The transaction is expected to close in the second quarter of 2013. Consummation of the merger is subject to various customary conditions, including the adoption of the merger agreement by the holders of at least a majority of the outstanding shares of the Company's common stock. The Company has filed a preliminary proxy statement with the Securities and Exchange Commission recommending that the Company's stockholders adopt the merger agreement.

(b) Basis of Presentation and Principles of Consolidation

        The accompanying consolidated financial statements include the accounts of FirstCity, its wholly-owned and majority-owned subsidiaries, and certain variable interest entities where we are the primary beneficiary as prescribed by the Financial Accounting Standards Board's (the "FASB") accounting guidance on variable interest entities (see below). All significant intercompany transactions and balances have been eliminated in consolidation. Certain amounts in the consolidated financial statements and disclosures for the prior year were reclassified to conform to the current year

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December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

presentation. These reclassifications were not significant and have no impact on FirstCity's net earnings, total assets or stockholders' equity.

Consolidated Subsidiaries

        If we determine that we have a controlling financial interest in an entity, then we must consolidate the assets, liabilities and noncontrolling interests of the entity in our consolidated financial statements. A controlling financial interest typically arises as a result of ownership of a majority of the voting interests of an entity. However, we may also have a controlling financial interest in an entity through an arrangement that does not involve voting interests, such as a variable interest entity ("VIE"). We consolidate all VIEs where we are the primary beneficiary as prescribed by the FASB's accounting guidance on the consolidation of VIEs. The primary beneficiary of a VIE is the party that has the power to direct the activities that most significantly impact the economic performance of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. Refer to Note 19 for more information regarding the Company's involvement with VIEs.

Unconsolidated Subsidiaries

        The Company does not consolidate investments in entities that are not VIEs where the Company does not have an effective controlling interest, or investments in entities that are VIEs where the Company is not the primary beneficiary. Rather, such investments, which represent equity investments in non-publicly-traded entities, are accounted for under the equity method of accounting since the Company has the ability to exercise significant influence (but not control) over operating and financial policies of such subsidiaries (including certain entities where we have less than 20% ownership). FirstCity has the ability to exercise significant influence over the operating and financial policies of its less-than-20%-owned entities, despite its comparatively smaller ownership percentage, due primarily to its active participation in the policy-making process as well as its involvement in the daily management activities of the entities.

        Under the equity method of accounting, the Company's investments in these unconsolidated entities are carried at the cost of acquisition, plus the Company's share of equity in undistributed earnings or losses since acquisition. We eliminate transactions with our equity-method subsidiaries to the extent of our ownership in such subsidiaries. Accordingly, our share of the income or losses of these equity-method subsidiaries is included in our consolidated net income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

        The following is a summary of the Company's combined ownership interests in unconsolidated equity-method subsidiaries at December 31, 2012 and 2011:

	Ownership Interests
	2012	2011
Acquisition Partnerships:
Domestic	10% - 50%	10% - 50%
Latin America	8% - 50%	8% - 50%
Europe	N/A	22% - 50%
Operating and Servicing Entities:
Domestic	39% - 49%	39% - 49%
Latin America	50%	50%
Europe	25%	16% - 37%

        The Company's equity income and losses from its unconsolidated foreign equity investments, except for certain of its unconsolidated European equity-method investments, are recorded on a one-month delay due to the timing of FirstCity's receipt of those financial statements.

        The Company has loans receivable from certain Acquisition Partnerships and other unconsolidated subsidiaries—see Note 6. In situations where the Company is not required to advance additional funds to the Acquisition Partnership and previous losses have reduced the equity investment to zero, the Company continues to report its share of equity method losses in its consolidated statements of earnings to the extent of and as an adjustment to the adjusted basis of the related loan receivable.

        The Company follows the accounting guidance for the equity method of accounting to determine if there has been an other-than-temporary decline in value of its investments in unconsolidated entities. The Company reviews its investments in unconsolidated entities for impairment whenever events or changes indicate that the fair value may be less than the carrying value of its investment. A loss in value of an investment which is other-than-temporary is recognized as a component of equity income (loss) of unconsolidated subsidiaries in the consolidated statements of earnings. This determination is based on the extent and/or length of time to which fair value was less than carrying value, our intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment, and other relevant factors and circumstances. When evaluating for impairment on investments that are not actively traded on a public market, we generally use a discounted cash flow approach to estimate the fair value of our unconsolidated investments and/or look to comparable activities in the marketplace (if available). Management judgment is required in developing the assumptions for the discounted cash flow approach. These assumptions include, among others, net asset values, internal rates of return and discount rates.

(c) Use of Estimates

        The preparation of financial statements in conformity with U.S. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

Estimates that are particularly susceptible to significant change in the near-term relate to (1) the estimation of future collections on Portfolio Assets used in the calculation of income from Portfolio Assets; (2) valuation of deferred tax assets and assumptions used in the calculation of income taxes; (3) valuation of servicing assets, investment securities, loans receivable (including loans receivable held in securitization entities) and related allowances for loan losses, real estate, and investments in unconsolidated subsidiaries; (4) guarantee obligations and indemnifications; and (5) legal contingencies. In addition, management has made significant estimates with respect to the valuation of assets, liabilities, non-controlling interests and contingencies attributable to business combinations (see Note 3), and fair value measurements of debt instruments resulting from its debt refinancing arrangement in December 2011 that was accounted for as a debt extinguishment (see Note 2). These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. The continuance of challenging economic conditions and disruptions in the financial, capital, real estate and foreign currency markets, have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

(d) Cash and Cash Equivalents

        For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. The Company maintains cash balances in various depository institutions that periodically exceed federally insured limits. Management periodically evaluates the creditworthiness of such institutions.

(e) Restricted Cash

        Restricted cash primarily includes monies due on loan-related remittances received by the Company and due to third parties.

(f) Portfolio Assets

        The Company invests in Portfolio Assets and services and resolves such Portfolio Assets in an effort to maximize the present value of the ultimate cash recoveries. The Portfolio Assets are generally non-homogeneous assets, including loans of varying qualities that are secured by diverse collateral types and real estate. Some Portfolio Assets are loans for which resolution is tied primarily to the real estate securing the loan, while others may be collateralized business loans, the resolution of which may be based on the cash flows of the business or the underlying collateral.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

        The following is a description of the classifications and related accounting policies for the Company's significant classes of Portfolio Assets:

Purchased Credit-Impaired Loans

        The Company accounts for acquired loans and loan portfolios with evidence of credit deterioration since origination ("Purchased Credit-Impaired Loans") at fair value on the acquisition date. The amounts paid for Purchased Credit-Impaired Loans reflect the Company's determination that the loans have experienced deterioration in credit quality since origination and that it is probable the Company will be unable to collect all amounts due according to the contractual terms of the underlying loans. At acquisition, the Company reviews each individual loan to determine whether there is evidence of deterioration of credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan's contractual terms. If both conditions exist, the Company determines whether each such loan is to be accounted for individually or whether such loans will be assembled into static pools based on common risk characteristics (primarily loan type and collateral). Static pools of individual loan accounts may be established and accounted for as a single economic unit for the recognition of income, principal payments and loss provision. Once a static loan pool is established, individual accounts are generally not added to or removed from the pool (unless the Company sells, forecloses or writes off the loan). At acquisition, the Company determines the excess of the scheduled contractual payments over all cash flows expected to be collected for the loan or loan pool as an amount that should not be accreted ("nonaccretable difference"). The excess of the cash flows from the loan or loan pool expected to be collected at acquisition over the initial investment ("accretable difference") is recognized as interest income over the remaining life of the loan or loan pool on a level-yield basis ("accretable yield"). The discount (i.e. the difference between the cost of each loan or loan pool and the related aggregate contractual receivable balance) is not recorded because the Company does not expect to fully collect each contractual receivable balance. As a result, these loans and loan pools are recorded at cost (which approximates fair value) at the time of acquisition.

        The Company accounts for Purchased Credit-Impaired Loans using either the interest method or a non-accrual method (through application of the cost-recovery or cash basis method of accounting). Application of the interest method is dependent on management's ability to develop a reasonable expectation as to both the timing and amount of cash flows expected to be collected. In the event the Company cannot develop or establish a reasonable expectation as to both the timing and amount of cash flows expected to be collected, the Company uses the cost-recovery or cash basis method of accounting.

        Interest method of accounting.    Under the interest method, an effective interest rate, or IRR, is applied to the cost basis of the loan or loan pool. The excess of the contractual cash flows over expected cash flows cannot be recognized as an adjustment of income or expense or on the balance sheet. The IRR that is calculated when the loan is purchased remains constant as the basis for subsequent impairment testing (performed at least quarterly) and income recognition. Significant increases in actual, or expected future cash flows, are used first to reverse any existing valuation allowance for that loan or loan pool; and any remaining increase may be recognized prospectively through an upward adjustment of the IRR over the remaining life of the loan or loan pool. Any

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

increase to the IRR then becomes the new benchmark for impairment testing and income recognition. Subsequent decreases in projected cash flows do not change the IRR, but are recognized as an impairment of the cost basis of the loan or loan pool (to maintain the then-current IRR), and are reflected in the consolidated statements of earnings through provisions charged to operations, with a corresponding valuation allowance offsetting the loan or loan pool in the consolidated balance sheets. FirstCity establishes valuation allowances for loans and loan pools acquired with credit deterioration to reflect only those losses incurred after acquisition—that is, the cash flows expected at acquisition that are no longer expected to be collected. Income from loans and loan pools accounted for under the interest method is accrued based on the IRR of each loan or loan pool applied to their respective adjusted cost basis. Gross collections in excess of the interest accrual and impairments will reduce the carrying value of the loan or loan pool, while gross collections less than the interest accrual will increase the carrying value. The IRR is calculated based on the timing and amount of anticipated cash flows using the Company's proprietary collection models.

        Cost-recovery method of accounting.    If the amount and timing of future cash collections on a loan are not reasonably estimable, the Company accounts for such asset on the cost-recovery method. Under the cost-recovery method, no income is recognized until the Company has fully collected the cost of the loan, or until such time as the Company considers the timing and amount of collections to be reasonably estimable and begins to recognize income based on the interest method as described above. At least quarterly, the Company performs an evaluation to determine if the remaining amount that is probable of collection is less than the carrying value of the loan or loan pool, and if so, recognizes impairment through provisions charged to operations, with a corresponding valuation allowance offsetting the loan or loan pool in the consolidated balance sheets. The carrying value of Purchased Credit-Impaired Loans accounted for under the cost-recovery method approximated $22.1 million at December 31, 2012 and $27.9 million at December 31, 2011.

        Cash basis method of accounting.    If only the amount of future cash collections on a loan is reasonably estimable, the Company accounts for such asset on an individual loan basis under the cash basis method of accounting. Under the cash basis method, no income is recognized unless collections are received during the period, or until such time as the Company considers the timing of collections to be reasonably estimable and begins to recognize income based on the interest method as described above. Income is recognized for the difference between the collections and a pro-rata portion of cost on a loan. Cost allocation is based on a proration of actual collections divided by total projected collections on the loan. Significant increases in future cash flows may be recognized prospectively as income over the remaining life of the loan through increased amounts allocated to income when collections are subsequently received. Subsequent decreases in projected cash flows are recognized as impairment of the loan's cost basis to maintain a constant cost allocation based on initial projections. The Company evaluates the projected cash flows for these loans and loan pools at least quarterly to determine if impairment exists, and if so, recognizes the impairment through provisions charged to operations, with a corresponding valuation allowance offsetting the loan or loan pool in the consolidated balance sheets. Management uses the cash basis method of accounting for such eligible loans primarily due to the increased uncertainty in the timing of future collections (attributable primarily to the borrowers' inability to obtain financing to refinance the loans). The carrying value of

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

Purchased Credit-Impaired Loans accounted for under the cash basis method approximated $17.6 million and $53.8 million at December 31, 2012 and December 31, 2011, respectively.

        Troubled debt restructurings (TDRs):    Modified Purchased Credit-Impaired Loans are not removed from a loan pool even if those loans would otherwise be deemed TDRs. Modified Purchased Credit-Impaired Loans that are accounted for on an individual basis are considered TDRs if there has been a concession granted to the borrower and the Company does not expect to recover its recorded investment in the loan. Purchased Credit-Impaired Loans that are classified as TDRs are measured for impairment. Refer to Note 1(g) below for accounting guidance on loan modifications that result in classification as TDRs.

Real Estate

        Real estate Portfolio Assets consist of real estate properties purchased from a variety of sellers or acquired through loan foreclosure. Rental income, net of expenses, is generally recognized when received. The Company accounts for its real estate properties on an individual-asset basis as opposed to a pool basis. The following is a description of the classifications and related accounting policies for the Company's various classes of real estate Portfolio Assets:

Classification and Impairment Evaluation

        Real estate held for sale primarily includes real estate acquired through loan foreclosure. The Company classifies a property as held for sale if (1) management commits to a plan to sell the property; (2) the Company actively markets the property in its current condition for a price that is reasonable in comparison to its fair value; and (3) management considers the sale of such property within one year of the balance sheet date to be probable. Real estate held for sale is stated at the lower of cost or fair value less estimated disposition costs. Real estate is not depreciated while it is classified as held for sale. Impairment losses are recorded if a property's fair value less estimated disposition costs is less than its carrying amount, and charged to operations in the period the impairment is identified.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

Cost Capitalization and Allocation

        Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at the lower of cost (i.e. the underlying loan's carrying value) or estimated fair value less disposition costs at the date of foreclosure—establishing a new cost basis. The amount, if any, by which the carrying value of the underlying loan exceeds the property's fair value less estimated disposition costs at the foreclosure date is charged as a loss against operations. Expenditures for repairs, maintenance, and other holding costs are charged to operations as incurred.

        Real estate properties acquired through a purchase transaction are initially recorded at the cost of the acquisition. The cost of acquired property includes the purchase price of the property, legal fees, and certain other acquisition costs. Subsequent to acquisition, the Company capitalizes capital improvements and expenditures related to significant betterments and replacements, including costs related to the development and improvement of the property for its intended use. Expenditures for repairs, maintenance, and other holding costs are charged to operations as incurred.

        When acquiring real estate with an existing building through a purchase transaction, the Company generally allocates the purchase price between land, land improvements, building, tenant improvements, and intangible assets related to in-place leases based on their relative fair values. The fair values of acquired land and buildings are generally determined based on an estimated discounted future cash flow model with lease-up assumptions as if the building was vacant upon acquisition, third-party valuations, and other relevant data. The fair value of in-place leases includes the value of net lease intangibles for above- and below-market rents and tenant origination costs, determined on a lease-by-lease basis. Amounts allocated to building and improvements are depreciated over their estimated remaining lives. Amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles are amortized over the remaining life of the underlying leases. At December 31, 2012 and December 31, 2011, accumulated depreciation and amortization was not significant.

Disposition of Real Estate

        Gains on disposition of real estate are recognized upon the sale of the underlying property if the transaction qualifies for gain recognition under the full accrual method, as prescribed by the FASB's accounting guidance on real estate sales transactions. If the transaction does not meet the criteria for the full accrual method of profit recognition based on our assessment, we account for the sale based on an appropriate deferral method determined by the nature and extent of the buyer's investment and our continuing involvement.

(g) Loans Receivable

Loans Held for Sale

        The portions of U.S. Small Business Administration ("SBA") loans that are guaranteed by the SBA are classified by management as loans held for sale. These loans are recorded at the lower of aggregate cost or estimated fair value. The fair value of SBA loans held for sale is based primarily on prices that secondary markets are currently offering for loans with similar characteristics. Net unrealized losses, if any, are recognized through a valuation allowance through a charge to income. The carrying value of SBA loans held for sale is net of premiums as well as deferred origination fees and costs. Premiums

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

and net origination fees and costs are deferred and included in the basis of the loans in calculating gains and losses upon sale. SBA loans are generally secured by the borrowing entities' assets such as accounts receivable, property and equipment, and other business assets. The Company generally sells the guaranteed portion of each loan to a third-party investor and retains the servicing rights. The non-guaranteed portion of SBA loans is classified as held for investment (discussed below). Effective January 1, 2010, the Company adopted accounting guidance that required SBA loan transactions subject to the SBA's premium recourse provision to be accounted for initially as secured borrowings rather than asset sales. After the premium recourse provisions had elapsed, the transaction was recorded as a sale and the resulting net gain on sale was recognized—which was based on the difference between the proceeds received and the allocated carrying value of the loan sold. However, effective January 31, 2011, the SBA removed the recourse provisions contained in its loan sales agreements for guaranteed portions of SBA loans. As a result, SBA loan sales transacted by the Company under these revised agreements were accounted for initially as a sale, with the corresponding gain recognized at the time of sale. The gains recognized on these loan sales were based on the difference between the sales proceeds received and the allocated carrying value of the loans sold (which included deferred premiums and net origination fees and costs).

Loans Held for Investment

        Loans receivable consisting of loans made to affiliated entities (including Acquisition Partnerships and other equity-method investees) and non-affiliated entities, and the non-guaranteed portions of SBA loans, are classified by management as held for investment. These loans are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and unamortized premiums or discounts on purchased loans. Loan origination fees and costs, as well as purchase premiums and discounts, are amortized as level-yield adjustments over the respective loan terms. Unamortized net fees, costs, premiums or discounts are recognized upon early repayment or sale of the loan. Repayment of the loans is generally dependent upon future cash flows of the borrowers, future cash flows of the underlying collateral, and distributions made from affiliated entities. Interest is accrued when earned in accordance with the contractual terms of the loans, except for loans on non-accrual status. Interest is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding.

        The Company has established an allowance for loan losses to absorb probable, estimable losses inherent in its portfolio of loans receivable held for investment. This allowance for loan losses includes specific allowances, based on individual evaluations of certain loans and loan relationships, and allowances for pools of loans with similar risk characteristics. Management's determination of the adequacy of the allowance is a quarterly process and is based on evaluating the collectibility of the loans in light of various factors, as applicable, such as quality and composition of the loan portfolio segments, estimated future cash receipts of the borrower's operations or underlying collateral, historical experience, estimated value of underlying collateral, prevailing economic conditions, industry concentrations and conditions, and other relevant factors. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Actual losses experienced in the future may vary from management's estimates. Management attributes portions of the allowance to loans that it evaluates and determines to be impaired and to groups of loans that it evaluates collectively.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

        In determining the appropriate level of allowance, management uses information to stratify its portfolio of loans receivable held for investment into loan pools with common risk characteristics. Classes in the affiliated and non-affiliated portfolio asset and commercial loan portfolio segments are generally disaggregated by accrual status (which is generally based on management's assessment on the probability of default). Classes in the non-guaranteed SBA commercial loan portfolio segment are disaggregated based upon underlying credit quality. Certain portions of the allowance are attributed to loan pools based on various factors and analyses, including but not limited to, current and historical loss experience trends, collateral, region, current economic conditions, and industry concentrations and conditions. Loans deemed to be impaired, including loans with an increased probability of default as determined by management, are evaluated individually rather than on a pool basis as described above. We consider a loan to be impaired when, based on current information and events, we determine it is probable that we will not be able to collect all amounts due according to the loan's contractual terms (including scheduled interest payments). When management identifies a loan as impaired, we measure the impairment based on discounted future cash flows, except when foreclosure is probable or the source of repayment is the operation or liquidation of the collateral. In these cases, we use the current fair value of the collateral, less estimated selling costs, instead of discounted cash flows. When a loan is determined to be impaired, we cease to accrue interest on the note and interest previously accrued but not collected becomes part of our recorded investment in the loan and is collectively reviewed for impairment. When ultimate collectibility of the impaired note is in doubt, all collections are applied to reduce the principal amount of such notes until the principal has been recovered, and collections thereafter are recognized as interest income. We return a loan to accrual status when we determine that the collectibility of principal and interest is reasonably assured. Impairment losses are charged against an allowance account through provisions charged to operations in the period impairment is identified. Loans are written-off against the allowance when all possible means of collection have been exhausted and the potential for recovery is considered remote.

        Troubled debt restructurings (TDRs):    In situations where, for economic or legal reasons related to a borrower's financial difficulties, the Company grants a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a TDR. Modification of loan terms that may be considered a concession to the borrower may include rate reductions, principal forgiveness, term extensions, payment forbearance and other actions intended to minimize our economic loss and to avoid foreclosure or repossession of the collateral. For modifications where we may forgive loan principal, the entire amount of such principal forgiveness is immediately charged off. Loans classified as TDRs are considered impaired loans.

(h) Investment Securities Available-for-Sale

        The Company has investment securities that consist of purchased beneficial interests in securitized financial assets. The Company also had an investment in a marketable equity security, which was sold in December 2012. We classify and account for these securities as available-for-sale and, accordingly, we measure the securities at fair value on the consolidated balance sheet, with unrealized gains and losses included in "Accumulated other comprehensive income." Fair value of the purchased beneficial interests are estimated based on the present value of expected collections on the underlying receivables using an internal valuation model, incorporating market-based assumptions when such information is available. Fair value of the equity security was measured using quoted market prices in an active

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

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December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

exchange market for the identical asset. Additional information on the fair value measurement is included in Note 17.

        The excess of all cash flows attributable to the beneficial interest estimated at the acquisition date over the initial investment amount (i.e. the accretable yield) is recognized as interest income over the life of the beneficial interest using the interest method. The Company continues to estimate the projected cash flows over the life of the beneficial interest for the purposes of both recognizing interest income and evaluating impairment.

        Other-than-temporary impairment is considered to have occurred when the fair value of the security has declined below its amortized cost basis and if (1) we have the intent to sell the security; (2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or (3) we do not expect to recover the entire amortized cost basis of the security.

(i) Property and Equipment

        Property, equipment and leasehold improvements (reported in "Other assets" in the consolidated balance sheets) are carried at cost less accumulated depreciation and amortization. Property and equipment are depreciated over their estimated useful lives using the straight-line method of depreciation. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements (or the terms of the underlying leases, if shorter). Generally, buildings and building improvements are depreciated over 25 to 30 years; office equipment is depreciated over 3 to 10 years; depreciable rail property is depreciated over 25 years; machinery and equipment are depreciated over 5 to 15 years; and leasehold improvements are amortized over 2 to 10 years. Maintenance and repairs are charged to expense in the period incurred. Expenditures for improvements and significant betterments that increase productive capacity or extend useful life are capitalized and depreciated over the useful lives of such assets. When property or equipment is sold or retired, the cost and related accumulated depreciation are removed from the consolidated balance sheet and any gain or loss is included in income.

(j) Accounting for Transfers and Servicing of Financial Assets

        The Company accounts for transfers of financial assets as sales when control over the transferred assets is surrendered. Control is generally considered to have been surrendered when (1) the transferred assets are legally isolated from the Company or its consolidated affiliates; (2) the transferee has the right to pledge or exchange the assets with no conditions that constrain the transferee and provide more than a trivial benefit to the Company; and (3) the Company does not maintain the obligation or unilateral ability to reclaim or repurchase the assets. If these sale criteria are met, the transferred assets are removed from the Company's balance sheet and a gain or loss on sale is recognized. If not met, the transfer is recorded as a secured borrowing, and the assets remain on the Company's balance sheet, the proceeds from the transaction are recognized as a liability, and gain or loss on sale is deferred until the sale criterion are achieved.

        The Company generally services Portfolio Assets acquired through its investments in Acquisition Partnerships. The Company does not recognize capitalized servicing rights related to its Portfolio Assets owned by the Acquisition Partnerships because (1) servicing is not contractually separated from the underlying assets by sale or securitization of the assets with servicing retained or separate purchase or assumption of the servicing; (2) consideration is not exchanged between the Company and the

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

Acquisition Partnerships for the servicing rights of the acquired Portfolio Assets; (3) the Company has ownership interests in the Acquisition Partnerships that own the Portfolio Assets it services; and (4) the Company does not have the risks and rewards of ownership of servicing rights. The Company services, in all material respects, the Portfolio Assets owned for its own account, the Portfolio Assets owned by the Acquisition Partnerships and, to a very limited extent, certain Portfolio Assets owned by third parties. In connection with the Acquisition Partnerships in the United States, the Company generally earns a servicing fee, which is based on a percentage of gross cash collections generated from the Portfolio Assets. The rate of servicing fee charged is generally a function of the average face value of the assets within each pool being serviced (the larger the average face value of the assets in a Portfolio, the lower the fee percentage within the prescribed range), the type of assets and the level of servicing required for each asset. For the Mexican Acquisition Partnerships, the Company earns a servicing fee based on costs of servicing plus a profit margin. The Acquisition Partnerships in Europe and South America are serviced by various entities in which the Company maintains an equity interest. In all cases, service fees are recognized when they are earned in accordance with the servicing agreements.

        The Company has servicing contracts with certain of its Acquisition Partnerships that entitle the Company to receive additional compensation for servicing after a specified return to the investors has been achieved. The Company recognizes revenue related to these contracts when the investors receive the required level of returns specified in the contracts and the Acquisition Partnerships receive cash in an amount greater than the required returns. There is no guarantee that the required level of returns to the investors will be achieved or that any additional compensation to the Company related to the contracts will be realized. The Acquisition Partnerships accrue a liability for these contingent fees provided that payment of the fees is probable and reasonably estimable.

        In connection with the Company's SBA lending activities, the Company recognizes servicing assets through the sale of originated or purchased loans when servicing rights are retained. The Company initially recognizes and measures at fair value servicing rights obtained from SBA loan sales and purchased servicing rights. The Company subsequently measures these servicing assets by using the amortization method, which amortizes servicing assets in proportion to, and over the period of, estimated net servicing income. The amortization of the servicing assets is analyzed periodically and is adjusted to reflect changes in prepayment rates and other estimates. See Note 8 for more information on servicing rights related to SBA loans.

(k) Revenue Recognition and Contingent Liabilities—Special Situations Platform Subsidiaries

        The Company's consolidated railroad subsidiaries (under its Special Situations Platform) interchange rail cars with connecting carriers, provide rail freight services for on-line customers, operate a transload facility, and operate a rail-served debris transfer station. Freight revenue is recognized at the time the shipment is either delivered to or received from the connecting carrier at the point of interchange. Industrial switching and other service revenues are recognized as such services are provided.

        Certain managers of our Special Situations Platform are party to a management agreement that allows them to participate in the net profits of the underlying investments within the Special Situations Platform. In accordance with this agreement, investments are pooled by year and tracked for performance. Once a pool earns a 20% internal rate of return, the Company is required to pay the managers 37.5% of the remaining net cash flows received from that pool. The Company recognizes a

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

liability for the amount that is deemed estimable and probable to be paid to these employees. The liability is adjusted quarterly as estimates of future net cash flows are revised. At December 31, 2012 and 2011, this liability was $4.9 million and $0.4 million, respectively. In December 2012, the Company's equity-method investment in a manufacturing concern involved in the prefabricated building industry sold substantially all of its net assets for a gain of $8.0 million.

(l) Translation Adjustments

        The Company has determined that the local currency is the functional currency for its operations outside the United States (primarily Europe and Latin America). We translate the results for our foreign subsidiaries and affiliates from the designated functional currency to the U.S. dollar using average exchange rates during the relevant period, while we translate assets and liabilities at the exchange rate in effect at the reporting date. We report the resulting gains or losses from translating foreign currency financial statements as a separate component of stockholders' equity in accumulated other comprehensive income or loss. An analysis of the changes in the cumulative adjustments for 2012 and 2011 follows (dollars in thousands):

Balance, December 31, 2010	$	(740	)
Aggregate adjustment for the year resulting from translation adjustments and gains and losses on certain hedge transactions		(1,113	)
Balance, December 31, 2011		(1,853	)
Aggregate adjustment for the year resulting from translation adjustments and gains and losses on certain hedge transactions		1,319
Balance, December 31, 2012	$	(534	)

        Increases or decreases in expected functional currency cash flows upon settlement of a foreign currency transaction are recorded as foreign currency transaction gains or losses and included in the Company's operations in the period in which the transaction is settled. Aggregate foreign currency transaction gains and losses included in the consolidated statements of earnings as other expense for 2012 and 2011 were $0.2 million gain and $0.5 million loss, respectively.

        In general, monetary assets and liabilities designated in U.S. dollars give rise to foreign currency realized and unrealized transaction gains and losses, which we record in the consolidated statement of earnings as foreign currency transaction gains, net. However, we report the effects of changes in exchange rates associated with certain U.S. dollar-denominated intercompany loans and advances to certain of our Latin American subsidiaries that are of a long-term investment nature (that is, settlement is not planned or anticipated in the foreseeable future) as other comprehensive income or loss in our consolidated financial statements. We have determined that certain U.S. dollar-denominated intercompany loans and advances to our Latin American subsidiaries are of a long-term investment nature.

        The net foreign currency translation gain (loss) included in accumulated other comprehensive income (loss) relating to the Company's Euro-denominated debt (see Notes 2 and 12) was $0.3 million loss for 2012 and $0.3 million gain for 2011.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

(m) Income Taxes

        The Company files a U.S. consolidated federal income tax return with its 80%-or-greater-owned subsidiaries. The Company records all of the allocated federal income tax provision of the consolidated group in the parent corporation.

        The Company is subject to income taxes in both the United States and the non-U.S. jurisdictions in which we operate. We account for income taxes in both the U.S. and non-U.S. jurisdictions under the asset and liability method. Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates, if any, would be recognized in earnings in the period that includes the enactment date. We reduce the carrying amounts of deferred tax assets through a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically by the Company based on the more-likely-than-not realization threshold criterion. In this assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other factors, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, excess of appreciated asset value over the tax basis of net assets, impact of gains or charges from one-time events, the duration of statutory carryforward periods, the Company's experience with utilizing available operating loss and tax credit carryforwards, and tax planning strategies. In making such assessments, significant weight is given to evidence that can be objectively verified.

        The Company accounts for income tax uncertainty using the "more-likely-than-not" criteria incorporated in the FASB's authoritative guidance on accounting for uncertainty in income taxes. Accordingly, we account for uncertain tax positions using a two-step approach whereby we recognize an income tax benefit if, based on the technical merits of a tax position, it is more likely than not (a probability of greater than 50%) that the tax position would be sustained upon examination by the taxing authority. We then recognize a tax benefit equal to the largest amount of tax benefit that is greater than 50% likely to be realized upon settlement with the taxing authority, considering all information available at the reporting date. Once a financial statement benefit for a tax position is recorded, we adjust it only when there is more information available or when an event occurs necessitating a change. Tax positions that previously failed to meet the more-likely-than-not recognition threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

(n) Earnings per Common Share

        The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company's participating securities consist of unvested restricted stock awards that contain a non-forfeitable right to receive dividends and, therefore, are considered to participate in undistributed earnings with common stockholders.

        Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of stock-based awards. We exclude potentially dilutive securities from the computation of diluted earnings per share when the effect of their inclusion would be anti-dilutive.

        The following table sets forth the computation of basic and diluted earnings per common share for the years ended December 31, 2012 and 2011:

	Year Ended December 31,
(In thousands, except per share data)	2012		2011
Net earnings	$	19,048	$	33,041
Less: Net income attributable to noncontrolling interests		4,710		8,824
Net earnings attributable to FirstCity	$	14,338	$	24,217
Less: Net earnings allocable to participating securities		251		180
Net earnings allocable to common shares	$	14,087	$	24,037
Weighted-average common shares outstanding—basic		10,333		10,283
Dilutive effect of restricted stock shares		31		8
Dilutive effect of stock options		44		13
Weighted-average common shares outstanding—diluted		10,408		10,304
Net earnings per share:
Basic	$	1.36	$	2.34
Diluted	$	1.35	$	2.33

        For the years ended December 31, 2012 and 2011, potentially dilutive securities representing approximately 555,000 and 769,000 shares of common stock, respectively, were excluded from the computation of diluted earnings per common share because their effect would have been anti-dilutive.

(o) Long-Lived Assets

        The Company assesses the impairment of long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value of the asset exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market prices and third-party independent appraisals, as considered necessary.

(p) Stock-Based Compensation

        The Company measures the compensation cost of stock-based awards using the estimated fair value of those awards on the grant date. We recognize the compensation cost as expense over the vesting period of the awards. See Note 13 for additional disclosure of the Company's stock-based compensation.

(q) Fair Value Measurements

        The Company applies the provisions of FASB's accounting guidance for fair value measurements of financial and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or non-recurring basis, as applicable. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price). This guidance also establishes a framework for measuring fair value and expands disclosures about fair value measurements. See Note 17 for additional information.

(r) Recently Adopted Accounting Standards

Comprehensive Income Presentation

        In June 2011, the FASB issued guidance on the presentation of other comprehensive income. This guidance requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity was eliminated. In December 2011, the FASB issued updated guidance that defers indefinitely certain requirements from its June 2011 guidance that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. We adopted this guidance for the quarterly period ended March 31, 2012. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Finance Receivables and Allowance for Credit Losses Disclosure

        In July 2010, the FASB issued accounting guidance related to disclosures about the credit quality of financing receivables and the allowance for credit losses. The objective of the amendment is disclosure of information that enables financial statement users to understand the nature of inherent credit risks, the entity's method of analysis and assessment of credit risk in estimating the allowance for credit losses, and the reasons for changes in both the receivables and allowances when examining a creditor's portfolio of financing receivables and its allowance for losses. We adopted the period-end disclosure requirements of this guidance related to an entity's credit quality of financing receivables and the related allowance for loan losses in the consolidated financial statements for the year ended

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

December 31, 2010. We adopted the activity-related provisions of this guidance for the quarterly period ended March 31, 2011. Since the activity-related provisions of this guidance were disclosure-only in nature, the adoption of this updated guidance did not have a material impact on our financial condition and results of operations. Refer to Notes 1(g), 5 and 6 for additional information.

Loan Modifications and Loan Pool Accounting

        In April 2011, the FASB issued accounting guidance that clarifies when creditors should classify loan modifications as troubled debt restructurings ("TDRs"). The guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after January 1, 2011. The guidance on measuring the impairment of a receivable restructured in a TDR is effective on a prospective basis. This guidance supersedes the FASB's previous deferral of additional disclosures about TDRs. For a loan restructuring to constitute a TDR, a creditor must conclude that the restructuring constitutes a concession and the debtor is experiencing financial difficulties. We adopted this guidance on July 1, 2011, as required. Under this clarified guidance, we do not report loans modified in a TDR that had been fully paid down, charged off or foreclosed upon by period-end. The adoption of this guidance did not have a material impact on our financial statements.

Fair Value Measurements Disclosure

        In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately, a reconciliation for fair value measurements using significant unobservable inputs (Level 3) information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). We adopted this guidance for the quarterly period ended March 31, 2011. Since this guidance was disclosure-only in nature, the adoption of this updated guidance did not have a material impact on our financial condition and results of operations. Refer to Note 17 for additional information.

        In May 2011, the FASB issued guidance clarifying how to measure and disclose fair value. This guidance amends the application of the "highest and best use" concept to be used only in the measurement of fair value of nonfinancial assets, clarifies that the measurement of the fair value of equity-classified financial instruments should be performed from the perspective of a market participant who holds the instrument as an asset, clarifies that an entity that manages a group of financial assets and liabilities on the basis of its net risk exposure can measure those financial instruments on the basis of its net exposure to those risks, and clarifies when premiums and discounts should be taken into account when measuring fair value. This guidance also requires new and enhanced disclosures on the quantification and valuation processes for significant unobservable inputs, transfers between Levels 1 and 2, and the categorization of all fair value measurements into the fair value hierarchy, even where those measurements are only for disclosure purposes. We adopted this guidance for the quarterly period ended March 31, 2012. Since this guidance was disclosure-only in nature, and since the Company's Level 3 fair value measurements were not significant for the quarterly period ended March 31, 2012, the adoption of this updated guidance did not have a material impact on our financial condition and results of operations. Refer to Note 17 for additional information.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

1. Summary of Significant Accounting Policies (Continued)

(s) Recently Issued Accounting Standards

        In July 2012, the FASB issued guidance on testing indefinite-lived intangible assets for impairment. This guidance simplifies the testing for indefinite lived intangible assets impairment by allowing an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount before proceeding to the quantitative impairment test. The effective date of this guidance was January 1, 2013. We believe that the adoption of this guidance will not have a significant impact on our financial condition and results of operations.

        In December 2011, the FASB issued guidance on disclosures about offsetting assets and liabilities. This guidance requires an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. This effective date of guidance is effective for annual and interim periods beginning on January 1, 2013. We believe that the adoption of this guidance will not have a significant impact on our financial condition and results of operations.

        In February 2013, the FASB issued guidance on reporting of amounts reclassified out of accumulated other comprehensive income. This guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. This guidance is effective prospectively for annual and interim periods beginning after December 15, 2012. We believe that the adoption of this guidance will not have a significant impact on our financial condition and results of operations.

2. Liquidity and Capital Resources

        The Company requires liquidity to fund its operations, Portfolio Asset acquisitions, investments in and advances to Acquisition Partnerships, capital investments in privately-held lower middle-market companies, other debt and equity investments, repayments of bank borrowings and other debt, and working capital to support our growth. Historically, our primary sources of liquidity have been funds generated from operations (primarily loan and real estate collections and service fees), equity distributions from the Acquisition Partnerships and other subsidiaries, interest and principal payments on subordinated intercompany debt, dividends from the Company's subsidiaries, borrowings from credit facilities with external lenders, and other special-purpose short-term borrowings. At December 31, 2012, the Company had $24.1 million of cash on its consolidated balance sheet that could only be used to settle the liabilities of certain consolidated VIEs (see Note 19).

        Our ability to fund operations and make new investments is dependent on (1) anticipated cash flows from our unencumbered Portfolio Assets and equity investments; (2) our current holdings of

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

2. Liquidity and Capital Resources (Continued)

unencumbered cash; (3) residual cash flows from the pledged assets and equity investments after full repayment of our term loan facilities with Bank of Scotland and Bank of America (as discussed below); (4) cash leak-through provisions included in our term loan facilities with Bank of Scotland and Bank of America (as discussed below); and (5) our investment agreement with Värde Investment Partners, L.P. (as discussed below). Many factors, including general economic conditions, are essential to our ability to generate cash flows. Fluctuations in our collections, investment income, credit availability, and adverse changes in other factors could have a negative impact on our ability to generate sufficient cash flows to support our business.

        Historically, the Company's primary sources of funding for purchasing distressed loan portfolios were loans under credit facilities with third-party lenders, other special purpose short-term borrowings, funds generated from operations, equity distributions from acquisition entities and other subsidiaries and interest and principal payments on subordinated intercompany debt. A substantial majority of the Company's portfolio investments prior to July 2010 were funded through loan facilities provided by Bank of Scotland and BoS(USA), Inc.

        Although Bank of Scotland had provided financing to the Company for several years, following Lloyds Banking Group's acquisition of Bank of Scotland, Bank of Scotland and BoS(USA), Inc. placed the Company's revolving loan facility in a wind-down structure. In June 2010, the facilities with Bank of Scotland and BoS(USA), Inc. were restructured into one facility with a principal amount of $268.6 million ("Reducing Note Facility") under which Bank of Scotland and BoS(USA), Inc. had no further obligations to provide financing to the Company. The Reducing Note Facility permitted a monthly cash leak-through to the Company to cover the overhead of the ongoing business and a cash flow leak-through of 20% of cash flows up to a maximum amount of $20 million after the payment of interest and overhead allowance. The lack of a corporate line of credit substantially restricted the Company's ability to acquire loan portfolios. As a result, the Company's source of funding for acquisitions was primarily limited to its unencumbered cash flow from operations and the cash flow leak-through, and the Company began to seek alternative sources of funding, which ultimately proved to be unachievable as the Company was never able to replace this source of funding.

        Due to a lack of funding, the Company was unable to pursue an aggressive acquisition strategy for its own account and almost all of the Company's new acquisitions were off-balance sheet in the form of minority interests (ranging from 10% to 20%) in acquisition entities controlled by larger firms. The Company was unable to obtain financing to purchase investments for its own account on reasonable terms. As a result, the Company's balance sheet began to shrink as its existing portfolios matured and new acquisitions were off-balance sheet and the value of its servicing platform diminished.

        The following is a summary of FirstCity's investment agreement and primary external lending facilities that it uses to finance and provide liquidity for equity and loan investments, Portfolio Asset acquisitions, Acquisition Partnership investments, capital investments, and working capital:

Investment Agreement with Värde Investment Partners, L.P. ("VIP")

        FirstCity, through its wholly-owned subsidiaries FC Diversified Holdings LLC ("FC Diversified") and FirstCity Servicing Corporation ("FC Servicing"), and VIP are parties to an investment agreement, effective April 1, 2010, whereby VIP may invest, at its discretion, in distressed loan portfolios and

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

2. Liquidity and Capital Resources (Continued)

similar investment opportunities alongside FirstCity, subject to the terms and conditions contained in the agreement. The primary terms of the agreement are as follows:

•

FirstCity will act as the exclusive servicer for the investment portfolios;

•

FirstCity will provide VIP with a "right of first refusal" with regard to distressed asset investment opportunities in excess of $3 million sourced by FirstCity;

•

FirstCity, at its determination, will co-invest between 5%-25% in each investment;

•

FirstCity will receive a $200,000 monthly retainer in exchange for its services and commitments;

•

FirstCity will receive a base servicing fee (based on investment portfolio collections) and will be eligible to receive additional incentive-based servicing fees (depending on the performance of the portfolios acquired); and

•

FirstCity will be eligible to receive incentive-based management fees (depending on the aggregate amount and performance of the portfolios acquired).

        The investment agreement has a termination date of June 30, 2015, which is subject to consecutive automatic one-year extensions without any action by FirstCity and VIP. FC Servicing will be the servicer for all of the acquisition entities formed by FC Diversified and VIP (subject to removal by VIP on a pool-level basis under certain conditions). The parties may terminate the investment agreement prior to June 30, 2015 under certain conditions.

        The cash flows from the assets and equity interests from the Company's Portfolio Asset investments made in connection with the investment agreement with VIP, which are held by FC Investment Holdings Corporation ("FC Investment") (a wholly-owned subsidiary of FirstCity) and its subsidiaries, are not subject to the security interest requirements of the Bank of Scotland and Bank of America loan facilities described below.

Bank of Scotland Credit Facilities

Reducing Note Facility—Bank of Scotland

        In June 2010, FirstCity refinanced its then-existing acquisition loan facilities with Bank of Scotland and closed on a $268.6 million Reducing Note Facility Agreement ("Reducing Note Facility") that provided for repayment to Bank of Scotland over time as cash flows from the underlying assets securing the term loan facility were realized. The Company's outstanding indebtedness and letter of credit obligations under its then-existing loan facilities with Bank of Scotland were refinanced by the Reducing Note Facility. This term loan facility capped FirstCity's financing arrangements with Bank of Scotland, and as such, Bank of Scotland had no further obligation to provide financing to fund FirstCity's investment activities and operations after June 2010. The Reducing Note Facility was secured by substantially all of the assets of FirstCity's subsidiaries that were subject to the obligations of the former loan facilities with Bank of Scotland. FC Investment and its subsidiaries, which hold investments made in connection with FirstCity's investment agreement with VIP (discussed above), and various other investments that FirstCity originated subsequent to June 2010, were not subject to the security interest requirements of the Reducing Note Facility.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

2. Liquidity and Capital Resources (Continued)

        In December 2011, FirstCity entered into an agreement to amend and restate the Reducing Note Facility with Bank of Scotland, which had an unpaid principal balance of approximately $173.2 million at closing. As a result, FirstCity's primary obligation under the Reducing Note Facility, as amended ("BoS Facility A"), was reduced by the assumption of $25.0 million of debt ("BoS Facility B") by a newly-formed, wholly-owned subsidiary of FirstCity, combined with a $53.4 million reduction primarily from proceeds obtained by FirstCity from its new $50.0 million credit facility with Bank of America ("BoA Loan") and other cash payments at closing. FirstCity's remaining $94.8 million debt obligation under BoS Facility A (post-closing) carries a 0.25% annual interest rate through maturity (December 2014), and allows for repayment over time as cash flows from the underlying pledged assets are realized. FirstCity's $25.0 million debt obligation under BoS Facility B does not bear interest, and allows for repayment over time as cash flows from the underlying pledged assets, if any, are realized (FirstCity has not received any significant cash flows from these underlying assets and has not allocated any value to these assets for the past three years). As a result of its December 2011 debt refinancing arrangements, FirstCity was able to significantly reduce its aggregate future cash outlay to Bank of Scotland and Bank of America under these new loan facilities in comparison to the repayment terms under the former Reducing Note Facility with Bank of Scotland—which, in turn, will provide more liquidity in the future to fund investment opportunities.

BoS Facility A—Bank of Scotland

        At December 31, 2012, the unpaid principal balance on BoS Facility A was $31.1 million and the unamortized fair value discount was $1.1 million. Prior to December 2012, a portion of the unpaid principal balance included Euro-denominated debt that FirstCity used to partially off-set its business exposure to foreign currency exchange risk attributable to its net equity investments in Europe (see Note 12). The Euro-denominated debt was paid off in December out of proceeds from the sale of the Company's investment in UBN, SAS (see Note 3). The primary terms and conditions of FC Commercial's loan facility with Bank of Scotland under BoS Facility A are as follows:

•

Release of assets of FH Partners LLC (the "FH Partners Assets") which secured the Reducing Note Facility to allow FH Partners LLC to pledge the FH Partners Assets as collateral for the BoA Loan (Bank of Scotland was granted a subordinated security interest in these assets);

•

Repayment will be made over time (no scheduled amortization) as cash flows are realized from the pledged assets (primarily loans, real estate and equity investments) other than the FH Partners Assets;

•

Additional repayment will be made from residual cash flows from the FH Partners Assets from excess cash flow released to FH Partners LLC under the loan facility for the BoA Loan ("FH Partners Excess Cash Flow") and after the payment of the BoA Loan;

•

Fixed annual interest rate equal to 0.25%;

•

Maturity date of December 19, 2014;

•

Unlimited guaranty provided by FirstCity for the repayment of the indebtedness under BoS Facility A;

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December 31, 2012 and 2011

2. Liquidity and Capital Resources (Continued)

•

No advances will be made under this loan facility, except for draws on an outstanding letter of credit in the amount of $5.4 million;

•

FirstCity will receive a management fee after payment to Bank of Scotland of interest and fees, certain expenses and other items, which is equal to 10% of the monthly collections from the underlying pledged assets other than the FH Partners Assets, and 5% of the of the monthly collections from the FH Partners Assets as FH Partners Excess Cash Flow is paid to Bank of Scotland (i.e. cash "leak-through"), which fees are not required to be applied to the debt owed to Bank of Scotland; the 5% management fee related to the FH Partners Assets is in addition to a 5% servicing fee paid under the loan facility for the BoA Loan and is deferred on a cumulative basis until the FH Partners Excess Cash Flow is paid to Bank of Scotland;

•

After payment of the BoA Loan, FirstCity will receive a management fee equal to 10% of any monthly collections from the FH Partners Assets, after payment to Bank of Scotland of interest and fees, certain expenses and other items;

•

FirstCity must maintain a minimum tangible net worth (as defined in the amended and restated reducing note facility agreement with Bank of Scotland) of $90.0 million;

•

Release of FC Commercial, FH Partners, FLBG Corp, FirstCity, and certain FirstCity subsidiaries obligated under the Reducing Note Facility from liability for payment to Bank of Scotland or BoS-USA for the $25.0 million loan principal amount assumed by FLBG2 (under BoS Facility B with BoS-USA); and

•

Guaranty provided by FLBG Corp. and a substantial majority of its subsidiaries, which are the entities that were primarily subject to the obligations of the Reducing Note Facility (the "Covered Entities").

        This loan facility is secured by substantially all of the assets of the Covered Entities. FH Partners LLC provides a subordinated guaranty of the BoS Facility A (subordinated to the BoA Loan) and a subordinated security interest in the FH Partners Assets. FC Servicing does not guarantee the BoS Facility A, but provides a non-recourse security interest in certain equity interests owned by it and in most of the servicing fees from agreements entered into prior to the execution of the Reducing Note Facility.

        BoS Facility A contains covenants, representations and warranties on the part of FirstCity, FC Commercial and FLBG Corp. that are typical for a loan facility of this type. In addition, BoS Facility A contains customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, Bank of Scotland may accelerate the indebtedness under this loan facility. At December 31, 2012, FirstCity was in compliance with all covenants or other requirements set forth in BoS Facility A.

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December 31, 2012 and 2011

2. Liquidity and Capital Resources (Continued)

BoS Facility B—Bank of Scotland

        At December 31, 2012, the Company did not have a recorded carrying value on its consolidated balance sheet for BoS Facility B (as described under the heading Reducing Note Facility—Bank of Scotland above). The primary terms and conditions of FLBG2's $25.0 million debt obligation with BoS-USA under BoS Facility B are as follows:

•

Source of repayment will be derived solely from future cash flows from the assets of FLBG2, if any (loans with nominal value—see discussion below);

•

No interest accrues under this loan facility (subject to default interest provisions);

•

Maturity date of December 19, 2014 (see discussion below); and

•

FirstCity will receive a management fee equal to 10% of the monthly collections on the assets of FLBG2 (i.e. cash "leak-through"), if any, after payment to BoS-USA of any fees.

        The assets of FLBG2 consist of loans transferred to it by the Covered Entities for nominal consideration. FirstCity has not received any significant cash flows from the assets of FLBG2 and has not allocated any value to such assets for the past three years. FLBG2 has no assets other than the loans pledged to this loan facility, and has no intent to actively pursue collection of these assets. FLBG2 has no alternative sources of income or liquidity. FirstCity and its other subsidiaries are not obligated to provide any additional funds or capital to FLBG2, do not guaranty the repayment of BoS Facility B, and do not intend to contribute any funds to FLBG2 or pay any amounts owed by FLBG2 under BoS Facility B (before or after its maturity).

        At maturity of the BoS Facility B, there will likely be a default by FLBG2 as no collections are projected by FirstCity to be received from the assets of FLBG2. The sole recourse of Bank of Scotland on any such default will be to foreclose on the assets of FLBG2. Any default will not have a material adverse effect on FirstCity, as there is no carrying value for this loan facility on FirstCity's consolidated balance sheet.

        BoS Facility B contains limited covenants, representations and warranties on the part of FLGB2 in light of the nature of the assets of FLBG2 and the lack of liquidity or sources of funds for FLBG2. In addition, BoS Facility B contains customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, Bank of Scotland may accelerate the indebtedness under this loan facility. At December 31, 2012, FLBG2 was in compliance with all covenants or other requirements set forth in BoS Facility B.

Bank of America

        On December 20, 2011, FH Partners LLC, as borrower, and Bank of America, as lender, entered into a $50.0 million term loan facility ("BoA Loan") that allows for repayment over time as cash flows from the underlying assets securing this loan facility are realized. FirstCity used the proceeds from this loan facility to reduce the principal balance outstanding under the Reducing Note Facility (as described above). At December 31, 2012, the unpaid principal balance under this loan facility was $16.2 million. The primary terms and conditions under the BoA Loan are as follows:

•

Minimum principal payments through maturity so that the total principal balance outstanding does not exceed the following amounts on the dates indicated: $45.0 million at June 30, 2012;

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

2. Liquidity and Capital Resources (Continued)

$30.0 million at December 31, 2012; $25.0 million at June 30, 2013; $20.0 million at December 31, 2013; $15.0 million at June 30, 2014; and $10.0 million at December 31, 2014 (initial maturity);

•

Initial maturity date of December 31, 2014, which may be extended one year (subject to certain terms and conditions);

•

Variable annual interest rate based on LIBOR daily floating rate plus 2.75%;

•

FirstCity will receive a servicing fee equal to 5% of the monthly collections (i.e. cash "leak-through") from the pledged assets after payment to Bank of America of interest, fees and required principal payment reductions;

•

Minimum debt service coverage ratio (defined) of 1.4 to 1.0 (beginning with the quarterly period ended March 31, 2012); and

•

FC Servicing must maintain a minimum net worth of $1.0 million.

        The BoA Loan contains covenants, representations and warranties on the part of FH Partners LLC that are typical for a loan facility of this type. In addition, the BoA Loan contains customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, Bank of America may accelerate the indebtedness under this loan facility. At December 31, 2012, FH Partners LLC was in compliance with all covenants or other requirements set forth in the BoA Loan.

Wells Fargo Capital Finance

        On January 31, 2012, American Business Lending, Inc. ("ABL"), a FirstCity wholly-owned subsidiary, and Wells Fargo Capital Finance ("WFCF") entered into an Amended and Restated Loan Agreement ("WFCF Credit Facility") that amended and restated the existing $25.0 million loan facility agreement, as amended. The WFCF Credit Facility is a $25 million revolving loan facility that provides funding for ABL to finance and acquire SBA 7(a) loans, and is secured by substantially all of ABL's assets. The unpaid principal balance on this loan facility at December 31, 2012 was $15.2 million. In addition, FirstCity provides WFCF with an unconditional guaranty for all of ABL's obligations up to a maximum of $5.0 million plus enforcement costs. The primary terms and conditions of the WFCF Credit Facility are as follows:

•

Provides for maximum outstanding borrowings of up to $25.0 million ("Maximum Credit Line");

•

Provides for a borrowing base for originating loans based on the amount by which the sum of (i) ABL-originated SBA guaranteed loans (up to 100%) and non-guaranteed loans (60%-80%) plus (ii) certain previously-purchased performing loans (up to 80%), exceeds the aggregate amount, if any, of loan reserves established by ABL and/or WFCF on the borrowing base loans;

•

Outstanding borrowings bear interest at alternate annual rates equal to (i) LIBOR rate plus 3.50% for LIBOR rate loans; (ii) base rate (higher of LIBOR rate or Wells Fargo prime rate) plus 0.75% for base rate loans; or (iii) base rate plus 0.75% otherwise;

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

2. Liquidity and Capital Resources (Continued)

•

Provides for a prepayment fee in the event of ABL's termination of the credit facility equal to 3.0% of the Maximum Credit Line if prepayment is made on or before January 31, 2013, or 2.0% of the Maximum Credit Line if prepayment is made between January 31, 2013 and January 30, 2015; and

•

Provides for an initial maturity date of January 31, 2015 (which may be extended upon agreement by WFCF and ABL).

        The WFCF Credit Facility includes covenants that are customary for a loan facility of this type, including maximum capital expenditure levels and financial covenants related to minimum tangible net worth levels, maximum indebtedness to tangible net worth ratio, maximum delinquent and defaulted loan levels, maximum loan charge-off levels, and minimum net interest coverage levels.

        In addition, the WFCF Credit Facility contains representations and warranties of ABL that are typical for a loan facility of this type. The WFCF Credit Facility also contains customary events of default, including but not limited to, failure to make required payments; failure to comply with certain agreements or covenants; change of control; certain events of bankruptcy and insolvency; and failure to pay certain judgments. In the event that an event of default occurs and is continuing, WFCF may accelerate the indebtedness under this loan facility. At December 31, 2012, ABL was in compliance with all covenants or other requirements set forth in the WFCF Credit Facility.

First National Bank of Central Texas Loan Facility

        FC Investment has a $15.0 million revolving loan facility (the "FNBCT Loan Facility") with First National Bank of Central Texas ("FNBCT") for the purpose of financing the purchase of loans and other assets, to make investments in equity interests in or capital contributions to affiliates which are owned with other investors, and for working capital. At December 31, 2012, the unpaid principal balance under this revolving loan facility was $2.0 million. The primary terms and conditions of the FNBCT Loan Facility are as follows:

•

Provides maximum outstanding borrowings up to $15.0 million;

•

The loan facility is secured by security interests in substantially all of the assets of FC Investment and its subsidiaries (the "Covered Entities"). FirstCity Servicing Corporation ("FC Servicing"), a FirstCity wholly-owned subsidiary, provides a security interest in servicing fees payable to it by the Covered Entities and the non-wholly owned portfolio entities owned by the Covered Entities. FC Servicing does not provide a security interest in servicing agreements entered into with the Covered Entities, or in any of its other assets and does not guaranty the obligations under this loan facility;

•

Provides that no advance will be made that causes the outstanding balance of the loan facility to exceed an amount equal to 25.0% of the net present value of the equity interests and loans and other assets owned by the Covered Entities which are pledged to secure the loan facility reduced by any reserves established by FNBCT related to the pledged loans and other assets and the pledged equity interests ("Net Present Collateral Value");

•

Provides for a fluctuating interest rate equal to the greater of (i) the rate of interest published in the Wall Street Journal as the prime rate of commercial banks, or (ii) 4.0%;

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December 31, 2012 and 2011

2. Liquidity and Capital Resources (Continued)

•

Provides for a maturity date of August 15, 2013;

•

Provides that all net cash flow from the pledged assets be deposited into a pledged account with FNBCT on a monthly basis, and for funds to be distributed out of the pledged account and applied in the following manner and priority: (i) to interest due under the loan facility, (ii) to fees and expenses due under the loan facility, (iii) payment of principal outstanding under the loan facility in an amount required to reduce the outstanding principal balance of the loan as is required so that the principal balance of the loan is equal to 25.0% of the Net Present Collateral Value, (iv) payment of principal if an event of default has occurred, (v) payment of the principal in such additional amount as may be determined by FNBCT in its discretion, and (vi) any remaining balance to FC Investment;

•

Provides that FNBCT is only required to fund up to $7.5 million, with the balance of the commitment under the revolving loan facility to be funded by a participating bank in the loan facility;

•

Provides for (i) an administration fee of $25,000 for the period through the maturity date, which fee was paid at closing, (ii) a facility fee in the amount of $93,750 for the period through the maturity date, which fee was paid at closing, and (iii) a non-utilization fee payable following each calendar quarter equal to 0.50% of the average daily amount by which the outstanding principal amount of the revolving loan during the preceding calendar quarter is less than $15.0 million, provided, in the event the financial institution participating in the revolving loan fails to advance its pro-rata share of any advance in a circumstance in which FNBCT is funding the advance, the non-utilization fee shall be calculated based on the average daily amount by which the total amount funded by FNBCT from its own funds during the preceding calendar quarter is less than $7.5 million;

•

FC Investment must maintain a minimum interest coverage ratio, based on net cash flows from the pledged assets, of 2.0 to 1.0 (on a consolidated basis);

•

FC Investment must maintain a minimum tangible net worth (defined) of $75.0 million (on a consolidated basis); and

•

The FNBCT Loan Facility and other loan documents do not create any security interest in the property of, or impose any contractual limitations upon, FirstCity Commercial Corporation, FH Partners LLC, FLBG Corporation or any of their subsidiaries, which are FirstCity subsidiaries and are parties to, or provide guaranties or security interests with respect to, FirstCity's loan facility with Bank of Scotland.

        In addition to the foregoing, the FNBCT Loan Facility contains representations, warranties and certain other covenants on the part of FC Investment, FirstCity and the other Covered Entities that are typical for a loan facility of this type. Furthermore, the FNBCT Loan Facility and related loan documents contain customary events of default, including, failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, FNBCT may accelerate the indebtedness under this loan facility. At December 31, 2012, FC Investment was in compliance with all covenants or other requirements set forth in the FNBCT Loan facility.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

3. Business Combinations, Sale and Deconsolidation of Subsidiaries, and Noncontrolling Interest

Portfolio Asset Acquisition & Resolution Business Segment

European Acquisition Partnership and European Servicing Entity—Capital and Ownership Restructure and Subsequent Sale

        In June 2012, the capital and ownership structures of two European entities under common control of FirstCity and a non-affiliated investor group were modified (as agreed upon by FirstCity and the non-affiliated investor group). The entities involved included UBN, SAS ("UBN"), an Acquisition Partnership and MCS et Associés ("MCS"), a servicing entity. At the time of restructure, FirstCity had a direct 70% controlling ownership interest in UBN and a combined direct and indirect 37% noncontrolling ownership interest in MCS. FirstCity's indirect ownership interest in MCS resulted from its ownership in UBN, which had a direct 35% noncontrolling ownership interest in MCS. Under terms of the restructure, FirstCity and the non-affiliated investor group contributed their MCS ownership interests to UBN in exchange for modified ownership interests in UBN that approximated their respective economic interests in these entities (on a combined basis) prior to the restructure. As a result, UBN now has a 100% controlling interest in MCS, and FirstCity's ownership interest in UBN decreased to 38% (the controlling 62% interest in UBN is now held by the non-affiliated investor group). As such, the form of FirstCity's investment in UBN changed from a consolidated subsidiary to an unconsolidated subsidiary (now treated as an equity-method investment), and FirstCity no longer has any direct investment in MCS.

        The restructure resulted in FirstCity's deconsolidation of UBN (since FirstCity now has a noncontrolling interest in UBN) and the exchange of an equity-method investment in MCS with an equity-method investment in UBN. FirstCity accounted for this activity as a non-monetary exchange transaction between entities with common ownership, and accounted for the restructure at historical cost (i.e. there was no impact to FirstCity's consolidated earnings). The net impact to FirstCity's consolidated balance sheet from recording this activity on the restructure date consisted primarily of the following: (1) $2.9 million decrease in cash (remove cash held by UBN upon deconsolidation); (2) $0.5 million non-cash decrease in other liabilities (remove obligations of UBN upon deconsolidation); (3) $8.5 million non-cash decrease in noncontrolling interest (remove the noncontrolling equity interest in UBN attributable to the non-affiliated investor group upon deconsolidation); and (4) $6.1 million non-cash decrease to investments in unconsolidated subsidiaries (upon FirstCity's exchange of an equity-method investment in MCS with an equity-method investment in UBN).

        In December 2012 FirstCity sold its 38% ownership interest in UBN to Miromesnil Gestion, a French societe anonyme, which is a wholly-owned subsidiary of MCS for an aggregate purchase price of 20,000,000 Euros (or approximately $26.3 million). FirstCity realized a gain of approximately $1.0 million from this transaction, which included recognition of $0.6 million of previously deferred income attributed to sales of investments in 2011.

European Acquisition Partnerships—Sale of Subsidiaries

        In February 2011, the Company sold a substantial majority of its interests in certain German Portfolio Assets and its wholly-owned equity interest in a German entity to a European Acquisition Partnership for approximately $22.5 million. FirstCity, through a wholly-owned subsidiary, has a

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

3. Business Combinations, Sale and Deconsolidation of Subsidiaries, and Noncontrolling Interest (Continued)

noncontrolling 13% beneficial interest in the European Acquisition Partnership that purchased the Portfolio Assets and German entity (the remaining 87% beneficial interest is owned by an affiliate of Värde).

        In November 2011, the Company, through its majority-owned foreign subsidiary (UBN), sold its equity interests in sixteen French Acquisition Partnerships to a foreign equity-method investee of FirstCity (i.e. unconsolidated equity investment) for $3.4 million. Prior to this transaction, the Company held a controlling interest in these Acquisition Partnerships through its combined direct and indirect majority ownership. This transaction was accounted for as an asset sale, and accordingly, the assets ($0.8 million of cash and $0.5 million of Portfolio Assets) and non-controlling interests ($0.6 million) attributable to these French Acquisition Partnerships were removed from FirstCity's consolidated balance sheet. FirstCity realized a $2.8 million gain from UBN's sale of these Acquisition Partnerships, of which $1.0 million was deferred (portion attributable to FirstCity's 36.8% ownership interests in the foreign equity-method investee) and ratably accreted to income in 2012 until the sale of UBN mentioned above.

European Acquisition Partnership—Business Combination

        In June 2011, the Company acquired a controlling interest in a European Acquisition Partnership from a foreign equity-method investee for $0.6 million. The Company owned a noncontrolling equity interest in this entity prior to the transaction. As a result of this transaction, the Company's ownership interest in the Acquisition Partnership increased to 100% and the Company obtained control of such entity, resulting in the Acquisition Partnership becoming a consolidated subsidiary of the Company. The transaction was accounted for as a business combination, and accordingly, all of the assets and liabilities of the Acquisition Partnership were measured at fair value on the acquisition date and included in the Company's consolidated balance sheet. The estimated fair value of the Acquisition Partnership's identifiable assets and liabilities that were added to the Company's consolidated balance sheet on the acquisition date included $2.7 million of Portfolio Assets and $1.7 million of notes payable and accrued liabilities (including $0.9 million of intercompany notes payable that were eliminated in consolidation with the Company's consolidated financial statements).

        Under business combination accounting guidance, the Company's carrying value of its previously-held equity-method investment in the Acquisition Partnership was re-measured to fair value at the acquisition date. The fair value of the Company's previously-held equity interest exceeded the aggregate carrying value by approximately $0.3 million, which the Company recognized as "Gain on business combination" in its consolidated statement of earnings for 2011.

Latin American Acquisition Partnership—Sale of Equity Investment

        In November 2012, FirstCity sold its 20% ownership interest in a Brazilian Acquisition Partnership for $0.4 million. FirstCity realized a gain of approximately $0.4 million from this transaction.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

3. Business Combinations, Sale and Deconsolidation of Subsidiaries, and Noncontrolling Interest (Continued)

Special Situations Platform Business Segment

Railroad Operation—Business Combination

        In June 2012, FirstCity, through its majority-owned Special Situations Platform subsidiary, acquired certain assets from a company that operated a rail-served debris transfer station, as partial payment of the company's debt obligation to FirstCity. The Company's acquisition of the operating assets was accounted for as a business combination, and accordingly, all of the assets acquired and liabilities assumed were measured at fair value on the acquisition date and included in the Company's consolidated balance sheet. The estimated fair value of the identifiable assets acquired included $2.8 million of property and equipment, $0.5 million of trade receivables, and $0.2 million of various other assets. The estimated fair value of the identifiable liabilities assumed by the Company was not significant. The fair value of the net asset acquired by the Company exceeded its $2.5 million purchase price by approximately $0.9 million, which the Company recognized as "Gain on business combination" in its consolidated statement of earnings for 2012.

        In August 2011, the Company, through its majority-owned Special Situations Platform subsidiary, acquired certain net assets from a company that provided short-line rail services and operated a transload facility for $2.1 million. The transaction was accounted for as a business combination, and accordingly, all of the assets acquired and liabilities assumed were measured at fair value on the acquisition date and included in the Company's consolidated balance sheet. The estimated fair value of the identifiable assets acquired included $2.1 million of property and equipment and $0.2 million of intangible assets. The estimated fair value of the identifiable liabilities assumed by the Company as a result of the transaction was not significant. The fair value of the net assets acquired by the Company exceeded the purchase price by approximately $0.2 million, which the Company recognized as "Gain on business combination" in its consolidated statement of earnings for 2011.

4. Divestures

Divestures—Mexican Acquisition Partnerships (Portfolio Asset Acquisition and Resolution Business Segment)

        In the fourth quarter of 2011, the Company determined that it expected to sell or otherwise dispose of its three consolidated Mexican Acquisition Partnerships over the next twelve months. The Company wholly-owned two of these subsidiaries, and held a majority ownership interest in the other subsidiary. In connection with the Company's disposal plan and expectations, each subsidiary was determined to be a separate disposal group, and the assets and liabilities of each subsidiary were measured at the lower of their respective carrying amount or estimated fair value (less costs to sell) and classified as "held for sale" on the Company's consolidated balance sheet. The Company determined that the carrying value of its majority-owned Mexican subsidiary (inclusive of cumulative translation adjustments) exceeded its estimated fair value, less estimated costs to sell, by $3.1 million (of which $1.8 million was attributed to FirstCity). As such, the Company recognized a net impairment charge of $1.8 million in the fourth quarter of 2011. The impact of this $1.8 million net impairment charge on the Company's 2011 consolidated statement of earnings comprised a $3.1 million estimated loss included in "Other costs and expenses" on the Company's consolidated statements of earnings for

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

4. Divestures (Continued)

2011, off-set partially by the noncontrolling investor's share of the loss (approximately $1.3 million) included in "Net income attributable to noncontrolling interests." The estimated fair value for each of our wholly-owned Mexican subsidiaries, less estimated costs to sell, exceeded their respective carrying values (inclusive of cumulative translation adjustments). These subsidiaries did not meet the accounting and reporting requirements as discontinued operations.

        At December 31, 2011, the consolidated assets and liabilities for these Mexican subsidiaries, as measured at the lower of their respective carrying amount or estimated fair value (less costs to sell), have been respectively classified as "Assets held for sale" ($9.9 million) and "Liabilities associated with assets held for sale" ($5.3 million) on our consolidated balance sheet. The assets included primarily Portfolio Assets ($4.8 million) and an affiliated loan receivable ($5.1 million), and the liabilities included primarily an affiliated note payable ($5.1 million). See Note 20 for additional information related to the affiliated loan receivable and affiliated note payable.

        In July 2012, the Company sold its interests in two of these Mexican subsidiaries for $5.5 million. The Company recognized a gain of approximately $1.3 million on this transaction, which included recognition of $0.5 million of previously-deferred income attributed to one of the subsidiaries. Subsequent to this transaction, the Company determined that it no longer expected to sell or otherwise dispose of its remaining Mexican subsidiary disposal group. As such, in July 2012, the Company reclassified the net assets of this Mexican subsidiary, comprised primarily of $0.7 million of Portfolio Assets, from "Assets held for sale" ("held for sale" classification) to "Portfolio Assets" ("held and used" classification) on the Company's consolidated balance sheet. The reclassification of this Mexican subsidiary did not have an impact on the Company's earnings.

5. Portfolio Assets

        Portfolio Assets are summarized as follows:

	December 31, 2012 (Dollars in thousands)
	Carrying Value		Allowance for Loan Losses		Carrying Value, net
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	28,487	$	—	$	28,487
Business assets		4,047		26		4,021
Other		3,087		—		3,087
Latin America—commercial real estate		1,034		327		707
Europe—commercial real estate		3,449		—		3,449
Other		5,194		41		5,153
Total Loan Portfolios	$	45,298	$	394		44,904
Real estate held for sale, net						10,171
Total Portfolio Assets					$	55,075

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

5. Portfolio Assets (Continued)

	December 31, 2011 (Dollars in thousands)
	Carrying Value		Allowance for Loan Losses		Carrying Value, net
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	73,154	$	553	$	72,601
Business assets		10,742		185		10,557
Other		3,754		38		3,716
Latin America—commercial real estate		50		—		50
Europe—commercial real estate		4,267		—		4,267
Other		5,904		5		5,899
Total Loan Portfolios	$	97,871	$	781		97,090
Real estate held for sale, net						26,856
Total Portfolio Assets					$	123,946

        Certain Portfolio Assets are pledged to secure loan facilities with Bank of Scotland and Bank of America (see Note 2). In addition, certain Portfolio Assets are pledged to secure notes payable of certain consolidated affiliates of FirstCity that are generally non-recourse to FirstCity or any affiliate other than the entity that incurred the debt.

        In March 2012, a real estate property with a carrying value of $6.9 million (owned by a subsidiary under the Company's Special Situations Platform business segment) was acquired by the creditor holding the mortgage secured by this property in a foreclosure transaction. The Company had the legal right to bring the account into good standing by paying all past due payments; however, the Company believed it would be unable to facilitate a positive cash flow on the property for an extended period of time based on local economic conditions. Management further believed that the property's liquidation value was less than the debt obligation securing the property. Upon acquisition of the real estate property by the creditor and legal release from the obligation, the Company de-recognized the related non-recourse debt obligation from its consolidated balance sheet (see Note 9). This non-cash activity did not have a material impact on the Company's results of operations for 2012.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

5. Portfolio Assets (Continued)

        Income from Portfolio Assets is summarized as follows:

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
Loan Portfolios:
Purchased Credit-Impaired Loans	$	23,363	$	37,481
Purchased performing loans		312		445
UBN		—		1,760
Other		169		192
Real Estate Portfolios		2,863		744
Income from Portfolio Assets	$	26,707	$	40,622

        Accretable yield represents the amount of income the Company can expect to generate over the remaining life of its existing income-accruing Purchased Credit-Impaired Loans based on estimated future cash flows as of December 31, 2012 and 2011. Reclassifications from nonaccretable difference to accretable yield primarily result from the Company's increase in its estimates of future cash flows on Purchased Credit-Impaired Loans, whereas reclassifications to nonaccretable difference from accretable yield primarily result from the Company's decrease in its estimates of future cash flows on these loans. Transfers from (to) non-accrual primarily result from adjustments to the income-recognition method applied to Purchased Credit-Impaired Loans based on management's ability to reasonably estimate both the timing and amount of future cash flows—see Note 1(f). Changes in accretable yield related to the Company's Purchased Credit-Impaired Loans for the years ended December 31, 2012 and 2011 are as follows:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	4,732		$	1,380
Accretion		(600	)		(4,321	)
Reclassification from (to) nonaccretable difference		(2,040	)		4,253
Disposals		(2,092	)		(5,488	)
Transfer from non-accrual		—			8,912
Translation adjustments		—			(4	)
Ending Balance	$	—		$	4,732

103

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

5. Portfolio Assets (Continued)

        Acquisitions of Purchased Credit-Impaired Loans for 2012 and 2011 are summarized in the table below:

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
Face value at acquisition	$	11,270	$	31,859
Cash flows expected to be collected at acquisition, net of adjustments		6,544		19,803
Basis in acquired loans at acquisition		4,120		14,329

        During 2012, the Company sold loan Portfolio Assets with an aggregate carrying value of $28.7 million. During 2011, the Company sold loan Portfolio Assets with an aggregate carrying value of $50.3 million—which included $21.9 million of loans (plus real estate and certain other assets) that were sold to a European securitization entity (formed by an affiliate of Värde) in February 2011 (see Note 3) and $3.0 million of loans sold to a foreign equity-method investee of FirstCity.

        During 2012, the Company recorded provisions for loan and impairment losses, net of recoveries, through a charge to income of $3.1 million—which was comprised of $0.6 million of impairment charges on real estate portfolios and $2.5 million of provision for loan losses, net of recoveries. During 2011, the Company recorded provisions for loan and impairment losses, net of recoveries, through a charge to income of $3.8 million—which was comprised of $2.1 million of impairment charges on real estate portfolios and $1.7 million of provision for loan losses, net of recoveries.

104

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

5. Portfolio Assets (Continued)

        Changes in the allowance for loan losses related to our loan Portfolio Assets are as follows:

	Purchased Credit-Impaired Loans																		Other
	Domestic									Latin America
(dollars in thousands)	Commercial Real Estate			Business Assets			Other			Commercial Real Estate			Residential Real Estate			Europe			UBN(1)			Other			Total
Beginning balance,
January 1, 2011	$	354		$	252		$	90		$	260		$	—		$	866		$	43,291		$	49		$	45,162
Provisions		1,702			519			24			103			64			—			—			199			2,611
Recoveries		(164	)		(13	)		(7	)		—			—			—			(719	)		(28	)		(931	)
Charge offs		(1,339	)		(573	)		(69	)		—			—			(856	)		(701	)		(215	)		(3,753	)
Removal upon sale of loans(1)		—			—			—			—			—			—			(45,002	)		—			(45,002	)
Transfer to "held for sale" classification (see Note 4)		—			—			—			(317	)		(62	)		—			—			—			(379	)
Translation adjustments		—			—			—			(46	)		(2	)		(10	)		3,131			—			3,073
Ending balance, December 31, 2011		553			185			38			—			—			—			—			5			781
Provisions		1,996			329			15			100			—			—			—			130			2,570
Recoveries		(21	)		(87	)		—			—			—			—			—			—			(108	)
Charge offs		(2,528	)		(401	)		(53	)		—			—			—			—			(94	)		(3,076	)
Transfer from "held for sale" classification (see Note 4)		—			—			—			210			—			—			—			—			210
Translation adjustments		—			—			—			17			—			—			—			—			17
Ending balance, December 31, 2012	$	—		$	26		$	—		$	327		$	—		$	—		$	—		$	41		$	394

(1)

The Company sold the underlying UBN loan portfolio in November 2011—refer to Note 1(f).

        The following table presents our recorded investment in loan Portfolio Assets by credit quality indicator at December 31, 2012 and 2011. Our loan Portfolio Assets, which are primarily comprised of Purchased Credit-Impaired Loans, are categorized by credit quality indicators based on the common risk characteristics that management generally uses for pooling purposes (when management elects to pool groups of purchased loans).

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Commercial real estate	$	32,643	$	76,918
Business assets		4,021		10,557
Other commercial		8,240		9,615
	$	44,904	$	97,090

105

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

6. Loans Receivable

        The following is a composition of the Company's loans receivable by loan type and region:

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Domestic:
Commercial loans:
Affiliates	$	6,584	$	6,719
SBA, net of allowance for loan losses of $518 and $333, respectively		20,459		26,765
Other, net of allowance for loan losses of $1,083		7,530		12,212
Total loans, net	$	34,573	$	45,696

Loans receivable—SBA held for sale

        Loans receivable—SBA held for sale are summarized as follows:

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Outstanding balance	$	1,083	$	7,483
Capitalized costs, net of fees		4		131
Carrying amount of loans, net	$	1,087	$	7,614

        Changes in loans receivable—SBA held for sale are as follows:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	7,614		$	11,608
Originations and advances of loans		11,099			21,897
Payments received		(65	)		(96	)
Capitalized costs, net		(126	)		(8	)
Loans sold and transferred		(17,435	)		(25,787	)
Ending Balance	$	1,087		$	7,614

        Loans receivable—SBA held for sale represent the portion of SBA loans acquired and originated by the Company that are guaranteed by the SBA. These loans are generally secured by assets such as accounts receivable, property and equipment, and other business assets. The Company did not record any write-downs of SBA loans held for sale below their cost in 2012 and 2011.

106

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

6. Loans Receivable (Continued)

Loans receivable—affiliates

        Loans receivable—affiliates, which are designated by management as held for investment, are summarized as follows:

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Outstanding balance	$	6,203	$	6,518
Discounts, net		—		(59	)
Capitalized interest		381		260
Carrying amount of loans, net	$	6,584	$	6,719

        A summary of activity in loans receivable—affiliates follows:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	6,719		$	16,781
Advances		—			700
Payments received		(316	)		(2,042	)
Capitalized costs, net		122			127
Discount accretion, net		59			89
Loan transfer(1)		—			(1,402	)
Transfer to "held for sale" classification (see Note 4)		—			(7,148	)
Other noncash adjustments		—			(492	)
Foreign exchange gains		—			106
Ending Balance	$	6,584		$	6,719

(1)

Represents the sale and transfer of a loan to an affiliated entity as partial consideration for the repayment of a note payable to that affiliated entity.

        Loans receivable—affiliates represent advances to Acquisition Partnerships and other affiliates to acquire portfolios of under-performing and non-performing commercial and consumer loans and other assets; and senior debt financing arrangements with equity-method investees to provide capital for business expansion and operations. Advances to affiliates to acquire loan portfolios are secured by the underlying collateral of the individual notes within the portfolios, which is generally real estate; whereas advances to affiliates for capital investments and working capital are generally secured by business assets (i.e. accounts receivable, inventory and equipment).

        The Company did not record any provisions for impairment on loans receivable—affiliates in 2012 or 2011. During 2011, the Company sold an affiliated loan with a carrying value of $1.4 million. The Company did not sell any affiliated loans during 2012. Information related to the credit quality and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

6. Loans Receivable (Continued)

loan loss allowances related to loans receivable—affiliates is presented under the heading "Credit Quality and Allowance for Loan Losses—Loans Held for Investment" below.

Loans receivable—SBA held for investment, net

        Loans receivable—SBA held for investment are summarized as follows:

	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Outstanding balance	$	21,013		$	20,503
Allowance for loan losses		(518	)		(333	)
Discounts, net		(1,499	)		(1,292	)
Capitalized costs		376			273
Carrying amount of loans, net	$	19,372		$	19,151

        Changes in loans receivable—SBA held for investment are as follows:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	19,151		$	15,415
Purchases of loans		—			696
Originations and advances of loans		3,700			5,617
Payments received		(2,762	)		(2,085	)
Capitalized costs		104			137
Change in allowance for loan losses		(185	)		32
Discount accretion, net		(238	)		(245	)
Charge-offs		(398	)		(416	)
Ending Balance	$	19,372		$	19,151

        Loans receivable—SBA held for investment represent the non-guaranteed portion of SBA loans purchased or originated by the Company. These loans are secured primarily by business assets such as accounts receivable, property and equipment, real estate and inventory. The Company recorded net impairment provisions on SBA loans held for investment of $0.6 million in 2012 and $0.4 million in 2011. Information related to the credit quality and loan loss allowances related to SBA loans held for investment is presented under the heading "Credit Quality and Allowance for Loan Losses—Loans Held for Investment" below.

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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

6. Loans Receivable (Continued)

Loans receivable—other

        Loans receivable—other, which are designated by management as held for investment, are summarized as follows:

	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Outstanding balance	$	8,859		$	13,541
Allowance for loan losses		(1,083	)		(1,083	)
Capitalized interest and costs		(246	)		(246	)
Carrying amount of loans, net	$	7,530		$	12,212

        Changes in loans receivable—other are as follows:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	12,212		$	13,011
Advances		1,592			2,974
Payments received		(3,774	)		(3,838	)
Noncash consideration(1)		(2,500	)		—
Capitalized interest and costs		—			50
Discount accretion, net		—			15
Ending Balance	$	7,530		$	12,212

(1)

Represents a principal reduction on a loan receivable upon FirstCity's acquisition of certain underlying loan collateral from the borrower as partial consideration for repayment. See Note 3 for additional information.

        Loans receivable—other include loans made to non-affiliated entities and are secured by assets such as accounts receivable, inventory, property and equipment, real estate and various other assets. The Company did not record any net impairment provisions on loans receivable—other in 2012 or in 2011. Information related to the credit quality and loan loss allowances related to loans receivable—other is presented under the heading "Credit Quality and Allowance for Loan Losses—Loans Held for Investment" below.

Credit Quality and Allowance for Loan Losses—Loans Held for Investment

        The Company has established an allowance for loan losses to absorb probable, estimable losses inherent in its portfolio of loans receivable held for investment. This allowance for loan losses includes specific allowances, based on individual evaluations of certain loans and loan relationships, and allowances for pools of loans with similar risk characteristics. In determining the appropriate level of allowance, management uses information to stratify its portfolio of loans receivable held for investment

109

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

6. Loans Receivable (Continued)

into loan pools with common risk characteristics. Certain portions of the allowance are attributed to loan pools based on various factors and analyses. Loans deemed to be impaired, including loans with an increased probability of default as determined by management, are evaluated individually rather than on a pool basis. Management's determination of the adequacy of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Actual losses experienced in the future may vary from management's estimates. Management attributes portions of the allowance to loans that it evaluates and determines to be impaired and to groups of loans that it evaluates collectively.

        The following table summarizes the activity in the allowance for loan losses by our portfolio of loans held for investment:

	Allowance for Loan Losses:
(Dollars in thousands)	SBA held for investment			Affiliates		Other		Total
Balance, January 1, 2012	$	333		$	—	$	1,083	$	1,416
Provisions		635			—		—		635
Recoveries		(46	)		—		—		(46	)
Charge-offs		(404	)		—		—		(404	)
Balance, December 31, 2012	$	518		$	—	$	1,083	$	1,601
Balance, January 1, 2011	$	365		$	—	$	1,083	$	1,448
Provisions		463			—		—		463
Recoveries		(78	)		—		—		(78	)
Charge-offs		(417	)		—		—		(417	)
Balance, December 31, 2011	$	333		$	—	$	1,083	$	1,416

110

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

6. Loans Receivable (Continued)

        The following table presents an analysis of the allowance for loan losses and recorded investment in loans (excluding loans held for sale) as of December 31, 2012 and 2011:

	Commercial Loans:
(Dollars in thousands)	SBA		Affiliates		Other		Total
December 31, 2012:
Loans individually evaluated for impairment	$	585	$	6,584	$	8,613	$	15,782
Loans collectively evaluated for impairment		19,305		—		—		19,305
Total loans evaluated for impairment (excluding loans held for sale)	$	19,890	$	6,584	$	8,613	$	35,087
Allowance for loans individually evaluated for impairment	$	325	$	—	$	1,083	$	1,408
Allowance for loans collectively evaluated for impairment		193		—		—		193
Total allowance for loan losses	$	518	$	—	$	1,083	$	1,601
December 31, 2011:
Loans individually evaluated for impairment	$	404	$	6,719	$	13,295	$	20,418
Loans collectively evaluated for impairment		19,080		—		—		19,080
Total loans evaluated for impairment (excluding loans held for sale)	$	19,484	$	6,719	$	13,295	$	39,498
Allowance for loans individually evaluated for impairment	$	308	$	—	$	1,083	$	1,391
Allowance for loans collectively evaluated for impairment		25		—		—		25
Total allowance for loan losses	$	333	$	—	$	1,083	$	1,416

        The following table presents our recorded investment in loans (excluding loans held for sale) by credit quality indicator as of December 31, 2012 and 2011. SBA commercial loans are detailed by categories related to underlying credit quality and are defined below:

•

Pass—Includes all loans not included in categories of special mention, substandard or doubtful.

•

Special Mention—Loans that have potential weaknesses which may, if not reversed or corrected, weaken the credit or inadequately protect the Company's position at some future date. Loans in this category may also be subject to economic or market conditions which may, in the future, have an adverse effect on the borrower's debt service ability.

•

Substandard—Loans that exhibit a well-defined weakness, or weaknesses, which presently jeopardizes debt repayment, even though they may be currently performing. These loans are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected.

•

Doubtful—Loans for which management has determined that full collection of principal or interest is in doubt.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

6. Loans Receivable (Continued)

        Classes in the affiliated and non-affiliated portfolio asset and commercial loan portfolios are disaggregated by accrual status (which is generally based on management's assessment on the probability of default).

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2012:
SBA—commercial loans	$	15,315	$	3,954	$	434	$	187	$	19,890

	Accrual		Non-Accrual		Total
Affiliates—commercial loans	$	3,323	$	3,261	$	6,584
Other—commercial loans(1)		3,484		5,129		8,613
	$	6,807	$	8,390	$	15,197
Total loans (excluding loans held for sale)					$	35,087

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2011:
SBA—commercial loans	$	15,325	$	3,648	$	107	$	404	$	19,484

	Accrual		Non-Accrual		Total
Affiliates—commercial loans	$	6,719	$	—	$	6,719
Other—commercial loans(1)		4,398		8,897		13,295
	$	11,117	$	8,897	$	20,014
Total loans (excluding loans held for sale)					$	39,498

(1)

Represents loans made to U.S. non-affiliated entities that are secured primarily by business assets (as disclosed previously under the heading "Loans receivable—other" of this footnote).

112

FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

6. Loans Receivable (Continued)

        The following table includes an aging analysis of our recorded investment in loans held for investment as of December 31, 2012 and 2011:

	Loans Past Due and Still Accruing
(Dollars in thousands)	31-60 Days		61-90 Days		Over 90 Days		Total		Non-Accrual Loans		Current Loans		Total Loans
December 31, 2012:
Commercial loans:
SBA	$	327	$	5	$	—	$	332	$	585	$	18,973	$	19,890
Affiliates		—		—		—		—		3,261		3,323		6,584
Other		—		—		—		—		5,129		3,484		8,613
Total loans (excluding loans held for sale)	$	327	$	5	$	—	$	332	$	8,975	$	25,780	$	35,087
December 31, 2011:
Commercial loans:
SBA	$	—	$	—	$	—	$	—	$	404	$	19,080	$	19,484
Affiliates		—		—		—		—		—		6,719		6,719
Other		—		—		—		—		8,897		4,398		13,295
Total loans (excluding loans held for sale)	$	—	$	—	$	—	$	—	$	9,301	$	30,197	$	39,498

        The following table presents additional information regarding the Company's impaired loans as of December 31, 2012 and 2011:

	Recorded Investment In:
(Dollars in thousands)	Impaired Loans Without a Related Allowance		Impaired Loans With a Related Allowance		Total Impaired Loans		Unpaid Principal Balance		Related Valuation Allowance		Average Impaired Loans for the Year
December 31, 2012:
Commercial loans:
SBA	$	—	$	585	$	585	$	620	$	325	$	660
Affiliates		—		—		—		—		—		—
Other		2,159		2,970		5,129		7,027		1,083		6,984
Total loans (excluding loans held for sale)	$	2,159	$	3,555	$	5,714	$	7,647	$	1,408	$	7,644
December 31, 2011:
Commercial loans:
SBA	$	—	$	404	$	404	$	425	$	308	$	652
Affiliates		—		—		—		—		—		—
Other		5,897		3,000		8,897		10,569		1,083		9,648
Total loans (excluding loans held for sale)	$	5,897	$	3,404	$	9,301	$	10,994	$	1,391	$	10,300

        The Company did not recognize any significant amounts of interest income on impaired loans in 2012 and 2011.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

7. Investments in Unconsolidated Subsidiaries

        The Company has investments in Acquisition Partnerships and various servicing and operating entities that are accounted for under the equity method of accounting—refer to Note 1(b). The condensed combined financial position and results of operations of the Acquisition Partnerships (which include our U.S. and foreign Acquisition Partnerships) and the servicing and operating entities (collectively, the "Equity Investees"), are summarized as follows:

Condensed Combined Balance Sheets

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Acquisition Partnerships:
Assets	$	437,176	$	450,189
Liabilities	$	14,783	$	39,401
Net equity		422,393		410,788
	$	437,176	$	450,189
Servicing and operating entities:
Assets	$	45,676	$	163,647
Liabilities	$	22,818	$	86,269
Net equity		22,858		77,378
	$	45,676	$	163,647
Total:
Assets	$	482,852	$	613,836
Liabilities	$	37,601	$	125,670
Net equity		445,251		488,166
	$	482,852	$	613,836
Equity investment in Acquisition Partnerships	$	60,581	$	59,952
Equity investment in servicing and operating entities		16,885		49,441
	$	77,466	$	109,393

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

7. Investments in Unconsolidated Subsidiaries (Continued)

Condensed Combined Summary of Operations

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
Acquisition Partnerships:
Revenues	$	90,716	$	58,722
Costs and expenses		52,179		61,539
Net earnings (loss)	$	38,537	$	(2,817	)
Servicing and operating entities:
Revenues	$	97,291	$	104,124
Costs and expenses		75,338		86,257
Net earnings	$	21,953	$	17,867
Equity income (loss) from Acquisition Partnerships	$	4,788	$	(6,460	)
Equity income from servicing and operating entities		10,456		8,691
	$	15,244	$	2,231

        In 2011, the Company recognized a $7.4 million impairment charge on certain investments in Latin American (Mexico) Acquisition Partnerships to write-down the investments to fair value, primarily due to the fair value being significantly lower than the cost basis of these investments and management's belief that the fair value of these investments will not recover (as evidenced by low transaction volumes in the distressed asset market in Mexico). This impairment charge was included in equity income (loss) from unconsolidated subsidiaries in our consolidated statements of earnings.

        At December 31, 2012 and 2011, the Acquisition Partnerships' total carrying value of loans accounted for under non-accrual methods of accounting (i.e. cost-recovery or cash basis method) approximated $350.3 million and $377.7 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

7. Investments in Unconsolidated Subsidiaries (Continued)

        The combined assets and equity (deficit) of the Equity Investees, and the Company's carrying value of its equity investments in the Equity Investees, are summarized by geographic region below.

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Combined assets of the Equity Investees:
Domestic:
Acquisition Partnerships	$	352,123	$	349,529
Operating entities		40,531		53,256
Latin America:
Acquisition Partnerships		85,053		100,660
Servicing entities		2,057		1,857
Europe—servicing entities		3,088		108,534
	$	482,852	$	613,836

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Combined equity of the Equity Investees:
Domestic:
Acquisition Partnerships	$	344,045	$	325,557
Operating entities		19,511		20,515
Latin America:
Acquisition Partnerships		78,348		85,231
Servicing entities		828		763
Europe—servicing entities		2,519		56,100
	$	445,251	$	488,166
Company's carrying value of its investments in the Equity Investees:
Domestic:
Acquisition Partnerships	$	57,802	$	55,612
Operating entities		13,199		12,508
Latin America:
Acquisition Partnerships		2,779		4,340
Servicing entities		3,008		2,758
Europe—servicing entities(1)		678		34,175
	$	77,466	$	109,393

(1)

Includes a $6.1 million non-cash reduction to the carrying value of FirstCity's equity-method investment in a European servicing entity in June 2012 (see Note 3 for additional information).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

7. Investments in Unconsolidated Subsidiaries (Continued)

        Revenues and net earnings (losses) of the Equity Investees, and the Company's share of equity income (loss) of those entities, are summarized by geographic region below. The tables below include individual entities and combined entities under common management that are considered to be significant Equity Investees of FirstCity at December 31, 2012 and 2011.

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Revenues of the Equity Investees:
Domestic:
Combined Värde Acquisition Partnerships	$	74,955		$	39,150
Other Acquisition Partnerships		627			374
FC Crestone Oak LLC (operating entity)(1)		16,624			11,027
Other operating entities		26,934			28,529
Latin America:
Acquisition Partnerships		15,134			18,907
Servicing entity		9,887			10,533
Europe:
Acquisition Partnerships		—			291
MCS et Associes (servicing entity)		39,466			49,225
Other servicing entities		4,380			4,810
	$	188,007		$	162,846
Net earnings (loss) of the Equity Investees:
Domestic:
Combined Värde Acquisition Partnerships	$	40,502		$	20,152
Other Acquisition Partnerships		(1,104	)		(765	)
FC Crestone Oak LLC (operating entity)(1)		11,781			6,857
Other operating entities		1,283			(870	)
Latin America:
Acquisition Partnerships		(861	)		(22,240	)
Servicing entity		1,122			1,373
Europe:
Acquisition Partnerships		—			36
MCS et Associes (servicing entity)		7,565			10,008
Other servicing entities		202			499
	$	60,490		$	15,050

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

7. Investments in Unconsolidated Subsidiaries (Continued)

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Company's equity income (loss) from the Equity Investees:
Domestic:
Combined Värde Acquisition Partnerships	$	6,132		$	4,004
Other Acquisition Partnerships		(515	)		(340	)
FC Crestone Oak LLC (operating entity)(1)		5,773			3,360
Other operating entities		513			(505	)
Latin America:
Acquisition Partnerships		(829	)		(10,153	)
Servicing entity		561			686
Europe:
Acquisition Partnerships		—			29
MCS et Associes (servicing entity)		3,559			5,028
Other servicing entities		50			122
	$	15,244		$	2,231

(1)

FC Crestone Oak LLC operates in the prefabricated building manufacturing industry.

8. Servicing Assets—SBA Loans

        The Company recognizes servicing assets through the sale of originated SBA loans when the rights to service those loans are retained. Servicing rights resulting from the sale of loans are initially recognized at fair value at the date of transfer. The Company subsequently measures the carrying value of the servicing assets by using the amortization method, which amortizes the servicing assets in proportion to and over the period of estimated net servicing income, and evaluates servicing assets for impairment based on fair value at each reporting date. The Company evaluates the possible impairment of servicing assets based on the difference between the carrying amount and current fair value of the servicing assets. Impairment is charged to servicing fees in the period recognized.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

8. Servicing Assets—SBA Loans (Continued)

        Changes in the Company's amortized servicing assets are as follows:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	1,193		$	954
Servicing Assets capitalized		334			453
Servicing Assets amortized		(242	)		(214	)
Ending Balance	$	1,285		$	1,193
Reserve for impairment of servicing assets:
Beginning Balance	$	(103	)	$	(118	)
Impairments		(63	)		(75	)
Recoveries		12			90
Ending Balance	$	(154	)	$	(103	)
Ending Balance (net of reserve)	$	1,131		$	1,090
Fair value of amortized servicing assets:
Beginning balance	$	1,326		$	921
Ending balance	$	1,402		$	1,326

        The Company relies primarily on a discounted cash flow model to estimate the fair value of its servicing assets. This model calculates estimated fair value of the servicing assets using significant assumptions including a discount rate of 13.7% and prepayment speeds of 14.0% to 15.0% (depending on certain characteristics of the related loans). These assumptions are subject to change based on management's judgments and estimates of changes in future cash flows, among other things.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

9. Notes Payable to Banks and Other Debt Obligations

        The Company's notes payable and other debt obligations at December 31, 2012 and 2011 consisted of the following (dollars in thousands):

Description	Interest Rate	Other Terms and Conditions	Outstanding Borrowings as of December 31, 2012		Outstanding Borrowings as of December 31, 2011
Bank of Scotland reducing note facility, net of unamortized discount ("BoS Facility A")[1][2]	0.25% fixed	Secured by substantially all assets and subsidiaries of FC Commercial (excluding FH Partners) and guaranteed by FirstCity, matures December 2014	$	29,991	$	86,579
BOS (USA) $25.0 million term note ("BoS Facility B")[1]	None	Secured by all assets of FLBG2, matures December 2014		—		—
Bank of America term note[1]	LIBOR + 2.75%	Secured by all assets of FH Partners, matures December 2014		16,194		49,228
WFCF $25.0 million revolving loan facility[3]	Alternate interest rates based on Wells Fargo base rate plus 4.25%, LIBOR plus 4.25%, or 7.5%	Secured by assets of ABL and guaranteed by FirstCity up to $5.0 million, matures January 2015		15,214		21,405
FNBCT $15.0 million revolving loan facility[4]	Greater of WSJ prime rate or 4.0%	Secured by assets of FC Investment and its subsidiaries, and guaranteed by FirstCity, matures August 2013		2,000		—
Non-recourse bank notes payable of various U.S. Portfolio Entities	Interest rates ranging from 3.0% to 5.0% (weighted average interest rate of 4.3%)	Secured by assets (primarily Portfolio Assets) of the underlying entities, various maturities through August 2014		4,712		18,113
Non-recourse bank notes payable of consolidated railroad subsidiaries:	Prime Rate + margin (0.50-1.50%) or LIBOR + margin (2.25-3.25%)	Secured by assets of the subsidiaries
Term loan		Matures March 2016		3,094		3,531
$1.0 million revolving facility		Matures March 2014		—		—
$5.0 million acquisition facility		Advances mature March 2016; unused commitment matures March 2013		3,950		1,625
Non-recourse bank note payable of real estate investment entity[5]	6.07% fixed	Secured by real estate property owned by the entity		—		7,361
Other notes and debt obligations				1,790		2,094
Total notes payable and other debt obligations			$	76,945	$	189,936

[1]

In December 2011, FirstCity entered into a debt refinancing arrangement with Bank of Scotland that resulted in the amendment and restatement of the Reducing Note Facility ("BoS Facility A") and a new loan agreement with BOS (USA) ("BoS Facility B"). In connection with this debt refinancing arrangement, FirstCity also obtained a new credit facility with Bank of America. This debt refinancing transaction was accounted for as a debt extinguishment and, as such, BoS Facility A and BoS Facility B were initially recorded at their estimated fair values of $91.6 million and $-0-, respectively, in December 2011 (see Note 2).

[2]

The unamortized discount on this loan facility at December 31, 2012 and December 31, 2011 was $1.1 million and $3.1 million, respectively. Also, the carrying value of this loan facility included zero and $13.2 million denominated in Euros at December 31, 2012 and December 31, 2011, respectively (see Note 12).

[3]

This revolving loan facility was amended and restated on January 31, 2012 (Refer to Note 2 for additional information).

[4]

FC Investment, a FirstCity wholly-owned subsidiary, obtained this revolving loan facility in May 2012 (Refer to Note 2 for additional information).

[5]

FirstCity de-recognized this note payable from its consolidated balance sheet in March 2012 upon the acquisition of the underlying real estate property by the creditor in a foreclosure transaction (see Note 5 for additional information). This non-cash activity did not have a material impact on the Company's results of operations for 2012.

        Refer to Note 2 for additional information on the primary terms and conditions of the Company's loan facilities with Bank of Scotland, Bank of America, FNBCT and WFCF at December 31, 2012, and other matters concerning the Company's financings and liquidity. Under terms of certain borrowings, the Company and its subsidiaries are required to maintain certain tangible net worth levels and comply with various financial covenant ratios that are customary for credit facilities. In addition, certain loan facilities to which the Company and its subsidiaries are parties contain restrictions relating to the incurrence of additional debt, and the payment of dividends and other distributions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

9. Notes Payable to Banks and Other Debt Obligations (Continued)

        The aggregate principal maturities of the Company's notes payable and other debt obligations for each of the five years subsequent to December 31, 2012, after giving consideration to the terms of ABL's revolving loan facility renewal discussed above, are as follows (exclusive of unamortized discounts): $51.7 million in 2013, $3.8 million in 2014, $16.1 million in 2015, $6.0 million in 2016, and $0.4 million thereafter. Given the repayment terms of the Company's loan facilities with Bank of Scotland and Bank of America (repayment over time as cash flows from the respective underlying pledged assets are realized—see Note 2), the future principal maturities for these debt obligations were based on estimated cash flows from the underlying pledged assets.

10. Stockholders' Equity

        The Company's Board of Directors may issue an additional series of optional preferred stock and designate the relative rights and preferences of the optional preferred stock when and if issued. Such rights and preferences can include liquidation preferences, redemption rights, voting rights and dividends and shares can be issued in multiple series with different rights and preferences. The Company has no current plans for the issuance of an additional series of optional preferred stock.

11. Accumulated Other Comprehensive Loss

        Accumulated other comprehensive loss was comprised of the following as of December 31, 2012 and 2011:

	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Cumulative foreign currency translation adjustments	$	(534	)	$	(1,853	)
Net unrealized gain (loss) on securities available for sale, net of tax		(43	)		(88	)
Total accumulated other comprehensive loss	$	(577	)	$	(1,941	)

12. Foreign Currency Exchange Risk Management

        Prior to December 2012, we used Euro-denominated debt as a non-derivative financial instrument to partially offset the Company's business exposure to foreign currency exchange risk attributable to our net investments in Europe. Our focus was to manage the foreign currency exchange risks associated with our European subsidiaries. To help protect the Company's net investment in certain of its European subsidiary operations from adverse changes in foreign currency exchange rates, management denominated a portion of the Euro-denominated debt in the same functional currency used by the European subsidiaries. In December 2012, the Company paid off its remaining balance in the Euro-denominated debt. At December 31, 2011, the Company carried $13.2 million in Euro-denominated debt and designated the debt as a non-derivative hedge of its net investment in certain European subsidiaries. The Company designated the hedging relationship such that changes in the net investments being hedged were expected to be naturally offset by corresponding changes in the value of the Euro-denominated debt.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

12. Foreign Currency Exchange Risk Management (Continued)

        The effective portion of the net foreign investment hedge was reported in accumulated other comprehensive income (loss) ("AOCI") as part of the cumulative translation adjustment. Any ineffective portion of the net foreign investment hedge was recognized in earnings as other income (expense) during the period of change. Effectiveness of the hedging relationship was measured and designated at the beginning of each month by comparing the outstanding balance of the Euro-denominated debt to the carrying value of the designated net equity investments.

        At December 31, 2012 and 2011, the carrying value and line item caption of the Company's non-derivative instrument was reported on the consolidated balance sheet as follows (in thousands):

		Carrying Value at:
Non-Derivative Instrument in Net Investment Hedging Relationship	Balance Sheet Location	December 31, 2012		December 31, 2011
Euro-denominated debt	Notes payable to banks	$	—	$	13,240

        The effect of the non-derivative instrument qualifying and designated as a hedging instrument in net foreign investment hedges on the consolidated financial statements for the years ended December 31, 2012 and 2011 was as follows (in thousands):

	Amount of Gain (Loss) Recognized in AOCI (Effective Portion)						Amount of Gain (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Year Ended December 31,						Year Ended December 31,
						Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Non-Derivative Instrument in Net Investment Hedging Relationship
	2012			2011			2012		2011
Euro-denominated debt	$	(256	)	$	251	Other income (expense)	$	—	$	—

13. Stock-Based Compensation

        The Company has three stock option and award plans for the primary benefit of its non-management directors and key employees—the 2004 Stock Option and Award Plan, the 2006 Stock Option and Award Plan and the 2010 Stock Option and Award Plan. These plans are administered by the Compensation Committee of the Board of Directors and enable the Company to make stock awards up to a total of 1.1 million common shares (net of shares cancelled and forfeited) in various forms and combinations including incentive stock options, nonqualified stock options, performance-based awards and restricted stock. Shares subject to options granted under these plans that terminate without being exercised will become available for grant. At December 31, 2012, the Company had approximately 153,000 shares that were available to grant under these plans.

        Accounting for stock-based compensation requires that the cost resulting from all stock-based payments be recognized in the financial statements based on the grant-date fair value of the award. The Company's stock-based compensation expense consists of stock options and restricted stock awards. Accounting guidance on share-based payments requires companies to estimate the fair value of stock option awards on the date of the grant using an option-pricing model. The Company uses the Black-Scholes option-pricing model to determine fair value of its stock option awards. The Company

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

13. Stock-Based Compensation (Continued)

determines fair value for restricted stock grants based on the grant-date fair value of our common stock. All stock option and restricted stock grants are amortized ratably over the requisite service periods of the underlying awards, which are generally the vesting periods. The Company recognizes share-based compensation expense only for those shares that are expected to vest, based on the Company's historical experience and future expectations. The Company recorded stock-based compensation expense of $1.1 million for 2012 and $0.7 million for 2011.

Stock Option Awards

        The Company's stock option awards are granted with an exercise price equal to the market price of FirstCity's common stock on the date of issuance. These stock option awards generally vest based on four years of continuous service from the grant date and have ten-year contractual terms. Certain stock options issued to non-employee directors are exercisable immediately. The Company did not grant any stock option awards in 2012 and 2011.

        The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock option awards on the grant date. The Company uses assumptions relating to expected life of options granted, expected volatility and risk-free interest rate to determine the fair value of stock option awards. The expected life of options granted represents the period of time for which the options are expected to be outstanding, taking into account the percentage of option exercises, the percentage of options that expire unexercised and the percentage of options outstanding. The expected volatility is based on the historical volatility of the Company's common stock over the estimated expected life of the options. The risk-free interest rate is derived from the U.S. Treasury rate with a maturity date corresponding to the stock options' expected life. The Company does not currently anticipate paying any cash dividends on its common stock. Consequently, the Company uses an expected dividend yield of zero in the options-pricing model. The Company also estimates option forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures significantly differ from those estimates. To determine an expected forfeiture rate, the Company uses historical experience as a proxy for forfeitures.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

13. Stock-Based Compensation (Continued)

        A summary of the Company's stock options and related activity as of and for the years ended December 31, 2012 and 2011 is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
								(in thousands)
Options outstanding at January 1, 2011		747,400		$	7.99
Granted		—			—
Exercised		(15,000	)		4.69
Expired		—			—
Forfeited		(10,000	)		8.39
Options outstanding at January 1, 2012		722,400		$	8.06
Granted		—			—
Exercised		—			—
Expired		—			—
Forfeited		(7,500	)		7.90
Options outstanding at December 31, 2012		714,900		$	8.06		4.43	$	1,382
Options exercisable at December 31, 2011		589,900		$	8.31
Options exercisable at December 31, 2012		649,900		$	8.17		4.22	$	1,199

        The total intrinsic value of stock options exercised during 2012 and 2011 was zero and $30,000, respectively. As of December 31, 2012, there was approximately $0.2 million of total unrecognized compensation cost related to unvested stock options. That cost is expected to be recognized over a weighted average period of .6 years.

        A summary of the status and changes of FirstCity's non-vested stock option shares as of and for the year ended December 31, 2012 is presented below:

	Shares			Weighted- Average Grant-Date Fair Value
Non-vested at January 1, 2012		132,500		$	6.93
Granted		—		$	—
Vested		(66,250	)	$	6.93
Forfeited		(1,250	)	$	6.93
Non-vested at December 31, 2012		65,000		$	6.93

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

13. Stock-Based Compensation (Continued)

Restricted Stock Awards

        In March 2011, the Company granted (i) 27,258 shares of restricted stock awards to non-employee directors that cliff-vest one year from the grant date; and (ii) 68,868 shares of restricted stock awards to executive management that time-vest over a three-year period. The weighted-average grant-date fair value of the awards was $6.58—which was based on the fair value of our common stock on the respective grant dates. In March 2012, the Company granted (i) 26,250 shares of restricted stock awards to non-employee directors that cliff-vest one year from the grant date; and (ii) 139,357 shares of restricted stock awards to executive management that time-vest over a three-year period. The weighted-average grant-date fair value of the awards was $8.78—which was based on the fair value of our common stock on the respective grant dates. Holders of the restricted stock awards have voting rights, and vesting of the grants is based on their continued service. Sales of the restricted stock are prohibited until the awards vest. As of December 31, 2012, there was approximately $1.1 million of total unrecognized compensation cost related to unvested restricted stock awards to be recognized over a weighted average period of 2.0 years.

        A summary of the Company's restricted stock awards and related activity as of and for the year ended December 31, 2012 is presented below:

	Number of Shares
Shares outstanding at December 31, 2011		96,126
Shares granted		165,607
Shares vested		(50,212	)
Shares outstanding at December 31, 2012		211,521

14. Income Taxes

        The Company's provision for income taxes from continuing operations for 2012 and 2011 consisted of the following:

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
U.S. state current income tax expense	$	593	$	158
Foreign current income tax expense		317		3,164
Foreign deferred income tax expense		64		380
Total	$	974	$	3,702

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

14. Income Taxes (Continued)

        The following table reconciles the Company's provision for income taxes to the expected income tax expense at the U.S. federal statutory income tax rate (computed by applying the U.S. federal income tax rate of 35% to earnings before income taxes and non-controlling interest):

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Computed expected tax based on federal statutory rate	$	5,112		$	9,936
Increase (decrease) in taxes resulting from:
Expired capital loss carryforward		—			17,701
Change in valuation allowance		(4,611	)		(22,316	)
Inclusion of income attributable to noncontrolling
interest in an 80%-owned subsidiary		94			220
Change in tax credit carryforwards		(501	)		(4,955	)
Other		(94	)		(586	)
U.S. state and foreign income tax		974			3,702
	$	974		$	3,702

        The following table displays the significant components of our U.S. deferred tax assets, deferred tax liabilities, and valuation allowance as of December 31, 2012 and 2011:

	December 31,
	2012			2011
	(Dollars in thousands)
Deferred tax assets (liabilities):
Basis difference in Acquisition Partnership investments	$	17,509		$	19,533
Intangibles, principally due to differences in amortization		264			283
Basis difference in property and equipment		143			128
Foreign non-repatriated earnings		1,215			(4,151	)
Federal net operating loss carryforwards		2,725			11,749
Tax credit carryforwards		5,456			4,955
Other		640			67
Total deferred tax assets, net		27,952			32,564
Valuation allowance		(27,952	)		(32,564	)
Net deferred tax assets	$	—		$	—

        At December 31, 2012 and 2011, the Company had deferred foreign tax liabilities of zero and $0.1 million, respectively, included in "Other liabilities" in its consolidated balance sheets. These deferred tax liabilities were attributable primarily to our consolidated foreign operations, and unrealized holding gains from investment securities held by a consolidated foreign subsidiary.

        The Company recognizes deferred tax assets and liabilities in both the U.S. and non-U.S. jurisdictions based on the future tax consequences attributable to temporary differences between the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

14. Income Taxes (Continued)

financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates, if any, would be recognized in earnings in the period that includes the enactment date. We reduce the carrying amounts of deferred tax assets through a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically by the Company based on the more-likely-than-not realization threshold criterion. In this assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other factors, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, excess of appreciated asset value over the tax basis of net assets, impact of gains or charges from one-time events, the duration of statutory carryforward periods, the Company's experience with utilizing available operating loss and tax credit carryforwards, and tax planning strategies. In making such assessments, significant weight is given to evidence that can be objectively verified. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws between our projected operating performance, our actual results and other factors.

        For purposes of evaluating the need for a deferred tax valuation allowance, significant weight is given to evidence that can be objectively verified. At December 31, 2012 and 2011, the Company established a full valuation allowance for its U.S. deferred tax assets due to the lack of sufficient objective evidence regarding the realization of these assets in the foreseeable future. Regardless of the deferred tax valuation allowance established at December 31, 2012, the Company continues to retain net operating loss carryforwards for federal income tax purposes of approximately $7.8 million available to offset future federal taxable income, if any, through the year 2027. To the extent that the Company generates taxable income in the future to utilize the tax benefits of the related deferred tax assets, subject to certain potential limitations, it may be able to reduce its effective tax rate by reducing the valuation allowance. The Company's net operating loss carryforwards of $7.8 million expire in various years from 2020 through 2027.

        The Company accounts for income tax uncertainty using the "more-likely-than-not" criteria incorporated in the FASB's authoritative guidance on accounting for uncertainty in income taxes. Accordingly, we account for uncertain tax positions using a two-step approach whereby we recognize an income tax benefit if, based on the technical merits of a tax position, it is more likely than not (a probability of greater than 50%) that the tax position would be sustained upon examination by the taxing authority. We then recognize a tax benefit equal to the largest amount of tax benefit that is greater than 50% likely to be realized upon settlement with the taxing authority, considering all information available at the reporting date. Once a financial statement benefit for a tax position is recorded, we adjust it only when there is more information available or when an event occurs necessitating a change. The difference between the benefit recognized for a position in accordance with this accounting model and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. The Company did not have any unrecognized tax benefits at December 31, 2012 or at December 31, 2011. The Company records interest and penalties related to income tax uncertainties in the provision for income taxes.

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December 31, 2012 and 2011

14. Income Taxes (Continued)

        FirstCity currently files tax returns in approximately 39 U.S. states, and one of its consolidated subsidiaries is currently being examined in one state for the year 2004. Tax year 1997 and subsequent years are open to U.S. federal examination, and tax year 2008 and subsequent years are open to U.S. state examination.

15. Employee Benefit Plan

        The Company has a defined contribution 401(k) employee profit sharing plan pursuant to which the Company matches employee contributions at a stated percentage of employee contributions to a defined maximum. The Company's contributions to the 401(k) plan were $0.2 million in 2012 and $0.3 million in 2011.

16. Leases

        The Company leases its corporate headquarters under a non-cancellable operating lease. The lease calls for monthly payments of $16,000 through October 31, 2015, then monthly payments of $17,250 from November 1, 2015 through its expiration in October 2020. Rental expense under this lease was $192,000 for 2012 and $196,000 for 2011. The Company also leases office space and equipment under operating leases expiring in various years prior to 2017. Rental expense under these leases for 2012 and 2011 was $746,000 and $681,000, respectively. As of December 31, 2012, the future minimum lease payments under all non-cancellable operating leases are as follows: $572,000 in 2013; $456,000 in 2014; $398,000 in 2015; $359,000 in 2016; $281,000 in 2017; and $2.6 million thereafter.

17. Fair Value

        We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value for applicable fair value disclosures. Investment securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value certain other assets and liabilities on a non-recurring basis, Portfolio Assets, loans receivable, real estate investments, servicing assets, investments in unconsolidated subsidiaries, and various other assets held for sale (including liabilities related to the assets held for sale). These non-recurring fair value adjustments typically involve lower-of-cost-or-market accounting or write-downs of individual assets.

Fair Value Hierarchy

        The accounting guidance on fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). We group our assets and liabilities measured at fair value in three levels of the fair value hierarchy, based on the fair value measurement technique, as described below:

•

Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets and liabilities in active exchange markets that the Company has the ability to access at the measurement date.

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December 31, 2012 and 2011

17. Fair Value (Continued)

•

Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques with significant assumptions and inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

•

Level 3—Valuation is derived from model-based techniques that use inputs and significant assumptions that are supported by little or no observable market data. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of pricing models, discounted cash flow models and similar techniques.

        The level of fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is most significant to the fair value measurement in its entirety. In the determination of the classification of assets and liabilities in Level 2 or Level 3 of the fair value hierarchy, we consider all available information, including observable market data, indications of market conditions, and our understanding of the valuation techniques and significant inputs used. Based upon the specific facts and circumstances, judgments are made regarding the significance of the Level 3 inputs to the fair value measurements of the respective assets and liabilities in their entirety. If the valuation techniques that are most-significant to the fair value measurements are principally derived from assumptions and inputs that are corroborated by little or no observable market data, the asset or liability is classified as Level 3.

Determination of Fair Value

        We attempt to base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs, when reasonably available, and minimize the use of unobservable inputs when developing fair value measurements. However, active market pricing information and other observable market data are not available for a significant portion of the Company's financial instruments (primarily distressed assets and non-public debt instruments). In instances where there is limited or no observable market data, fair value measurements are based principally upon our own valuation models and estimates, or combination of our own valuation models and estimates plus independent vendor or broker pricing, and the measurements are often calculated, as applicable, based on current pricing adjusted for the economic and competitive environment, the characteristics of the asset or liability, and other such factors. As with any valuation technique used to estimate fair value, changes in underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. Accordingly, these fair value estimates may not be realized in an actual sale or immediate settlement of the asset or liability. The Company believes the imprecision of an estimate could significantly impact the fair value measurement.

        Following are descriptions of the valuation methodologies used for assets and liabilities recorded at fair value on a recurring or non-recurring basis, and for estimating fair value for financial instruments not reported at fair value on our consolidated balance sheet for disclosure purposes.

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December 31, 2012 and 2011

17. Fair Value (Continued)

        Cash and Cash Equivalents and Restricted Cash:    Cash and cash equivalents and restricted cash are carried at historical cost. The carrying amount approximates fair value due to the short-term nature of these instruments.

        Portfolio Assets—Loans:    See Note 1 for information on the carrying value of loan Portfolio Assets. The Company does not carry its loan Portfolio Assets at fair value on a recurring basis. However, periodically, we may record non-recurring adjustments to the carrying value of impaired loans to reflect partial write-downs, which are reported as non-recurring fair value measurements when the adjustment is based on the observable market price of the loan or the fair value of collateral. The fair values of impaired loans are generally based on appraised value of collateral. Non-recurring fair value adjustments to loans that are based on observable market prices and collateral valuations using observable inputs are classified as Level 2 measurements. When management determines that the fair value of the collateral requires additional adjustments, such as a result of non-current appraisal value or when there is no observable market price, the Company generally employs internal valuation processes consisting primarily of market comparable pricing and discounted cash flow techniques. These internal valuation techniques include various significant unobservable inputs, such as market discount rates, liquidity discounts, comparability adjustments, loss severity, and market/collateral condition adjustments. The Company classifies its fair value measurements using internal valuation techniques for these assets as Level 3 for non-recurring fair value adjustments, because these valuation techniques are principally derived from assumptions, inputs and qualitative considerations that are corroborated by little or no observable market data.

        Additionally, for disclosure purposes, the Company is required to provide fair value estimates for its loan Portfolio Assets that are not recorded at fair value on a recurring or non-recurring basis. The Company estimates fair value for this disclosure using a discounted cash flow model that employs market discount rates that reflect the Company's current pricing for loans with similar characteristics, adjusted for various considerations such as market conditions and credit risk. This fair value measurement technique is a Level 3 measurement, because it is principally derived from assumptions, inputs and qualitative considerations that are corroborated by little or no observable market data.

        Portfolio Assets—Real Estate:    See Note 1 for information on the carrying value of our real estate investments held for sale and held for investment. Fair value measurements for our real estate investments are generally based on collateral valuations using observable inputs and, accordingly, we classify these assets as Level 2 for non-recurring fair value adjustments.

        Loans Receivable Held for Investment:    See Note 1 for information on the carrying value of loans receivable held for investment. The Company does not carry its loans receivable held for investment at fair value on a recurring basis. However, periodically, we may record non-recurring adjustments to the carrying value of impaired loans to reflect partial write-downs, which are reported as non-recurring fair value measurements when the adjustment is based on the observable market price of the loan or the fair value of collateral. The fair values of impaired loans are generally based on appraised value of collateral. Non-recurring fair value adjustments to loans that are based on observable market prices and collateral valuations using observable inputs are classified as Level 2 measurements. When management determines that the fair value of the collateral requires additional adjustments, such as a result of non-current appraisal value or when there is no observable market price, the Company generally

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December 31, 2012 and 2011

17. Fair Value (Continued)

employs internal valuation processes consisting primarily of market comparable pricing and discounted cash flow techniques. These internal valuation techniques include various significant unobservable inputs, such as market discount rates, liquidity discounts, comparability adjustments, loss severity, and market/collateral condition adjustments. The Company classifies its fair value measurements using internal valuation techniques for these assets as Level 3 for non-recurring fair value adjustments, because these valuation techniques are principally derived from assumptions, inputs and qualitative considerations that are corroborated by little or no observable market data.

        Additionally, for disclosure purposes, the Company is required to provide fair value estimates for its loans receivable held for investment that are not recorded at fair value on a recurring basis. For this disclosure, estimated fair values of fixed-rate loans receivable, including affiliated loans, are generally determined using a discounted cash flow model, adjusted by an amount for estimated losses that employs market discount rates and other adjustments that would be expected to be made by a market participant. Estimated fair values of variable-rate loans that re-price frequently at market interest rates are based on carrying values adjusted for estimated credit losses and other adjustments that would be expected to be made by a market participant. The estimated fair value for impaired loans is generally based on collateral valuations using observable inputs, adjusted for various considerations that would be expected to be made by a market participant; or discounted cash flow models that employ market discount rates and other adjustments that would be expected to be made by a market participant. These fair value measurement techniques are classified as Level 3 measurements, because they are principally derived from assumptions, inputs and qualitative considerations that are corroborated by little or no observable market data.

        SBA Loans Held for Sale:    SBA loans receivable held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is generally based on prices that secondary markets are currently offering for loans with similar characteristics. As such, we classify those loans subject to non-recurring fair value adjustments as Level 2.

        Investment Securities Available for Sale:    Investment securities available for sale are carried at fair value on our consolidated balance sheet. The Company measures fair value for its marketable equity investment using quoted market prices in an active exchange market for identical assets (Level 1). The Company measures fair value for its asset-backed securities using discounted cash flow models based on assumptions and inputs that are corroborated by little or no observable market data (Level 3). The Company uses this measurement technique for these assets because pricing information and market-participant assumptions for its asset-backed securities are not readily accessible and frequently released to the public.

        Investments in Unconsolidated Subsidiaries:    Investments in unconsolidated subsidiaries are generally recorded under the equity method of accounting (see Note 1). Estimated fair values of these investments are based on a discounted cash flow approach using a price quotation for similar investments, adjusted for various considerations that, in management's opinion, reflect elements a market participant would consider. The Company classifies its fair value measurement techniques for these non-marketable equity investments as Level 3 for non-recurring fair value adjustments because pricing information for similar assets is generally not released to the public, and the Company's valuation techniques that are most-significant to the fair value measurements are principally derived from assumptions and inputs that are corroborated by little or no observable market data.

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December 31, 2012 and 2011

17. Fair Value (Continued)

        Assets Held for Sale, Net of Related Liabilities:    Assets held for sale, net of related liabilities, represented the net assets of certain Company subsidiaries that management expects to sell or otherwise dispose, and were carried at the lower-of-cost or market at December 31, 2011 (see Note 4). The composition of these assets and liabilities comprised primarily Portfolio Assets, an affiliated loan receivable, and an affiliated note payable. The estimated fair values of the net assets related to these subsidiaries were based primarily on a contractual sales price (adjusted for costs to sell) and a price quotation from a prospective buyer and, accordingly, we classified these assets and liabilities as Level 2 for non-recurring fair value adjustments.

        Notes Payable and Other Debt Obligations:    Notes payable and other debt obligations are carried at amortized cost, net of unamortized discounts. For disclosure purposes, we are required to estimate the fair value of our notes payable and debt obligations. For our debt instruments, quoted market prices or interest rates for similar debt with comparable terms (or when traded by market participants as an asset) are not readily observable in active trading markets. As such, we estimated the fair value of our debt obligations with Bank of Scotland by discounting the future cash flows of each debt instrument at rates currently offered to us for loan facilities with other creditors that include similar terms and maturities (these discount rates include our current spread levels). For the remainder of our non-affiliated notes payable and debt obligations, management believes that carrying value approximates fair value since the interest rates and terms on these debt instruments approximate the rates, market spreads and terms currently offered by other lenders for similar debt instruments of comparable terms. Fair values of the Company's affiliated notes payable (including related interest payable) were based on discounted cash flow models that employ market discount rates and other adjustments that would be expected to be made by a market participant.

Assets Measured at Fair Value on a Recurring Basis

        The table below presents the Company's balances of assets measured at fair value on a recurring basis at December 31, 2012 and 2011. The Company did not have any liabilities that were measured at fair value on a recurring basis at December 31, 2012 and 2011. There were no transfers of assets recorded at fair value on a recurring basis into or out of Level 1 and Level 2 fair value measurements during the years ended December 31, 2012 and 2011.

	At December 31, 2012
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Investment securities available for sale:
Asset-backed securities	$	—	$	—	$	1,670	$	1,670
	$	—	$	—	$	1,670	$	1,670

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December 31, 2012 and 2011

17. Fair Value (Continued)

	At December 31, 2011
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Investment securities available for sale:
Marketable equity security	$	1,000	$	—	$	—	$	1,000
Asset-backed security		—		—		2,798		2,798
	$	1,000	$	—	$	2,798	$	3,798

        At December 31, 2012 and 2011, the amortized cost of the Company's marketable equity security was zero and $1.1 million, respectively. At December 31, 2012 and 2011, the amortized cost of the Company's asset-backed securities approximated $1.7 million and $2.8 million, respectively. The Company used a discounted cash flow model (valuation technique), with a 20% discount rate (significant unobservable input), to measure the estimated fair value of its asset-backed security (Level 3 asset) at December 31, 2012.

        The table below summarizes the changes to the Company's Level 3 assets measured at fair value on a recurring basis for the years ended December 31, 2012 and 2011:

	Year Ended December 31,
(Dollars in thousands)	2012			2011
Balance, beginning of period	$	2,798		$	2,605
Total realized and unrealized gains for the period included in:
Net income (loss)		100			354
Other comprehensive income		(58	)		(396	)
Purchases		—			3,843
Sales		—			(1,980	)
Issuances		—			—
Settlements		(1,170	)		(1,789	)
Foreign currency translation adjustments		—			161
Net transfers into Level 3		—			—
Balance, end of period	$	1,670		$	2,798

Assets Measured at Fair Value on a Non-Recurring Basis

        The Company may be required, from time to time, to measure certain financial and non-financial assets and liabilities at fair value on a non-recurring basis. These adjustments to fair value generally result from write-downs of financial and non-financial assets as a result of impairment or application of lower-of-cost or fair value accounting. The following table provides the fair value hierarchy and the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

17. Fair Value (Continued)

carrying value of assets on the Company's consolidated balance sheet at December 31, 2012 and 2011 that were measured at fair value on a non-recurring basis during the respective years then ended:

	Carrying Value at December 31, 2012
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Portfolio Assets—loans(1)	$	—	$	4,074	$	1,757	$	5,831
Loans receivable—SBA held for investment(1)		—		238		40		278
Real estate held for sale(2)		—		1,452		—		1,452

	Carrying Value at December 31, 2011
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Portfolio Assets—loans(1)	$	—	$	—	$	1,923	$	1,923
Loans receivable—SBA held for investment(1)		—		—		559		559
Real estate held for sale(2)		—		6,297		—		6,297
Investments in unconsolidated subsidiaries		—		—		4,567		4,567
Assets held for sale, net of related liabilities		—		2,011		—		2,011

(1)

Represents the carrying value of impaired loans for which adjustments were based on the collateral value.

(2)

Represents the carrying value of foreclosed real estate properties that were impaired and measured at fair value subsequent to their initial classification as foreclosed assets.

        The following table presents the decrease in value of certain assets held at the respective period end that were measured at fair value on a non-recurring basis for which a fair value adjustment was included in the Company's results of operations during the respective period:

	Year Ended December 31,
(Dollars in thousands)	2012			2011
Portfolio Assets—loans(1)	$	(1,419	)	$	(921	)
Loans receivable—SBA held for investment(1)		(421	)		(385	)
Real estate held for sale(2)		(409	)		(2,067	)
Investments in unconsolidated subsidiaries(3)		—			(7,435	)
Assets held for sale, net of related liabilities(4)		—			(3,093	)
Total	$	(2,249	)	$	(13,901	)

(1)

Represents write-downs of loans based on the estimated fair value of the collateral for collateral-dependent loans.

(2)

Represents losses on foreclosed real estate properties that were measured at fair value subsequent to their initial classification as foreclosed assets.

(3)

Represents a loss in value on investments in unconsolidated subsidiaries that was deemed to be other-than-temporary (see Note 7).

(4)

Represents the net write-down of a disposal group upon its classification as held for sale (see Note 4).

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December 31, 2012 and 2011

17. Fair Value (Continued)

        The fair value adjustment reductions in the table for 2012 and 2011 involved assets held in our Portfolio Asset Acquisition and Resolution business segment.

Estimated Fair Values of Financial Instruments Not Recorded at Fair Value in their Entirety on a Recurring Basis

        The table below presents the carrying amount and estimated fair value of the Company's financial instruments, including accrued interest (where applicable), that are not recorded at fair value in their entirety on a recurring basis on the Company's consolidated balance sheets at December 31, 2012 and December 31, 2011. These fair value estimates are generally based on pertinent information that was available to management as of the respective measurement dates. The fair value estimates have not been revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented. We have not included assets that are not financial instruments in our disclosure, such as the value of our servicing assets and investments in unconsolidated subsidiaries.

	December 31, 2012										December 31, 2011
			Estimated Fair Value
	Carrying Amount										Carrying Amount		Estimated Fair Value
(Dollars in thousands)			Level 1		Level 2		Level 3		Total
Cash, cash equivalents and restricted cash	$	41,095	$	41,095	$	—	$	—	$	41,095	$	36,031	$	36,031
Loan Portfolio Assets and loans receivable held for investment		78,741		—		—		103,345		103,345		135,423		173,616
SBA loans held for sale		1,087		—		1,232		—		1,232		7,614		8,353
Assets held for sale, net of related liabilities(1)		—		—		—		—		—		4,569		6,634
Notes payable and other debt obligations		76,945		—		—		76,945		76,945		189,936		189,936

(1)

Comprised of Portfolio Assets, an affiliated loan receivable and an affiliated note payable (see Note 4).

18. Segment Reporting

        At December 31, 2012 and 2011, the Company was engaged in two major business segments—Portfolio Asset Acquisition and Resolution business and Special Situations Platform business.

        In the Portfolio Asset Acquisition and Resolution business, the Company acquires and resolves portfolios of under-performing and non-performing loans, and to a lesser extent, performing loans and other assets (collectively, "Portfolio Assets" or "Portfolios"), which are generally acquired at a discount to their legal principal balance or appraised value. Purchases may be in the form of pools of assets or single assets. The Portfolio Assets are generally aggregated, including loans of varying qualities that are secured or unsecured by diverse collateral types and real estate. Some Portfolio Assets are loans for which resolution is linked primarily to the real estate securing the loan, while others may be collateralized business loans for which resolution may be based either on real estate, business assets or

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December 31, 2012 and 2011

18. Segment Reporting (Continued)

other collateral cash flow. Portfolio Assets are acquired on behalf of the Company or its consolidated subsidiaries, and on behalf of U.S. and foreign investment entities formed with co-investors ("Acquisition Partnerships"). The Company services, manages and ultimately resolves or otherwise disposes of substantially all Portfolio Assets acquired by the Company, its Acquisition Partnerships, or other related entities. The Company services such assets until they are collected or sold.

        The Company engages in its Special Situations Platform business through its majority ownership interest in FirstCity Denver Investment Corp. ("FirstCity Denver"). Through its Special Situations Platform business, the Company provides investment capital to privately-held lower middle-market companies through flexible capital structuring arrangements. The nature of the capital investments primarily takes the form of senior and junior financing arrangements, but also includes direct equity investments and common equity warrants. In addition, our Special Situations Platform business engages in other types of investment activity including distressed debt transactions and leveraged buyouts. FirstCity Denver's primary investment objective is to generate both current income and capital appreciation through debt and equity investments, and to generally structure the investments to be repaid or exited in 12 to 60 months.

        We evaluate the performance of our Portfolio Asset Acquisition and Resolution and Special Situations Platform business segments based primarily on the results of the segments without allocating certain corporate and administrative expenses and other items. "Corporate and Other" in the tables below represent the portions of our expenses (primarily salaries and benefits, accounting fees and legal expenses) and certain other items that are not allocable to our business segments.

        The following tables set forth summarized information by segment for the years ended December 31, 2012 and 2011:

	Year Ended December 31, 2012
	Portfolio Asset Acquisition and Resolution			Special Situations Platform			Corporate and Other			Total
	(Dollars in thousands)
Revenues	$	55,577		$	14,117		$	887		$	70,581
Costs and expenses		(37,880	)		(17,926	)		(12,383	)		(68,189	)
Equity income from unconsolidated subsidiaries		8,958			6,286			—			15,244
Gain on business combinations		—			935			—			935
Gain on sale of subsidiaries		1,451			—			—			1,451
Income tax expense		(490	)		(326	)		(158	)		(974	)
Net income attributable to noncontrolling interests		(3,531	)		(1,179	)		—			(4,710	)
Net earnings (loss)	$	24,085		$	1,907		$	(11,654	)	$	14,338

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December 31, 2012 and 2011

18. Segment Reporting (Continued)

	Year Ended December 31, 2011
	Portfolio Asset Acquisition and Resolution			Special Situations Platform			Corporate and Other			Total
	(Dollars in thousands)
Revenues	$	63,877		$	10,190		$	250		$	74,317
Costs and expenses		(52,481	)		(7,796	)		(8,322	)		(68,599	)
Equity income (loss) from unconsolidated subsidiaries		(624	)		2,855			—			2,231
Gain on business combinations		278			155			—			433
Gain on debt extinguishment		26,543			—			—			26,543
Gain on sale of subsidiaries		1,818			—			—			1,818
Income tax (expense) benefit		(3,807	)		(166	)		271			(3,702	)
Net income attributable to noncontrolling interests		(7,654	)		(1,170	)		—			(8,824	)
Net earnings (loss)	$	27,950		$	4,068		$	(7,801	)	$	24,217

        Revenues and equity income (loss) of investments in unconsolidated subsidiaries from the Special Situations Platform segment are all attributable to U.S. operations. Revenues, equity income (loss) of unconsolidated subsidiaries and other income from the Portfolio Asset Acquisition and Resolution segment are attributable to U.S. and foreign operations as summarized as follows:

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
Domestic	$	51,191	$	42,180
Latin America		7,255		2,230
Europe		6,089		18,843
Total	$	64,535	$	63,253

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

18. Segment Reporting (Continued)

        Total assets for each segment and a reconciliation to total assets are as follows:

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Cash and cash equivalents	$	39,941	$	34,802
Restricted cash		1,154		1,229
Portfolio acquisition and resolution assets:
Domestic		132,487		199,093
Latin America		6,495		17,048
Europe		6,049		41,447
Special situations platform assets		45,158		51,099
Other non-earning assets, net		13,353		11,628
Total assets	$	244,637	$	356,346

19. Variable Interest Entities

        In the normal course of business, the Company enters into various types of on- and off-balance sheet transactions with entities that involve variable interests. Variable interests are generally defined as contractual, ownership or other economic interests in an entity that change with fluctuations in the entity's net asset value. If certain characteristics are present in these transactions, the entity is subject to a variable interests consolidation analysis, and consolidation is based on variable interests, and not solely on ownership of the entity's outstanding voting stock. In making the determination as to whether an entity is considered to be a variable interest entity ("VIE"), we first perform a qualitative analysis, which requires certain subjective decisions regarding our assessments, including, but not limited to, the design of the entity, the variability that the entity was designed to create and pass along to its interest holders, the rights of the parties, and the purpose of the arrangement. If we cannot conclude after a qualitative analysis whether an entity is a VIE, we perform a quantitative analysis.

        In general, a VIE is an entity that has one or more of the following characteristics (1) the entity has total equity at risk that is not sufficient to finance its principal activities without additional subordinated financial support from other entities; (2) the group of equity owners does not have the ability to make significant decisions about the entity's activities; (3) the group of equity owners does not have the obligation to absorb losses or the right to receive residual returns generated by its operations, or both; or (4) the voting rights of some investors are not proportional to their obligations to absorb the losses or the right to receive residual returns of the entity, or both, and substantially all of the entity's activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. If any of these characteristics is present, the entity is subject to a variable interests consolidation analysis, and consolidation is based on variable interests, and not solely on ownership of the entity's outstanding voting stock.

        If an entity is determined to be a VIE, we determine if our variable interest causes us to be considered the primary beneficiary. We are the primary beneficiary and are required to consolidate the entity if we have the power to direct the activities of the VIE that most-significantly impact the entity's economic performance and we have the obligation to absorb losses or the right to receive returns that

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December 31, 2012 and 2011

19. Variable Interest Entities (Continued)

could be significant to the entity. The assessment of the party that has the power to direct the activities of the VIE may require significant management judgment when more than one party has power, or more than one party is involved in the design of the VIE but no party has the power to direct the ongoing activities that could be significant. We are required to continually assess whether we are the primary beneficiary and, therefore, may consolidate a VIE through the duration of our involvement. Examples of certain events that may change whether or not we consolidate the VIE include a change in the design of the entity or a change in our ownership. Generally, if we are the primary beneficiary of a VIE, then we initially record the assets, liabilities and noncontrolling interests of the VIE in our consolidated financial statements at fair value. If we cease to be deemed the primary beneficiary of a consolidated VIE, then we deconsolidate the VIE.

        The following provides a summary of different types of VIEs with which the Company has entered into significant transactions:

Acquisition Partnership VIEs—The Company is involved with Acquisition Partnerships that were formed with one or more investors to invest in Portfolio Assets. These Acquisition Partnerships are typically financed through debt and/or equity provided by the investors (including FirstCity). Certain of these Acquisition Partnerships are VIEs primarily because they do not have sufficient equity to finance their activities without additional subordinated financial support, or the investors do not have the ability to make certain significant decisions about the Acquisition Partnership's activities. The voting interests for all but four of the Acquisition Partnership VIEs are either wholly-owned or majority-owned by non-affiliated investors, and the Company determined that it was not the primary beneficiary of these minority-owned Acquisition Partnership VIEs. However, the Company is deemed to be the primary beneficiary for four Acquisition Partnership VIEs in which the Company and respective non-affiliated investors each hold equal ownership and voting interests (these four Acquisition Partnership VIEs are consolidated by our Special-Purpose Investment Entity VIEs described below). The investors and third-party creditors, including FirstCity, generally have recourse only to the extent of the assets held by the Acquisition Partnership VIEs. Certain third-party creditors have recourse to both FirstCity and the non-affiliated investors where we jointly provide a guaranty to the Acquisition Partnership VIE. The Company does not generally provide financial support to any Acquisition Partnership VIE beyond that which is contractually required, but may provide additional liquidity alongside the non-affiliated investors to fund additional investments.

Operating Entity VIEs—The Company has variable interests with various commercial enterprise entities (attributable primarily to certain equity and debt investments made by our Special Situations Platform business). FirstCity provided financing in the form of debt and/or equity to help finance the activities of the Operating Entity VIEs. These Operating Entities are VIEs primarily because they do not have sufficient equity to finance their activities without additional subordinated financial support. The voting interests for all of the Operating Entity VIEs are either wholly-owned or majority-owned by non-affiliated investors, and the Company determined that it was not the primary beneficiary of these minority-owned Operating Entity VIEs. The investors and creditors, including FirstCity, generally have recourse only to the extent of the assets held by the Operating Entity VIEs. The Company does not generally provide financial support to any Operating Entity VIE beyond that which is contractually required.

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December 31, 2012 and 2011

19. Variable Interest Entities (Continued)

Special-Purpose Investment Entity VIEs—The Company has significant variable interests with special-purpose investment entities that were created to invest in Portfolio Assets, debt and equity investments, and various other types of investments. Certain of these special-purpose investment entities are VIEs because they do not have sufficient equity to finance their activities without additional subordinated financial support. The Company owns all of the voting and equity interests in these Special-Purpose Investment Entity VIEs, and the Company was determined to be the primary beneficiary of these entities. Third-party creditors have recourse to FirstCity up to $38.1 million under guaranty provisions related to certain debt obligations of these Special-Purpose Investment Entity VIEs and certain of their unconsolidated subsidiaries, which are collateralized by their assets, only to the extent that such pledged assets of the respective entities do not generate sufficient cash to service and repay their debt obligations (see Note 21). The Company does not generally provide financial support to the Special-Purpose Investment Entity VIEs beyond that which is contractually required.

        The following table displays the carrying amount and classification of assets and liabilities of the Company's consolidated Special-Purpose Investment Entity VIEs (which include the accounts of the four consolidated Acquisition Partnership VIEs described above) that are included in its consolidated balance sheet as of December 31, 2012. In general, third-party creditors have recourse only to the assets of the Special-Purpose Investment Entity VIEs and do not have recourse to FirstCity, except where we provided a guaranty to the entity. We record third-party ownership in these consolidated VIEs in "Noncontrolling interests" in our consolidated balance sheet.

(Dollars in thousands)	Special-Purpose Investment VIEs
Cash	$	24,066
Portfolio Assets, net		42,056
Loans receivable		33,111
Equity investments		21,640
Other assets		32,954
Total assets of consolidated VIEs(1)	$	153,827
Notes payable(2)	$	71,718
Other liabilites(2)		18,210
Total liabilities of consolidated VIEs	$	89,928

(1)

These assets can only be used to settle the liabilities of these consolidated VIEs.

(2)

Includes $26.5 million of notes payable and $18.2 million of other liabilities for which creditors do not have recourse to FirstCity.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

19. Variable Interest Entities (Continued)

        The following table summarizes the carrying amounts of the assets and liabilities and the maximum loss exposure as of December 31, 2012 related to the Company's variable interests in unconsolidated VIEs.

	Assets on FirstCity's Consolidated Balance Sheet
						FirstCity's Maximum Exposure to Loss(1)
Type of VIE	Loans Receivable		Equity Investment
	(Dollars in thousands)
Acquisition Partnership VIEs	$	—	$	(1,076	)	$	980
Operating Entity VIEs		7,419		574			7,993
Total	$	7,419	$	(502	)	$	8,973

(1)

Includes maximum exposure to loss attributable to FirstCity's debt guarantees provided for certain Acquisition Partnership VIEs.

20. Other Related Party Transactions

        The Company has contracted with the Acquisition Partnerships and certain other related parties as a third-party loan servicer. Servicing fees and due diligence fees (included in other income) derived from these affiliates approximated $15.9 million in 2012 and $10.2 million in 2011.

        Through a series of related party transactions in 2008, FirstCity (through a majority-owned Mexican subsidiary) acquired a loan portfolio in Mexico. The final funding for this transaction involved two FirstCity majority-owned Mexican subsidiaries and an unconsolidated Mexican affiliated entity, and resulted in an affiliated note payable and an affiliated loan receivable being recorded to the Company's consolidated balance sheet. At December 31, 2011, the carrying values of this affiliated loan receivable and affiliated note payable both approximated $5.1 million (including accrued interest), and were respectively included in "Assets held for sale" and "Liabilities associated with assets held for sale" on our consolidated balance sheet. In July 2012, the Company sold the Mexican subsidiary that held this affiliated loan receivable and affiliated note payable. See Note 4 for additional information.

        The Company owns 80% of FirstCity Denver—a special situations investment platform that was formed for the purpose of investing primarily in lower middle-market private companies through flexible capital structuring arrangements. The other 20% interest in FirstCity Denver is owned by Crestone Capital LLC, a Colorado limited liability company that is owned by Richard Horrigan and Stephen Schmeltekopf. Mr. Horrigan, President of FirstCity Denver, and Mr. Schmeltekopf, Senior Vice President of FirstCity Denver, are also employees of FirstCity Denver and have employment contracts with FirstCity Denver.

21. Commitments and Contingencies

Legal Proceedings

        FirstCity and certain of its subsidiaries and affiliates (including Acquisition Partnerships) are involved in various claims and legal proceedings which are incidental to the ordinary course of our

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

21. Commitments and Contingencies (Continued)

business. We initiate lawsuits against borrowers and are occasionally countersued by them in such actions. From time to time, other types of lawsuits are brought against us. In view of the inherent difficulty of predicting the outcome of pending legal actions and proceedings, the Company cannot predict with certainty the eventual outcome of any such proceedings. Based on current knowledge, management does not believe that liabilities, if any, arising from any ordinary course proceeding will have a material adverse effect on the consolidated financial condition, operations, results of operations or liquidity of the Company.

Class Action Litigation

        On January 15, 2013, a putative class action lawsuit was filed in the District Court in McLennan County, Texas against the Company, its directors, Parent, Merger Subsidiary and Värde purportedly on behalf of the Company's stockholders, under the caption Eric J. Drayer v. James T. Sartain, et. al., Cause No. 2013-246-5. The lawsuit alleges, among other things, that the director defendants breached their fiduciary duties to the District Court in McLennan County, Texas against the Company, its directors, Parent, Merger Subsidiary and Värde purportedly on behalf of the Company's stockholders, under the caption Eric J. Drayer v. James T. Sartain, et. al., Cause No. 2013-246-5. The lawsuit alleges, among other things, that the director defendants breached their fiduciary duties to the Company's stockholders in connection with Värde's merger proposal and that Värde, Parent and Merger Subsidiary have aided and abetted such breaches. The plaintiff seeks declaratory and injunctive relief, reasonable attorneys' and experts' fees and, in the event the transaction is consummated, rescission of the transaction or rescissory damages and an accounting of all damages, profits and special benefits. On February 13, 2013, a first amended petition was filed. The amended petition alleges that the director defendants breached their fiduciary duties by (i) failing to maximize the value of the Company, (ii) taking steps to avoid competitive bidding, (iii) failing to properly value the Company and (iv) omitting material information and providing materially misleading information in the preliminary proxy statement, and seeks the same relief and asserts the same claims as the original petition.

        On January 29, 2013, a putative class action lawsuit was filed in the Court of Chancery of the State of Delaware against the Company, its directors, Parent, Merger Subsidiary and Värde purportedly on behalf of the Company's stockholders, under the caption Paul Perry v. FirstCity Financial Corporation, et. al., Case No. 8259-VCG. The lawsuit alleges, among other things, that the director defendants breached their fiduciary duties to the Company's stockholders by entering into the merger agreement and that the Company, Värde, Parent and Merger Subsidiary have aided and abetted such breaches. The plaintiff seeks declaratory and injunctive relief, reasonable attorneys' and experts' fees and, in the event the transaction is consummated, rescission of the transaction and an accounting of all damages, profits and special benefits. On February 15, 2013, a first amended complaint was filed adding Värde Management, L.P. as a defendant. The amended complaint alleges that the director defendants breached their fiduciary duties by (i) agreeing to the merger consideration which undervalues the Company, (ii) agreeing to the terms of the merger agreement which deter other bidders and (iii) omitting material information and providing materially misleading information in the preliminary proxy statement, and seeks the same relief and asserts the same claims as the original complaint.

        Defendants have not yet filed any responsive pleadings or motions to the amended petitions. In the Perry lawsuit, the plaintiff has moved for a preliminary injunction and sought expedited discovery,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

21. Commitments and Contingencies (Continued)

but no hearings or proceedings have been scheduled on either motion. The Company believes that the claims in these lawsuits are without merit and intends to vigorously defend itself against them. However, there can be no assurance as to the outcome of these lawsuits.

Wave Tec Pools, Inc. Litigation.

        FH Partners LLC (formerly FH Partners, L.P.), FC Servicing, and FirstCity Financial Corporation were defendants in a suit that was originally filed by Superior Funding, Inc., Wave Tec Pools, Inc. and Nations Pool Supply, Inc. (collectively, the "Obligors") against State Bank and Cole Harmonson in March 2007. The Obligors alleged that they sustained actual damages of $165 million as a result of alleged breaches by FH Partners LLC and FC Servicing under a loan-related agreement from State Bank to Obligors that was purchased by FH Partners LLC from State Bank in December 2006. Following various court rulings and proceedings (including Prosperity Bank's settlement with the Obligors in 2009), FirstCity entered into an agreement with the Obligors in August 2011, which provided for the settlement of the pending lawsuit and provided for a payment by FH Partners LLC to the Obligors and their attorneys of $100,000. The final settlement is non-appealable, and all FirstCity parties were released from all claims and liability related to the loan and lawsuit. FH Partners LLC continues to pursue collection of the loan.

Investment Agreement with VIP

        Effective April 1, 2010, FC Diversified, FC Servicing, and VIP, entered into an investment agreement that provides, among other things, a "right of first refusal" provision. Pursuant to the investment agreement, FC Diversified and FC Servicing granted VIP a right of first refusal to participate in distressed asset investment opportunities in which the aggregate amount of the proposed investment is to exceed $3.0 million. FC Diversified and FC Servicing are required to follow a prescribed notice procedure pursuant to which VIP has the option to participate in a proposed investment, whether in the form of a direct purchase, equity investment or loan, by requiring that the purchase, acquisition or loan be effected through an acquisition entity formed by FC Diversified (or its affiliate) and VIP (or its affiliate). An affiliate of FC Diversified will own from 5% to 25% of the acquisition entity at FC Diversified's determination. The investment agreement has a termination date of June 30, 2015, which is subject to consecutive automatic one-year extensions without any action by FC Diversified, FC Servicing and VIP. FC Servicing will be the servicer for all of the acquisition entities formed by FC Diversified and VIP (subject to removal by VIP on a pool-level basis under certain conditions). The parties may terminate the investment agreement prior to June 30, 2015 under certain conditions.

Indemnification Obligation Commitments

        Strategic Mexican Investment Partners L.P. ("SMIP"), a wholly-owned subsidiary of FirstCity, Cargill Financial Services International Inc. ("CFSI"), and a Mexican acquisition partnership that is collectively owned by SMIP and CFSI (collectively, the "Sellers"), are parties to indemnification arrangements that originated in 2006 in connection with their respective sales of eleven Mexican portfolio entities to Bidmex Holding LLC ("Bidmex Holding") and a loan portfolio to a Bidmex Holding subsidiary. Bidmex Holding is a Mexican acquisition partnership that was formed by certain

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

21. Commitments and Contingencies (Continued)

subsidiaries of American International Group, Inc. ("AIG Entities"), as the 85%-majority owner, and SMIP, as the 15%-minority owner, to acquire the interests of the portfolio entities and loan portfolio from the Sellers. In connection with these sales transactions, the Sellers made various representations and warranties concerning (i) the existence and ownership of the portfolio entities, (ii) the assets and liabilities of the portfolio entities, (iii) taxes related to periods prior to the sales transaction date, (iv) the operations of the portfolio entities, and (v) the ownership of the loan portfolio and existence of the underlying loans. The Sellers agreed to indemnify Bidmex Holding and AIG Entities from damages resulting from a breach of these representation and warranty conditions on basis according to their respective ownership percentages in each Mexican portfolio entity, or on the basis of 80% to CFSI and 20% to SMIP as to any matter that was not related to a particular portfolio entity. The indemnity obligation survives for a period of the statute of limitations for matters related to taxes, existence and authority, capitalization and good standing of the Mexican portfolio entities. The Sellers are not required to make any payments as a result of the indemnity provisions until the aggregate amount payable exceeds certain thresholds (ranging from $25,000 for the loan portfolio transaction to $250,000 for the Mexican portfolio entities transaction). However, claims related to taxes and fraud are not subject to these thresholds. At this time, management does not believe that this potential obligation will have a material adverse impact on the Company's consolidated results of operations, financial position or liquidity.

Guarantees and Letters of Credit

        FC Commercial has a term loan facility with Bank of Scotland. The obligations under this loan facility are secured by substantially all assets and subsidiaries of FC Commercial (excluding FH Partners LLC). FirstCity provides an unlimited guaranty for the repayment of the indebtedness under this loan facility. At December 31, 2012, the unpaid principal balance on this loan was $31.1 million. Refer to Note 2 for additional information.

        ABL has a $25.0 million revolving loan facility with WFCF (see Note 2). The obligations under this credit facility are secured by substantially all of the assets of ABL, and FirstCity provides WFCF with an unconditional guaranty on ABL's obligations under the loan facility up to a maximum of $5.0 million plus enforcement cost. At December 31, 2012, the unpaid principal balance on this loan facility was $15.2 million.

        FC Investment has a $15.0 million revolving loan facility with FNBCT. The obligations under this facility are secured by substantially all of the assets of FC Investment and its subsidiaries. FirstCity provides an unlimited guaranty for the repayment of the indebtedness under this revolving loan facility. At December 31, 2012, the unpaid principal balance on this loan facility was $2.0 million. Refer to Note 2 for additional information.

        Certain of the Company's consolidated subsidiaries provide guarantees to various financial institutions related to their financing arrangements with certain Acquisition Partnerships. The underlying financing arrangements of these Acquisitions Partnerships mature at various dates through September 2015, and are secured primarily by certain real estate properties held by the Acquisition Partnerships. At December 31, 2012, the unpaid debt obligations of these Acquisition Partnerships attributed to the underlying guarantees of the Company's subsidiaries approximated $1.4 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

21. Commitments and Contingencies (Continued)

        Fondo de Inversion Privado NPL Fund One ("PIF1"), an equity-method investment of FirstCity, has a credit facility with Banco Santander Chile, S.A. with an unpaid principal balance of $5.3 million at December 31, 2012. PIF1 uses the credit facility to finance the purchases of loan portfolios. Pursuant to terms of the credit facility, FirstCity was required to provide a stand-by letter of credit from Bank of Scotland that would satisfy the current loan balance upon demand. At December 31, 2012, FirstCity had a letter of credit in the amount of $5.4 million from Bank of Scotland under the terms of FirstCity's loan facility with Bank of Scotland, with Banco Santander Chile, S.A. as the letter of credit beneficiary. In the event that a demand is made under the $5.4 million letter of credit, FirstCity would be required to reimburse Bank of Scotland by making payment to Bank of Scotland for all amounts disbursed or to be disbursed by Bank of Scotland under the letter of credit.

Environmental Matters

        The Company generally retains environmental consultants to conduct or update environmental assessments in connection with the Company's foreclosed and acquired real estate properties. These environmental assessments have not revealed environmental conditions that the Company believes will have a material adverse effect on its business, assets, financial condition, results of operations or liquidity, and the Company is not otherwise aware of environmental conditions with respect to properties that the Company believes would have such a material adverse effect. However, from time to time, environmental conditions at the Company's properties have required and may in the future require environmental testing and/or regulatory filings, as well as remedial action. Liabilities for future remediation costs are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. Other than for assessments, the timing and magnitude of these accruals generally are based on the completion of investigations or other studies or a commitment to a formal plan of action.

Income Taxes

        We are subject to income taxes in both the United States and the non-U.S. jurisdictions in which we operate. Certain of our entities are under examination by the relevant taxing authorities for various tax years. We regularly assess the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes. We have only recorded financial statement benefits for tax positions which we believe reflect the "more-likely-than-not" criteria incorporated in the FASB's authoritative guidance on accounting for uncertainty in income taxes, and we have established income tax reserves in accordance with this authoritative guidance where necessary. Once a financial statement benefit for a tax position is recorded or a tax reserve is established, we adjust it only when there is more information available or when an event occurs necessitating a change. While we believe that the amount of the recorded financial statement benefits and tax reserves reflect the more-likely-than-not criteria, it is possible that the ultimate outcome of current or future examinations may result in a reduction to the tax benefits previously recorded on the financial statements or may exceed the current income tax reserves in amounts that could be material.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012 and 2011

22. Subsequent Events

        On January 22, 2013, FirstCity Business Lending Corporation, an indirect wholly-owned subsidiary of the Company, entered into a stock purchase agreement with CS ABL Holdings, LLC to sell all of the common stock and the preferred stock of American Business Lending, Inc. to CS ABL Holdings, LLC for a total estimated purchase price of approximately $11.1 million. At December 31, 2012, the carrying value of the Company's investment was $7.5 million. The sale is subject to the approval of the U.S. Small Business Administration, and the satisfaction of other conditions of the stock purchase agreement.

23. Selected Quarterly Financial Data (Unaudited)

        The following are summarized quarterly financial data for the years ended December 31, 2012 and 2011:

	2012										2011
	First Quarter		Second Quarter		Third Quarter			Fourth Quarter			First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(Dollars in thousands, except per share data)
Revenues	$	19,787	$	14,294	$	18,814		$	17,686		$	20,777	$	16,918	$	20,252	$	16,370
Costs and expenses		13,948		14,253		16,971			23,017			14,211		14,785		17,379		22,224
Equity income (loss) from unconsolidated subsidiaries		4,467		2,081		4,249			4,447			1,871		3,283		2,777		(5,700	)
Gain on business combinations		—		935		—			—			—		278		155		—
Gain on debt extinguishment		—		—		—			—			—		—		—		26,543
Gain on sale of subsidiaries		—		—		746			705			5		—		—		1,813
Income tax expense (benefit)		833		5		(59	)		195			602		1,024		421		1,655
Net earnings		9,473		3,052		6,897			(374	)		7,840		4,670		5,384		15,147
Less: Net income attributable to noncontrolling interests		1,108		1,565		2,130			(93	)		4,115		2,242		2,654		(187	)
Net earnings attributable to FirstCity		8,365		1,487		4,767			(281	)		3,725		2,428		2,730		15,334
Less: Net earnings attributable to participating securities		82		29		96			(6	)		—		—		25		142
Net earnings to common stockholders		8,283		1,458		4,671			(275	)		3,725		2,428		2,705		15,192
Basic earnings per share of common stock:
Net earnings	$	0.80	$	0.14	$	0.45		$	(0.03	)	$	0.36	$	0.24	$	0.26	$	1.48
Diluted earnings per share of common stock:
Net earnings	$	0.80	$	0.14	$	0.45		$	(0.03	)	$	0.36	$	0.24	$	0.26	$	1.47

146

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
FirstCity Financial Corporation:

        We have audited the accompanying consolidated balance sheets of FirstCity Financial Corporation and subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of earnings, comprehensive income, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of American Business Lending, Inc. (ABL), a wholly owned subsidiary, which statements reflect total assets constituting $24.1 million and total revenues constituting $3.7 million in 2012 of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for ABL, is based solely on the report of the other auditors.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

        In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FirstCity Financial Corporation and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

KPMG LLP

Dallas, Texas
March 21, 2013

147

Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

        None.

Item 9A.    Controls and Procedures.

        Evaluation of Disclosure Controls and Procedures.    We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

        We conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer have concluded that, as of December 31, 2012, our disclosure controls and procedures were effective.

        Management's Report on Internal Control Over Financial Reporting.    We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, the company's principal executive and principal financial officers and effected by the company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

        Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission. Based on its assessment, management has determined that, as of December 31, 2012, its internal control over financial reporting was effective based on the criteria set forth in the COSO framework.

        Changes in Internal Control Over Financial Reporting.    There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information.

        On January 22, 2013, FirstCity Business Lending Corporation, an indirect wholly-owned subsidiary of the Company, entered into a stock purchase agreement with CS ABL Holdings, LLC to sell all of the common stock and the preferred stock of American Business Lending, Inc. to CS ABL Holdings, LLC for a total estimated purchase price of approximately $11.1 million. At December 31, 2012, the carrying value of the Company's investment was $7.5 million. The sale is subject to the approval of the U.S. Small Business Administration, and the satisfaction of other conditions of the stock purchase agreement.

        A copy of the stock purchase agreement entered into between the FirstCity Business Lending Corporation and CS ABL Holdings, LLC is attached hereto as Exhibit 10.75. The foregoing description of the stock purchase agreement is qualified in its entirety by reference to the full text of the stock purchase agreement, which is incorporated by reference herein.

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PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

Board of Directors

        The following table sets forth for the name, age and position concerning each member of the FirstCity's Board of Directors (the "Board"):

Name	Age		Position
William P. Hendry		62	Chairman of the Board
C. Ivan Wilson		85	Vice Chairman of the Board
James T. Sartain		64	President, Chief Executive Officer and Director
Richard E. Bean		69	Director
Dane Fulmer		62	Director
Robert E. Garrison, II		70	Director
D. Michael Hunter		70	Director
F. Clayton Miller		49	Director

William P. Hendry has served on the Board as a director of FirstCity since August 2010, and Chairman of the Board since August 2011. Mr. Hendry has more than 30 years of experience in the banking industry and headed Bank of Scotland's operations in the United States before it was acquired in 2009 by Lloyds Banking Group. He launched W.P. Hendry and Associates in February 2009, a bank consulting firm that handles complex business and lending issues. Mr. Hendry has held senior banking positions in Scotland, Northern Ireland, Canada, the Middle East, Africa and the United States. Mr. Hendry has extensive experience in mergers and acquisitions, most notably at Drive Financial Services (a national subprime auto lender) where he led HBOS plc's investment analysis group in 2000, then became Chairman of the Board until the business was sold to Banco Santander in 2006. Mr. Hendry holds an MBA from the University of Strathclyde and completed advanced management programs at Wharton Business School and Harvard Business School. Mr. Hendry is an experienced leader whose numerous management positions and global experiences in the financial services sector have provided him with an abundance of skills and valuable insight in handling complex financial transactions and issues, all of which makes him well qualified to serve on our Board.

C. Ivan Wilson has served as Vice Chairman of the Board of FirstCity since its acquisition by merger (the "FCBOT Merger") of First City Bancorporation of Texas, Inc. ("FCBOT") in July 1995. From February 1998 to June 1998, Mr. Wilson was Chairman, President and Chief Executive Officer of Mercantile Bank, N.A., Corpus Christi, Texas, a national banking organization. Mr. Wilson was Chairman of the Board and Chief Executive Officer of FCBOT from 1991 to the FCBOT Merger. Prior to 1991, Mr. Wilson was the Chief Executive Officer of FirstCity, Texas—Corpus Christi, one of FCBOT's banking subsidiaries. Mr. Wilson currently serves on the board of directors of Driscoll Children's Hospital based in South Texas, and previously served as the hospital's board chairman for 10 years through September 2011. Mr. Wilson was selected to serve as a director of FirstCity because of his significant understanding of the Company's business and his extensive experience in the financial services industry.

James T. Sartain has served on the Board as a director and President of FirstCity since the FCBOT Merger and Chief Executive Officer since January 2001. Prior to January 2001, Mr. Sartain was President and Chief Operating Officer of FirstCity. From 1988 to the FCBOT Merger, Mr. Sartain was President and Chief Operating Officer of J-Hawk Corporation. Mr. Sartain was selected to serve as a director of FirstCity because of his understanding and deep institutional knowledge of the Company's business, his extensive employment experience with FirstCity and his significant industry and management expertise.

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Richard E. Bean has served on the Board as a director of FirstCity since the FCBOT Merger, and also served as the Chairman of the Board from 2005 until August 2011. Since 1976, Mr. Bean has served as a director and Executive Vice President of Pearce Industries, Inc., a privately-held company that markets a variety of oilfield equipment and construction machinery. Mr. Bean served as Chief Financial Officer of Pearce Industries from 1976 to 2004. Mr. Bean served as a member of the Portfolio Committee of the FirstCity Liquidating Trust from the FCBOT Merger through the termination of the FirstCity Liquidating Trust in January 2004. Prior to the FCBOT Merger, Mr. Bean was Chairman of the Official Committee of Equity Security Holders of FCBOT. Mr. Bean is currently a director, Chairman of the Audit Committee, and Chairman of the Compensation Committee of WCA Waste Corporation, a publicly-owned solid waste collection and disposal company, and previously served as a director and Chairman of the Audit Committee of The Edelman Financial Group Inc., a financial services firm (formerly known as Sanders Morris Harris Group Inc.). Mr. Bean is also a stockholder and director of several private closely-held corporations. Mr. Bean received a M.B.A. in Accounting and a Bachelor of Business Administration in Finance from the University of Texas at Austin and has been a Certified Public Accountant since 1968. Mr. Bean was selected to serve as a director of FirstCity due to his wide-ranging experience, his depth of knowledge of FirstCity and his extensive financial experience. Mr. Bean qualifies as an "audit committee financial expert" under the SEC's guidelines.

Dane Fulmer has served on the Board as a director of FirstCity since May 1999. Mr. Fulmer has served as an independent consultant that provides risk management services since 2008. From August 1995 until January 2004, Mr. Fulmer served as Executive Vice President and Director of Risk Management for John Taylor Financial Group, a broker/dealer and investment advisory firm that Mr. Fulmer co-founded in 1995. From July 1991 until August 1995, Mr. Fulmer served as Executive Vice President of Merchants Investment Center, a broker/dealer and investment advisory firm, and as portfolio manager for Merchants National, the parent company. Mr. Fulmer's experience includes management of investment securities for commercial banks and corporations, and he has over 40 years of experience in managing financial assets. Mr. Fulmer's investment management expertise and extensive experience identifying and evaluating risks in corporate operations provides FirstCity with a skilled investment advisor and invaluable resource for assessing and managing risks and planning for corporate strategy.

Robert E. Garrison, II has served on the Board as a director of FirstCity since May 1999. Mr. Garrison currently serves as a director and Chairman of the Audit Committee of Crown Castle International (a publicly-owned company that is an independent owner and operator of shared wireless infrastructures), and as a director of Prosperity Bank (a bank subsidiary of Prosperity Bancshares, Inc., a publicly-owned financial holding company). Mr. Garrison previously served as President and CEO of Sanders Morris Harris Group ("SMHG"), a publicly-owned financial services company (currently known as The Edelman Financial Group Inc.), from January 1999 until May 2002 and as President until May 2009, and he also served as Chairman of the Executive Committee of SMHG from May 2009 until December 2011. In addition, Mr. Garrison previously served as Executive Vice President and a director of Harris Webb & Garrison, and also served as Chairman, Chief Executive Officer, and a director of Pinnacle Management & Trust Co. (Mr. Garrison co-founded both of these investment companies in 1994). Mr. Garrison is also a stockholder and director of several private closely-held corporations. Mr. Garrison has over 40 years of experience in the securities industry and is a chartered financial analyst. As the Chairman of the Audit Committee of a public company and former principal executive officer of another public company, Mr. Garrison provides invaluable insight and guidance on the issues of corporate strategy and risk management.

D. Michael Hunter has served on the Board as a director of FirstCity since August 2005. From March 2005 until April 2008, Mr. Hunter served as the Vice Chairman of the Board of Directors of Prosperity Bancshares, Inc. (a publicly-owned financial holding company) and served as a director of

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Prosperity Bank. Mr. Hunter previously served as Chairman, President and Chief Executive Officer and a director of First Capital Bankers, Inc. from 1995 until its merger with and into Prosperity Bancshares, Inc. in March 2005. Mr. Hunter also served as Chairman and Chief Executive Officer of First Capital Bank from 1995 until March 2005. Prior to 1995, Mr. Hunter served as President and Chief Operating Officer of Victoria Bancshares, Inc. and Victoria Bank & Trust Company from 1988 to June 1994. Prior to 1988, Mr. Hunter served 24 years with FCBOT. Mr. Hunter is an experienced leader of major banking organizations and brings to the Board of Directors of FirstCity strong executive management skills and experience serving on the boards of other public companies.

F. Clayton Miller has served on the Board as a director of FirstCity since February 2006. Mr. Miller is a founding partner at Stone Arch Capital, a private equity fund based in Minneapolis, Minnesota. From 1998 to 2004, Mr. Miller was the Managing Partner of Churchill Equity Partners, the private equity arm of Churchill Capital, Inc. Mr. Miller is a graduate of the University of Michigan (B.A.) and Northwestern University School of Law (J.D., cum laude), and received a degree from the Harvard Business School (M.B.A., with honors). Mr. Miller has over 20 years of private equity investing and legal experience. Mr. Miller brings to the Board of Directors keen business and financial judgment and an extensive understanding of the Company's industry, as well as significant leadership experience.

Board of Directors and Committee Information

        The Board is the ultimate decision-making body of the Company, except with respect to those matters reserved to the stockholders. The basic responsibility of the Board is to oversee the management of the businesses and affairs of FirstCity. The Board held nineteen meetings during 2012, and took action on one occasion by unanimous consent. Each director who served on the Board in 2012 attended at least 75% of the total number of meetings held by the Board and at least 75% of the meetings of the Board committees of which he was a member in 2012.

        To assist the Board in performing certain of its responsibilities, the Board has established the following standing committees: Audit Committee; Compensation Committee; Nominating and Corporate Governance Committee; and Executive Committee. Members of these committees generally are elected annually at the regular meeting of the Board immediately following the annual meeting of stockholders. Further information concerning the Board's standing committees appears below.

        Audit Committee.    The Audit Committee consisted of Messrs. Bean (Chairman), Garrison and Wilson during 2012. The Audit Committee is a standing committee of the Board. The Board has determined that all members of the Audit Committee are independent directors under the rules of the NASDAQ Stock Market and the rules and regulations of the SEC. The Audit Committee has a charter adopted by the Board that sets forth its membership requirements, authority and responsibilities. A copy of the Audit Committee Charter is available on our website at www.fcfc.com under the "Investors" section. During 2012, the Audit Committee held four meetings.

        The Audit Committee is primarily concerned with the integrity of the Company's consolidated financial statements, the effectiveness of the Company's internal control over financial reporting, the Company's compliance with legal and regulatory requirements, the independence, qualifications and performance of the independent registered public accounting firm, and the objectivity and performance of the Company's internal audit function.

        The Audit Committee meets with management to consider the adequacy of the internal controls of the Company and the objectivity of financial reporting. Its primary function is to assist the Board in fulfilling its oversight responsibilities by reviewing:

•

the financial information to be provided to the stockholders, potential stockholders, the investment community and others;

•

the systems of internal controls established by the management and the Board; and

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•

the audit process.

        The Audit Committee also meets with the independent registered public accounting firm and with appropriate Company financial personnel about these matters. The functions of the Audit Committee also include recommending to the Board which independent registered public accounting firm should be engaged by the Company to perform the annual audit, reviewing annually the Company's Audit Committee Charter, approving certain other types of professional services rendered to the Company by the independent registered public accounting firm and considering the possible effects of such services on the independence of such public accountants. The independent registered public accounting firm periodically meets alone with the Audit Committee and has unrestricted access to the Audit Committee.

        The Board has determined that at least one member of the Audit Committee, Mr. Bean, is an "audit committee financial expert" as defined in SEC regulations and also possesses the financial sophistication and requisite experience as required under NASDAQ Stock Market listing standards.

        Compensation Committee.    The Compensation Committee consisted of Messrs. Wilson (Chairman), Garrison, Hunter and Miller during 2012. The Compensation Committee is a standing committee of the Board. The Board has determined that all members of the Compensation Committee are (i) "independent directors" under the listing standards of the NASDAQ Stock Market, (ii) "non-employee directors" within the meaning of Rule 16b-3 under the Exchange Act, and (iii) "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. The Compensation Committee has a charter that has been adopted by the Board that sets forth its membership requirements, authority and responsibilities. A copy of the Compensation Committee Charter is available on our website at www.fcfc.com under the "Investors" section. During 2012, the Compensation Committee held three meetings.

        The Compensation Committee is responsible for evaluating and developing the compensation policies applicable to the executive officers of the Company and its subsidiaries. The Compensation Committee's charter sets forth the following responsibilities, among others, for the committee:

•

Review the compensation philosophy and strategy in regard to achieving the Company's objectives and performance goals and the long-term interests of the Company's stockholders;

•

Administer the Company's incentive compensation and stock option and other equity-based plans; and

•

Review annually and make recommendations to the Board with respect to the base salary, incentive compensation, deferred compensation, stock options, performance units and other equity-based awards for the President and Chief Executive Officer and all other executive officers.

        In essence, the Compensation Committee's fundamental responsibility is to administer the Company's compensation program for its executive officers, which generally include those employees whose job responsibilities and policy-making authority are the broadest and most significant. The Compensation Committee is responsible for ensuring that the Company's compensation policies and practices support the successful recruitment, development, and retention of the executive talent required by the Company to achieve its business objectives.

        Recommendations regarding compensation of the Company's executive officers (other than the compensation of the President and Chief Executive Officer), including base salary adjustment, performance-based bonuses, additional bonuses and equity awards, are submitted by the Company's President and Chief Executive Officer to the Compensation Committee. The Compensation Committee reviews the recommendations of the President and Chief Executive Officer and makes all final decisions regarding the compensation of the President and Chief Executive Officer and the other

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executive officers. The compensation of the President and Chief Executive Officer and the other executive officers may be submitted by the Compensation Committee for review and approval of the Board, except that (1) in such case, the President and Chief Executive Officer does not participate in the review, modification or approval of the recommendations of the Compensation Committee, with respect to his compensation and (2) all reviews, modifications and approvals with respect to awards under the Stock Option and Award Plans are made solely by the Compensation Committee.

        Nominating and Corporate Governance Committee.    The Nominating and Corporate Governance Committee consisted of Messrs. Fulmer (Chairman), Garrison, Hunter and Miller during 2012. The Nominating and Corporate Governance Committee is a standing committee of the Board. The Board has determined that each of the members of the Nominating and Corporate Governance Committee qualified as an independent director under the rules of the NASDAQ Stock Market and rules and regulations of the SEC. The Nominating and Corporate Governance Committee has a charter that has been adopted by the Board that sets forth its membership requirements, authority and responsibilities. The full text of the charter of the Nominating and Corporate Governance Committee is available on our website at www.fcfc.com under the "Investors" section. The Nominating and Corporate Governance Committee recommends the number of Board positions to be filled in accordance with the bylaws of the Company and the persons to be nominated to serve in those positions. In this regard, the Nominating and Corporate Governance Committee considers the performance of incumbent directors in determining whether such directors should be nominated to stand for reelection. The Nominating and Corporate Governance Committee also reviews the recommendations of the President and Chief Executive Officer related to the appointment of executive officers and proposed personnel changes related to such officers, and is responsible for conducting an annual review of the Company's Code of Business Conduct and Ethics. During 2012, the Nominating and Corporate Governance Committee held one meeting.

        Executive Committee.    At December 31, 2012, the Executive Committee consisted of Messrs. Sartain (Chairman), Hendry and Bean. Subject to certain limitations specified by the Company's bylaws and the Delaware General Corporate Law, the Executive Committee is authorized to exercise the powers of the Board when the Board is not in session. During 2012, the Executive Committee held no meetings, but did take action on three occasions by unanimous consent.

Code of Business Conduct and Ethics

        The Company has adopted a Code of Business Conduct and Ethics which is applicable to the directors, executive officers and all employees of the Company, including the principal executive officer, principal financial officer and principal accounting officer. A copy of the Code of Business Conduct and Ethics is available on our website at www.fcfc.com under the "Investors" section. We may post amendments to or waivers of the provisions of the Code of Business Conduct and Ethics, if any, made with respect to any of our directors and executive officers on that website, unless otherwise required by NASDAQ Stock Market listing standards to disclose any waiver in a Current Report on Form 8-K. Please note that the information contained on our website is not incorporated by reference in, or considered to be a part of, this document.

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Executive Officers

        Information concerning the executive officers of FirstCity, who do not serve on the Board, is set forth below. Executive officers are appointed annually by the Board and serve at the discretion of the Board.

Name	Age		Position
Mark B. Horrell		50	Executive Vice President, Chief Operating Officer
Jim W. Moore		62	Senior Vice President
J. Bryan Baker		51	Senior Vice President and Chief Financial Officer
Terry R. DeWitt		55	Senior Vice President, Director of Acquisitions
Joe S. Greak		64	Senior Vice President, Director of Tax
James C. Holmes		56	Senior Vice President, Treasurer, and Director of Finance

Mark B. Horrell has served as Executive Vice President and Chief Operating Officer of FirstCity since January 2013 and previously served as Senior Vice President of FirstCity from August 2011 to January 2013 and as Vice President from November 2009 to August 2011. Mr. Horrell joined FirstCity in May 2008 as a Due Diligence Officer. Mr. Horrell currently serves as the co-head of the U.S. acquisition platform. Prior to his employment at FirstCity, Mr. Horrell spent 10 years as an organizing partner, principal and portfolio manager in various private investment fund vehicles focused on the purchase and management of a wide array of securities including fixed income and equity investment instruments. Prior to his fund creation and management tenure, Mr. Horrell served for 15 years as a commercial banker in various capacities at an Oklahoma commercial bank, including Investment Portfolio Manager and Loan Review Manager. Mr. Horrell is a former certified public accountant and registered investment advisor.

Jim W. Moore has served as Senior Vice President since January 2013. Mr. Moore previously served as Executive Vice President, Chief Operating Officer, and the Director of Servicing from June 2008 to January 2013. Mr. Moore rejoined FirstCity in January 2008 after spending the previous seven years with Santander Consumer USA Inc., formerly known as Drive Financial Services LP ("Drive"), a national subprime auto lender. Mr. Moore served in various capacities at Drive including Director of Securitizations, Chief Financial Officer, and Treasurer. Mr. Moore had a long-term association with FirstCity as a senior-level officer prior to the formation of Drive, which resulted as part of a sale to Bank of Scotland and reorganizations of FirstCity which occurred in 2000 and 2004. Mr. Moore's past experiences also include serving as the President of three different Texas commercial banks. Mr. Moore has more than 35 years of financial services and banking experience.

J. Bryan Baker has served as Senior Vice President and Chief Financial Officer of FirstCity since June 2000. Mr. Baker's previous positions with FirstCity included Vice President and Treasurer from August 1999 to June 2000, Vice President and Controller from November 1996 to August 1999, and Vice President and Assistant Controller from 1995 to November 1996. From 1990 to 1995, Mr. Baker was employed at a Central Texas-based public accounting firm, where he was involved in both auditing and consulting. From 1988 to 1990, he served as the Controller of a Texas commercial bank holding company. Mr. Baker is a certified public accountant.

Terry R. DeWitt has served as Senior Vice President responsible for FirstCity's due diligence and investment evaluation since the FCBOT Merger, and he currently serves as the Director of Acquisitions. Mr. DeWitt served as Senior Vice President responsible for due diligence and investment evaluation of J-Hawk Corporation from 1992 to the FCBOT Merger. Prior to 1992, Mr. DeWitt served in executive management roles, including President, with three different Texas commercial banks. Mr. DeWitt has more than 25 years of financial services and banking experience.

Joe S. Greak has served as Senior Vice President and Director of Tax of FirstCity since the FCBOT Merger. Mr. Greak was the Tax Manager of FCBOT from 1993 through the date of the

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FCBOT Merger. From 1992 to 1993, Mr. Greak was the Tax Manager of New First City-Houston, N.A. Prior to 1992, he was Senior Vice President and Tax Director of First City, Texas-Houston, N.A. Mr. Greak is a certified public accountant.

James C. Holmes has served as Senior Vice President of FirstCity since the FCBOT Merger, and currently serves as the Treasurer (since 1993) and Director of Finance (since 2008). Mr. Holmes has served in executive management positions at FirstCity in U.S. acquisitions, servicing and operations since the FCBOT Merger. Prior to the FCBOT Merger, he served as Senior Vice President and Treasurer of J-Hawk Corporation. From 1988 to 1991, Mr. Holmes served as Vice President in commercial lending for a Texas commercial bank. Mr. Holmes has more than 25 years of experience in the financial services and banking sector.

Section 16(a) Beneficial Ownership Reporting Compliance

        Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than 10% of the Company's common stock, to file reports of their ownership, and any changes in that ownership, with the SEC. Such persons are required by applicable regulations to furnish us with copies of all reports filed pursuant to Section 16(a). Based solely on our review of such reports and written representations from certain reporting persons that no other reports were required, we believe that for the fiscal year ended December 31, 2012, our directors, executive officers and 10% beneficial owners complied with all Section 16(a) filing requirements.

Item 11.    Executive Compensation.

Summary Compensation Table

        The following table sets forth certain information concerning compensation for fiscal years 2012 and 2011 to (1) the Company's Chief Executive Officer and the Company's other three most-highly compensated executive officers (collectively, the "Named Executive Officers").

Name and Principal Position	Year		Salary ($)		(1) Stock Awards ($)		(2) Non-Equity Incentive Plan Compensation ($)		(3) All Other Compensation ($)		Total Compensation ($)
James T. Sartain,		2012		500,000		225,326		1,141,861		16,876		1,884,063
President and Chief Executive Officer		2011		500,000		84,211		470,455		16,876		1,071,542
Terry R. DeWitt,		2012		300,000		210,101		570,931		5,328		1,086,360
Senior Vice President		2011		300,000		77,735		438,668		5,328		821,731
James C. Holmes,		2012		300,000		210,101		570,931		5,328		1,086,360
Senior Vice President		2011		300,000		77,735		438,668		5,328		821,731
Mark B. Horrell,		2012		300,000		210,101		570,931		5,328		1,086,360
Executive Vice President, Chief Operating Officer		2011		250,000		77,735		438,668		5,040		771,443

(1)

These amounts represent the aggregate grant-date fair value of stock awards, calculated in accordance with the FASB's accounting guidance on share-based payments. Refer to Note 13 of the Company's 2012 consolidated financial statements for a discussion of the valuation methodology used in calculating these amounts.

(2)

This column reports the cash portion of the bonus earned by the Named Executive Officers in 2012 and 2011 under the Company's management bonus plans and paid in March 2013 and March 2012, respectively.

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(3)

The total amounts included under "All Other Compensation" for 2012 consist of (a) amounts contributed to match a portion of such employee's contributions under a 401(k) plan ("401(k) Match"), (b) excess premiums paid on supplemental life insurance policies ("Supplemental Life"), and (c) personal use of a business vehicle ("Auto"). The following table details the amounts paid during 2012 for each of the categories:

Executive	401(k) Match($)		Supplement Life($)		Auto($)		Total($)
James T. Sartain	$	4,500	$	2,376	$	10,000	$	16,876
Terry R. DeWitt		4,500		828		—		5,328
James C. Holmes		4,500		828		—		5,328
Mark B. Horrell		4,500		828		—		5,328

        In December 2012, the Compensation Committee of the Board recommended that the Board approve a bonus pool for executive officers of $3.75 million, subject to potential adjustments for impairments recorded in the Company's financial statements for the year ending December 31, 2012. The Company paid 75% of these cash bonuses to the executive officers in December 2012, and the remainder of the bonuses are expected to be paid at the end of March 2013. These bonuses are included in the Summary Compensation Table for 2012 above under the Non-Equity Incentive Plan Compensation column.

Outstanding Equity Awards at Fiscal Year-End

        The following table provides information on stock option and restricted stock grants awarded to each Named Executive Officer that were outstanding as of December 31, 2012. The market value of

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the restricted stock awards was based on the closing market price of FirstCity's common stock on December 30, 2012 of $9.74 per share.

			Option Awards(1)								Stock Awards(2)
			Number of Shares Underlying Unexercised Options(#)
											Number of Stock Shares That Have Not Vested(#)		Market Value of Stock Shares That Have Not Vested($)
	Award Grant Date						Option Exercise Price($)		Option Expiration Date
Name			Exercisable		Unexercisable
James T. Sartain		5/13/2004		37,500		—	$	7.25		5/13/2014
		10/12/2005		11,000		—	$	11.33		10/12/2015
		8/13/2009		37,500		12,500	$	6.93		8/13/2019
		3/31/2011										8,704	$	84,777
		3/30/2012										25,781	$	251,107
Terry R. DeWitt		5/13/2004		15,000		—	$	7.25		5/13/2014
		10/25/2005		8,000		—	$	11.77		10/25/2015
		10/11/2007		8,000		—	$	9.85		10/11/2017
		8/13/2009		26,250		8,750	$	6.93		8/13/2019
		3/31/2011										8,035	$	78,261
		3/30/2012										24,039	$	234,140
James C. Holmes		5/13/2004		15,000		—	$	7.25		5/13/2014
		10/25/2005		8,000		—	$	11.77		10/25/2015
		10/11/2007		8,000		—	$	9.85		10/11/2017
		8/13/2009		18,750		6,250	$	6.93		8/13/2019
		3/31/2011										8,035	$	78,261
		3/30/2012										24,039	$	234,140
Mark B. Horrell		8/13/2009		18,750		6,250	$	6.93		8/13/2019
		3/31/2011										8,035	$	78,261
		3/30/2012										24,039	$	234,140

(1)

Stock options become exercisable in four equal annual installments beginning on the first anniversary of the grant date.

(2)

Restricted stock vests in three equal annual installments beginning on the first anniversary of the grant date.

Potential Payments Upon Termination or Change-In-Control

        Our Named Executive Officers are entitled under the Company's stock option and award plans to certain rights upon a "change in control" event that impacts the Company. The events that are deemed to constitute a change in control were selected because each reflects a circumstance in which a new person or group would be expected to obtain control or effective control over our policies and direction. In those circumstances, the Compensation Committee believes it would be appropriate to provide management the benefit of the awards that have been conveyed prior to such event and to waive the service and other conditions applicable to management's rights to such awards, because such change could reasonably be expected to materially alter our policies and objectives, and/or result in a material change in the composition of management.

        In the event of a Change in Control (as defined below), the Named Executive Officers have certain rights in regard to their stock options and restricted stock under the Company's stock option and award plans:

        (1)   all stock options outstanding thereunder will become fully vested and immediately exercisable;

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        (2)   the target payout attainable under all performance shares outstanding thereunder will be deemed to have been fully earned for the entire performance period and, within thirty days of such Change in Control, such performance shares will be paid out in accordance with the terms thereof (provided that, there will not be an accelerated payout with respect to performance shares granted within less than six months prior to the effective date of such Change in Control);

        (3)   all restrictions on restricted stock outstanding thereunder will lapse and such restricted stock will be delivered to the participant in accordance with the terms thereof (provided that, there will not be an accelerated delivery with respect to restricted stock granted less than six months prior to the effective date of such Change in Control); and

        (4)   the Compensation Committee may, in its discretion, make any other modifications to any awards thereunder as determined by the Compensation Committee to be deemed appropriate before the effective date of such Change in Control.

        A "Change in Control" is defined as follows:

(1)

an acquisition by any person of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of common stock or voting securities of FirstCity entitled to vote generally in the election of directors; provided that, such acquisition would result in such person beneficially owning 25% or more of common stock or 25% or more of the combined voting power of the Company's voting securities; and provided further that, immediately prior to such acquisition such person was not a direct or indirect beneficial owner of 25% or more of common stock or 25% or more of the combined voting power of FirstCity's voting securities, as the case may be; or



(2)

the consummation of a reorganization, merger, consolidation, complete liquidation or dissolution of the Company, or the consummation of the sale or disposition of all or substantially all of the assets of the Company or similar corporate transaction; or



(3)

a change in the composition of the Board such that the individuals who, constitute the Board cease for any reason to constitute at least a majority of the Board; provided that, any individual who becomes a member of the Board whose election, or nomination for election by the Company's stockholders, was approved by at least a majority of those individuals who are members of the Board and who were also members of such incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of such incumbent Board; and provided further that, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (within the meaning of Rule 14a-11 of Regulation 14A under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board shall not be so considered as a member of such incumbent Board.

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        The following table summarizes the potential change in control benefits under the Company's stock option and award plans that each of the Named Executive Officers would have been eligible to receive if such officer was terminated without cause or resigned for good reason in connection with a Change in Control that occurred on December 31, 2012.

Name	Stock Options(1)		Restricted Stock(2)		Total
James T. Sartain	$	35,125	$	335,884	$	371,009
Terry R. DeWitt	$	24,588	$	312,401	$	336,989
James C. Holmes	$	17,563	$	312,401	$	329,964
Mark B. Horrell	$	17,563	$	312,401	$	329,964

(1)

Represents the intrinsic value of the acceleration of all unvested, in-the-money stock options based on FirstCity's closing common stock price as of December 31, 2012.

(2)

Represents the value of the acceleration of all unvested restricted stock shares based on FirstCity's closing common stock price as of December 31, 2012.

Director Compensation Table

        The following table sets forth information regarding the compensation of FirstCity's outside directors for the fiscal year ended December 31, 2012.

Name(1)	Fees Earned or Paid in Cash(2) ($)		Stock Awards(3) ($)		Option Awards(4) ($)		Total ($)
William P. Hendry		189,000		33,825		—		222,825
C. Ivan Wilson		65,000		33,825		—		98,825
Richard E. Bean		70,000		33,825		—		103,825
Dane Fulmer		65,000		33,825		—		98,825
Robert E. Garrison, II		133,000		33,825		—		166,825
D. Michael Hunter		60,000		33,825		—		93,825
F. Clayton Miller		133,000		33,825		—		166,825

(1)

James T. Sartain is not included in this table as he is an employee of FirstCity and, accordingly, received no compensation for his services as a director. Mr. Sartain's compensation, as an employee of FirstCity, is shown in the Summary Compensation Table above.

(2)

During 2012, FirstCity's non-employee directors each received an annual retainer of $30,000 (paid in quarterly installments). The chair of the Audit Committee received an additional annual retainer of $10,000 (paid in quarterly installments), and the chairs of the Board, Nominating and Corporate Governance Committee, and Compensation Committee each received an additional annual retainer of $5,000 (paid in quarterly installments). Amounts shown in the table above reflect the annual retainer paid to each director as described herein. A director receives a pro-rated amount of the annual retainer for service on the Board and, if applicable, as a committee chair, based on the portion of the year the director served in either such capacity.

(3)

FirstCity's non-employee directors were each granted 3,750 restricted shares of FirstCity common stock for their service as a director for 2012 under the FirstCity Financial Corporation 2010 Stock Option and Award Plan. These amounts are computed in accordance with the FASB's accounting guidance on share-based payments (refer to Note 13 of the Company's 2012 consolidated financial statements for a discussion of the terms of these awards and valuation methodology used in calculating these amounts). All of these restricted shares of FirstCity common stock were unvested at December 31, 2012.

159

(4)

No stock options were granted to FirstCity's non-employee directors in 2012. The aggregate number of stock options outstanding awarded to non-employee directors at December 31, 2012 from awards granted in prior years is as follows: C. Ivan Wilson—35,000; Richard E. Bean—25,000; Dane Fulmer—18,750; Robert E. Garrison, II—20,000; D. Michael Hunter—25,000; and F. Clayton Miller—20,000.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

        The following table sets forth certain information regarding the common stock owned on March 11, 2013 (the "Measurement Date") by (1) each person who is known by the Company to be the beneficial owner of more than 5% of our common stock outstanding as of such date, (2) each of the Company's directors, (3) each of the Named Executive Officers, and (4) all of the Company's directors and executive officers as a group. Except as otherwise indicated, all shares of common stock shown in the table below are held with sole voting and investment power. In computing the number of shares of common stock beneficially owned by a person or entity and the percentage ownership of that person or entity, shares that may be acquired within 60 days of the Measurement Date upon the exercise of options granted under the Company's stock option and awards plan are deemed to be outstanding for such person or entity (but are not deemed to be outstanding for the purpose of computing the percentage of shares of common stock owned by any other person or entity).

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership(2)			Percent of Class
	Directors and Executive Officers(1):
Common Stock	James T. Sartain		690,640	(3)		6.49	%
Common Stock	Richard E. Bean		347,292			3.28	%
Common Stock	Terry R. DeWitt		263,151			2.48	%
Common Stock	Robert E. Garrison, II		163,509			1.55	%
Common Stock	James C. Holmes		158,948			1.50	%
Common Stock	Dane Fulmer		119,209			1.13	%
Common Stock	C. Ivan Wilson		82,979			*
Common Stock	D. Michael Hunter		72,459			*
Common Stock	Mark Horrell		54,841			*
Common Stock	F. Clayton Miller		32,459			*
Common Stock	William P. Hendry		7,644			*
Common Stock	All directors and executive officers as a group (14 persons)		2,217,733			20.13	%
	Certain Other Beneficial Owners:
Common Stock	Heartland Advisors, Inc. and William J. Nasgovitz		1,008,413	(4)		9.55	%
	789 North Water St.
	Milwaukee, WI 53202
Common Stock	First Manhattan Co.		752,728	(4)		7.13	%
	437 Madison Avenue
	New York, NY 10022
Common Stock	Dimensional Fund Advisors LP		669,583	(4)		6.34	%
	Palisades West, Building One
	6300 Bee Cave Road
	Austin, TX 78746
Common Stock	Värde Partners, Inc. and affiliates(4)(5)		2,332,983	(4)(5)		21.17	%
	8500 Normandale Lake Blvd.,
	Suite 1500 Minneapolis,
	MN 55437

*

Less than 1%

(1)

The business mailing address of each such person is P. O. Box 8216, Waco, Texas 76714.

160

(2)

Includes shares that may be acquired within 60 days of the Measurement Date upon the exercise of options granted under the Company's stock option and award plans as follows: James T. Sartain—86,000; Richard E. Bean—25,000; Robert E. Garrison, II—20,000; Dane Fulmer—18,750; C. Ivan Wilson—35,000; D. Michael Hunter—25,000; F. Clayton Miller—20,000; Terry R. DeWitt—57,250; James C. Holmes—49,750; Mark B. Horrell—18,750; and all directors and executive officers as a group (14 persons)—462,500.

(3)

Includes 222,407 shares which are pledged as collateral to secure a revolving line of credit extended by an unaffiliated creditor.

(4)

Based on information contained in statements filed with the SEC by the respective reporting persons, the amounts as to which the beneficial owner has sole voting power, shared voting power, sole investment power, or shared investment power are as follows:

				Voting				Investment
Name	Schedule	Date		Sole		Shared		Sole		Shared
Heartland Advisors, Inc. and William J. Nasgovitz	13G/A		1/31/2013		—		970,513		—		1,008,413
First Manhattan Co.	13G/A		12/31/2012		19,900		609,517		19,900		732,828
Dimensional Fund Advisors LP	13G/A		12/31/2012		662,035		—		669,583		—
Hotspurs Holdings LLC	13D		12/20/2012		—		2,182,983		—		—
The Värde Fund X (Master), L.P.	13D		12/20/2012		—		1,863,706		—		30,000
The Värde Fund X (GP), L.P.	13D		12/20/2012		—		1,863,706		—		30,000
The Värde Fund X GP, LLC	13D		12/20/2012		—		1,863,706		—		30,000
The Värde Fund V-B, L.P.	13D		12/20/2012		—		3,000		—		3,000
Värde Fund V GP, LLC	13D		12/20/2012		—		3,000		—		3,000
Värde Fund VI-A, L.P.	13D		12/20/2012		—		69,989		—		4,500
Värde Fund VII-B, L.P.	13D		12/20/2012		—		1,500		—		1,500
Värde Investment Partners, L.P.	13D		12/20/2012		—		177,639		—		3,000
Värde Investment Partners (Offshore) Master, L.P.	13D		12/20/2012		—		109,149		—		—
Värde Investment Partners, G.P., LLC	13D		12/20/2012		—		358,277		—		9,000
The Värde Fund VIII, L.P.	13D		12/20/2012		—		24,000		—		24,000
Värde Fund VIII G.P., LLC	13D		12/20/2012		—		24,000		—		24,000
The Värde Fund IX, L.P.	13D		12/20/2012		—		73,500		—		73,500
The Värde Fund IX-A, L.P.	13D		12/20/2012		—		10,500		—		10,500
Värde Fund IX G.P., LLC	13D		12/20/2012		—		84,000		—		84,000
Värde Partners, L.P.	13D		12/20/2012		—		2,332,983		—		150,000
Värde Partners, Inc.	13D		12/20/2012		—		2,332,983		—		150,000
George G. Hicks	13D		12/20/2012		—		2,332,983		—		150,000
Marcia L. Page	13D		12/20/2012		—		2,332,983		—		150,000
Gregory S. McMillan	13D		12/20/2012		—		2,332,983		—		150,000

(5)

Messrs. Sartain, Baker, Moore, DeWitt, Horrell, Holmes, Hendry, Wilson, Bean, Fulmer, Garrison, Hunter and Miller are parties to a support agreement with Parent. Pursuant to the support agreement, these stockholders (in their capacity as stockholders) have agreed to vote an aggregate of 1,543,712 shares of common stock, 211,521 shares of restricted stock and 427,750 shares of common stock underlying outstanding options (to the extent they are exercised prior to the special meeting for the adoption of the merger agreement) held by the stockholders in favor of the adoption of the merger agreement

Change in Control

        In December 2012, the Company entered into a definitive merger agreement with Parent and Merger Subsidiary pursuant to which the Company will become a private company that is wholly owned by Parent. Parent and Merger Subsidiary are affiliates of certain private investment funds governed by Värde. Under the terms of the merger agreement, FirstCity stockholders will receive $10.00 per share in cash for each share of FirstCity stock they own. The transaction is expected to close in the second quarter of 2013. Consummation of the merger is subject to various customary conditions, including the adoption of the merger agreement by the holders of at least a majority of the outstanding shares of the Company's common stock. The Company has filed a preliminary proxy statement with the SEC recommending that the Company's stockholders adopt the merger agreement.

161

Equity Compensation Plan Information

        The following table provides information as of December 31, 2012 with respect to the shares of our common stock that may be issued under the Company's equity compensation plans:

Plan Category	Number of Shares to Be Issued Upon Exercise of Outstanding Options		Weighted Average Exercise Price of Outstanding Options		Number of Shares Remaining Available for Future Issuance
Equity compensation plans approved by stockholders		649,900	$	8.17		153,377	(1)
Equity compensation plans not approved by stockholders		—		—		—
Total		649,900	$	8.17		153,377

(1)

Issuable shares of our common stock available under the Company's 2006 and 2010 Stock Option and Award Plans.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.

Director Independence

        As required under the NASDAQ Stock Market listing standards, a majority of the members of a listed company's board of directors must qualify as "independent," as affirmatively determined by the board of directors. The Board has determined that Messrs. Bean, Fulmer, Garrison, Hendry, Hunter, Miller and Wilson are independent directors under the NASDAQ Stock Market Rules. Mr. Sartain, the Company's President and Chief Executive Officer, is not an independent director by virtue of his employment with the Company. Mr. Hendry, an independent director, was appointed as Chairman of the Board in August 2011 and currently presides over executive sessions of the non-employee directors.

Transactions and Relationships Involving Our Directors and Executive Officers

        The Company owns equity interests in various asset portfolios and other investments through investment entities formed with one or more other co-investors ("Acquisition Partnerships"). Certain directors and executive officers of the Company may also serve as directors and/or executive officers of the Acquisition Partnerships, but receive no additional compensation for serving in such capacity. The Company provides asset servicing services to certain of the Acquisition Partnerships pursuant to servicing agreements between the Company and the Acquisition Partnerships. Service fees derived from such affiliates totaled $15.9 million for 2012.

Item 14.    Principal Accounting Fees and Services.

Audit Fees

        The following table presents fees billed for professional audit services rendered by KPMG LLP ("KPMG") as our independent registered public accounting firm for the audit of our annual financial statements for the fiscal years ended December 31, 2012 and 2011:

	2012		2011
Audit fees	$	1,133,302	$	1,213,099
Audit-related fees		—		—
Tax fees		16,500		16,500
All other fees		—		—
Total	$	1,149,802	$	1,229,599

162

        Audit Fees.    Audit fees include fees and related expenses ($100,000 and $126,000 for 2012 and 2011, respectively) for professional services rendered by our independent registered public accounting firm for the annual audit of our consolidated financial statements (and the financial statements of certain subsidiaries), the quarterly review of our financial statements, and services that are normally provided in connection with statutory and regulatory filings.

        Audit-Related Fees.    We did not engage KPMG for audit-related services for fiscal years 2012 and 2011.

        Tax Fees.    Tax fees for 2012 and 2011 consist of professional services rendered by KPMG related to transfer pricing studies.

        All Other Fees.    We did not engage KPMG for other professional services for fiscal years 2012 and 2011.

Approval of Independent Registered Public Accounting Firm Services and Fees

        The Audit Committee has adopted policies and procedures for pre-approving all audit and non-audit services performed by the Company's independent registered public accounting firm. Except as noted below, no audit services or non-audit services shall be provided to the Company by the independent registered public accounting firm unless first pre-approved by the Audit Committee and unless permitted by applicable securities laws and the rules and regulations of the SEC. If the Audit Committee approves an audit service within the scope of the engagement of the independent registered public accounting firm, such audit service shall be deemed to have been pre-approved.

        Pre-approval shall not be required for non-audit services provided by the independent registered public accounting firm if (i) the aggregate amount of all such non-audit services provided to the Company constitutes not more than the 5% of the total amount of revenues paid by the Company to the independent registered public accounting firm during the fiscal year in which such non-audit services are provided, (ii) such non-audit services were not recognized by the Company at the time of the independent registered public accounting firm's engagement to be non-audit services, and (iii) such non-audit services are promptly brought to the attention of the Audit Committee and approved by the Audit Committee prior to the completion of the audit for the year in which the non-audit services were commenced.

        The Audit Committee may delegate to one or more members of the Audit Committee the authority to grant pre-approval of certain non-audit services. The decision of any member to whom such authority is delegated to pre-approve non-audit services shall be presented to the full Audit Committee for its approval at its next scheduled meeting.

163

PART IV

Item 15.    Exhibits and Financial Statement Schedules.

(a)

The following documents are filed as part of this report (see Item 8).

        1.     Financial Statements

        The consolidated financial statements of FirstCity are incorporated herein by reference to Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.

        2.     Financial Statement Schedules

        Financial statement schedules have been omitted because the information is either not required, not applicable, or is included in Item 8, "Financial Statements and Supplementary Data."

        3.     Exhibits

Exhibit Number			Description of Exhibit
	2.1	—	Joint Plan of Reorganization by First City Bancorporation of Texas, Inc., Official Committee of Equity Security Holders and J-Hawk Corporation, with the Participation of Cargill Financial Services Corporation, Under Chapter 11 of the United States Bankruptcy Code, Case No. 392-39474-HCA-11 (incorporated herein by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K dated July 3, 1995)
	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)
	2.3	—	Agreement and Plan of Merger, dated as of December 20, 2012, by and among Hotspurs Holdings LLC, Hotspurs Acquisition Corporation and FirstCity Financial Corporation (incorporated herein by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K dated December 26, 2012)
	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)
	3.2	—	Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K dated December 30, 2005)
	3.3	—	Certification of Elimination of New Preferred Stock (incorporated herein by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K dated May 18, 2011)
	10.1	—	Securities Purchase Agreement dated as of September 21, 2004 by and among FirstCity Financial Corporation and certain affiliates of FirstCity and IFA Drive GP Holdings LLC, IFA Drive LP Holdings LLC, Drive Management LP and certain affiliates of those persons. (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated September 27, 2004)

164

Exhibit Number			Description of Exhibit
	10.2	—	Revolving Credit Agreement, dated November 12, 2004, among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders, and Bank of Scotland, as Agent (incorporated herein by reference to Exhibit 10.12 of the Company's Form 10-Q dated November 15, 2004)
	10.3	—	1995 Stock Option and Award Plan (incorporated herein by reference to Exhibit A of the Company's Schedule 14A, Definitive Proxy Statement, dated March 27, 1996)
	10.4	—	1996 Stock Option and Award Plan (incorporated herein by reference to Exhibit C of the Company's Schedule 14A, Definitive Proxy Statement, dated March 27, 1996)
	10.5	—	2004 Stock Option and Award Plan (incorporated herein by reference to Appendix A of the Company's Schedule 14A, Definitive Proxy Statement, dated October 21, 2003)
	10.6	—	Revolving Credit Agreement, dated August 26, 2005, among FH Partners, L.P., as Borrower, and the Lenders named therein, as Lenders, and Bank of Scotland, as Agent (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated September 1, 2005)
	10.7	—	Guaranty Agreement, dated August 26, 2005, executed by FirstCity Financial Corporation, FirstCity Commercial Corporation, FirstCity Europe Corporation, FirstCity Holdings Corporation, FirstCity International Corporation, FirstCity Mexico, Inc., and FirstCity Servicing Corporation for the benefit of Bank of Scotland, as agent, and lenders (incorporated herein by reference to Exhibit 10.2 of the Company's Form 8-K dated September 1, 2005)
	10.8	—	Asset Purchase Agreement, dated June 30, 2006, by and among FirstCity Financial Corporation and its subsidiaries, FirstCity Business Lending Corporation and American Business Lending, Inc.; and AMRESCO SBA Holdings, Inc. and NCS I, LLC (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated July 7, 2006)
	10.9	—	2006 Stock Option and Award Plan (incorporated herein by reference to Appendix A of the Company's Schedule 14A, Definitive Proxy Statement, dated June 26, 2006)
	10.10	—	Form of Option Award Agreement for Non-Employee Directors under FirstCity Financial Corporation 2006 Stock Option and Award Plan (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated October 17, 2007)
	10.11	—	Form of Option Award Agreement for Employees under FirstCity Financial Corporation 2006 Stock Option and Award Plan (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated October 17, 2007)
	10.12	—	Form of Restricted Stock Award Agreement under FirstCity Financial Corporation 2006 Stock Option and Award Plan (incorporated herein by reference to Exhibit 99.4 of the Company's Registration Statement on Form S-8 dated June 15, 2011)
	10.13	—	Interest Purchase and Sale Agreement, dated August 8, 2006, by and among Bidmex Holding, LLC, and Strategic Mexican Investment Partners, L.P. and Cargill Financial Services International, Inc. and certain other parties (incorporated herein by reference to Exhibit 10.14 of the Company's Form 10-Q dated November 9, 2006)

165

Exhibit Number			Description of Exhibit
	10.14	—	Put Option Agreement dated August 8, 2006, by and among Bidmex Holding, LLC, Recuperacion de Carteras Mexicanas, S. de R.L. de C.V., Bidmex 6, LLC, Strategic Mexican Investment Partners 2, L.P. and Cargill Financial Services International, Inc. (incorporated herein by reference to Exhibit 10.15 of the Company's Form 10-Q dated November 9, 2006)
	10.15	—	Guarantee dated August 8, 2006, executed by FirstCity Financial Corporation for the benefit of Bidmex Holding, LLC, Residencial Oeste 2 S. de R.L. de C.V., National Union Fire Insurance Company of Pittsburg, P.A., American General Life Insurance Company, and American General Life and Accident Insurance Company (incorporated herein by reference to Exhibit 10.15 of the Company's Form 10-Q dated November 9, 2006)
	10.16	—	Amendment No. 4 to Revolving Credit Agreement, dated as of October 31, 2006, among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders, and Bank of Scotland, as Agent (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated November 7, 2006)
	10.17	—	Management Employment Contract dated November 30, 2006, between FirstCity Business Lending Corporation, American Business Lending, Inc., and Charles P. Bell, Jr. (incorporated herein by reference to Exhibit 10.2 of the Company's Form 8-K dated December 7, 2006)
	10.18	—	Amendment No. 5 to Revolving Credit Agreement, dated as of December 14, 2006, among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders, and Bank of Scotland, as Agent (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated December 20, 2006)
	10.19	—	Loan Agreement, dated as of December 15, 2006 by and between American Business Lending, Inc., as Borrower, and Wells Fargo Foothill, LLC, as lender (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated December 28, 2006)
	10.20	—	Amendment No. 1 to Loan Agreement, dated as of February 27, 2007, by and between American Business Lending, Inc., as Borrower, and Wells Fargo Foothill, LLC, as lender (incorporated herein by reference to Exhibit 10.22 of the Company's Form 10-K dated July 24, 2007)
	10.21	—	Amendment No. 9 to Revolving Credit Agreement, dated as of June 29, 2007, among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders, and Bank of Scotland, as Agent (incorporated herein by reference to Exhibit 10.23 of the Company's Form 10-Q dated August 10, 2007)
	10.22	—	Amendment No. 1 to Revolving Credit Agreement, dated June 29, 2007, among FH Partners, L.P., as Borrower, and the Lenders named therein, as Lenders, and Bank of Scotland, as Agent (incorporated herein by reference to Exhibit 10.24 of the Company's Form 10-Q dated August 10, 2007)
	10.23	—	Amendment No. 2 to Loan Agreement, dated as of July 30, 2007, by and between American Business Lending, Inc., as Borrower, and Wells Fargo Foothill, LLC, as lender (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated August 3, 2007)

166

Exhibit Number			Description of Exhibit
	10.24	—	Amendment No. 10 to Revolving Credit Agreement, dated as of August 22, 2007, among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders, and Bank of Scotland, as Agent (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated August 28, 2007)
	10.25	—	Amendment No. 3 and Consent to Revolving Credit Agreement, dated August 22, 2007, among FH Partners, L.L.C., as Borrower, and the Lenders named therein, as Lenders, and Bank of Scotland, as Agent (incorporated herein by reference to Exhibit 10.2 of the Company's Form 8-K dated August 28, 2007)
	10.26	—	Subordinated Delayed Draw Credit Agreement, dated as of September 5, 2007, among FirstCity Financial Corporation, as Borrower, and the Lenders named therein, as Lenders, and BoS(USA), Inc., as agent (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated September 10, 2007)
	10.27	—	Amendment and Consent No. 25 to Revolving Credit Agreement, dated as of July 14, 2008, among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders, and Bank of Scotland, as Agent (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated July 18, 2008)
	10.28	—	Amendment and Consent No. 12 to Subordinated Delayed Draw Credit Agreement, dated as of July 14, 2008, among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders, and BoS(USA), Inc., as Agent (incorporated herein by reference to Exhibit 10.2 of the Company's Form 8-K dated July 18, 2008)
	10.29	—	Amendment and Consent No. 6 to Revolving Credit Agreement, dated as of July 14, 2008, among FH Partners, LLC, as Borrower, and the Lenders named therein, as Lenders, and Bank of Scotland, as Agent (incorporated herein by reference to Exhibit 10.3 of the Company's Form 8-K dated July 18, 2008)
	10.30	—	Conditional Waiver Agreement Regarding Event of Default dated effective September 30, 2008, between American Business Lending, Inc., an affiliate of FirstCity, as borrower, and Wells Fargo Foothill, LLC, as lender (incorporated herein by reference to Exhibit 10.40 of the Company's Form 10-Q dated November 10, 2008)
	10.31	—	Conditional Waiver Under Loan Agreement dated November 10, 2008, between American Business Lending, Inc., an affiliate of FirstCity, as borrower, and Wells Fargo Foothill, LLC, as lender (incorporated herein by reference to Exhibit 10.41 of the Company's Form 10-Q dated November 10, 2008)
	10.32	—	Amendment and Consent No. 27 to Revolving Credit Agreement, dated as of December 12, 2008, among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders, and Bank of Scotland, as Agent (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated December 15, 2008)
	10.33	—	Amendment and Consent No. 14 to Subordinated Delayed Draw Credit Agreement, dated as of December 12, 2008, among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders, and BoS(USA), Inc., as Agent (incorporated herein by reference to Exhibit 10.2 of the Company's Form 8-K dated December 15, 2008)

167

Exhibit Number			Description of Exhibit
	10.34	—	Amendment and Consent No. 7 to Revolving Credit Agreement, dated as of December 12, 2008, among FH Partners, LLC, as Borrower, and the Lenders named therein, as Lenders, and Bank of Scotland, as Agent (incorporated herein by reference to Exhibit 10.3 of the Company's Form 8-K dated December 15, 2008)
	10.35	—	Mediator's Proposal, dated November 20, 2008, among Michael S. Wilk, as mediator appointed by the Court of Appeals for the First District for the State of Texas, and agreed to by the FCLT Loans Asset Corporation, FirstCity Financial Corporation, Timothy J. Blair, Class Representative of former employees of FirstCity Bancorporation of Texas, Inc., and JP Morgan Chase Bank, N.A., successor trustee (incorporated herein by reference to Exhibit 10.4 of the Company's Form 8-K dated December 15, 2008)
	10.36	—	Conditional Waiver Agreement Regarding Event of Default, dated and effective as of December 31, 2008, between American Business Lending, Inc., an affiliate of FirstCity, as borrower, and Wells Fargo Foothill,  Inc., as lender (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated February 4, 2009)
	10.37	—	Amendment No. 3 to Loan Agreement, dated February 18, 2009, by and between American Business Lending, Inc., as Borrower, and Wells Fargo Foothill, LLC, as Lender (incorporated herein by reference to Exhibit 10.44 of the Company's Form 10-Q dated May 12, 2009)
	10.38	—	Amended and Restated General Continuing Limited Guaranty, dated February 18, 2009, by FirstCity Financial Corporation, as Guarantor, and Wells Fargo Foothill, LLC, as Lender (incorporated herein by reference to Exhibit 10.45 of the Company's Form 10-Q dated May 12, 2009)
	10.39	—	Separation Agreement, Release and Amendment to Award Agreements dated June 4, 2009, by and between Richard J. Vander Woude, FirstCity Servicing Corporation and FirstCity Financial Corporation (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated June 5, 2009)
	10.40	—	Retainer Agreement, dated June 4, 2009, by and between Richard J. Vander Woude, FirstCity Servicing Corporation and FirstCity Financial Corporation (incorporated herein by reference to Exhibit 10.2 of the Company's Form 8-K dated June 5, 2009)
	10.41	—	Recommendation of Compensation Committee for a 2009 bonus plan for certain executive officers and two other employees (incorporated herein by reference to the Company's Form 8-K dated August 19, 2009)
	10.42	—	Agreement and Stipulation of Settlement, dated September 25, 2009, between FCLT Loans Asset Corporation, FirstCity Financial Corporation, and Timothy J. Blair, Class Representative of former employee beneficiaries (incorporated herein by reference to Exhibit 99.1 of the Company's Form 8-K dated September 30, 2009)
	10.43	—	2010 Stock Option and Award Plan (incorporated herein by reference to Appendix A of the Company's Schedule 14A, Definitive Proxy Statement, dated October 1, 2009, as amended by supplemental Schedule 14A, Definitive Additional Materials, dated November 5, 2009)

168

Exhibit Number			Description of Exhibit
	10.44	—	Amendment Number One to FirstCity Financial Corporation 2010 Stock Option and Award Plan (incorporated herein by reference to Appendix A of the Company's supplemental Schedule 14A, Definitive Additional Materials, dated November 5, 2009)
	10.45	—	Amendment No. 4 to Loan Agreement, dated November 2, 2009, by and between American Business Lending, Inc., as Borrower, and Wells Fargo Foothill, LLC, as Lender (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated November 10, 2009)
	10.46	—	Press release dated December 22, 2009, pursuant to Item 7.01, announcing the Company's receipt of final settlement proceeds pursuant to the Agreement and Stipulation of Settlement described in its release dated September 30, 2009 and in Form 8-K filed on September 30, 2009 (incorporated herein by reference to Exhibit 99.1 of the Company's Form 8-K dated December 22, 2009)
	10.47	—	Approval by the Company's Board of Directors of the Compensation Committee's recommendation for a 2010 bonus plan for certain executive officers of the Company (incorporated herein by reference to the Company's Form 8-K dated February 16, 2010)
	10.48	—	Amendment and Consent No. 33 to Revolving Credit Agreement, dated as of March 26, 2010, among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders, and Bank of Scotland plc, as Agent (incorporated herein by reference to the Company's Form 8-K dated March 29, 2010)
	10.49	—	Amendment and Consent No. 20 to Subordinated Delayed Draw Credit Agreement, dated as of March 26, 2010, among FirstCity Financial Corporation as Borrower and the Lenders named therein, as Lenders, and BoS(USA), Inc., as Agent (incorporated herein by reference to the Company's Form 8-K dated March 29, 2010)
	10.50	—	Amendment and Consent No. 9 to Revolving Credit Agreement, dated as of March 26, 2010, among FH Partners LLC, as Borrower, and the Lenders named therein, as Lenders, and Bank of Scotland plc, as Agent (incorporated herein by reference to the Company's Form 8-K dated March 29, 2010)
	10.51	—	Reducing Note Facility Agreement, dated June 25, 2010, among FirstCity Financial Corporation and FH Partners LLC, as Borrowers, FLBG Corporation, as Guarantor, Bank of Scotland plc and BoS(USA),  Inc., as Lenders, and Bank of Scotland plc, acting through its New Your Branch, as Agent and Collateral Agent (incorporated herein by reference to Exhibit 10.57 of the Company's Form 10-Q dated August 16, 2010)
	10.52	—	Limited Guaranty Agreement, dated June 25, 2010, by FirstCity Financial Corporation, as Guarantor, in favor of Bank of Scotland plc, acting through its New York Branch, as Agent, for the benefit of Bank of Scotland plc and BoS(USA), Inc., as Lenders and parties to the Reducing Note Facility Agreement dated June 25, 2010 (incorporated herein by reference to Exhibit 10.58 of the Company's Form 10-Q dated August 16, 2010)

169

Exhibit Number			Description of Exhibit
	10.53	—	Form of Investment Agreement, dated June 29, 2010, by and between FC Diversified Holdings LLC and FirstCity Servicing Corporation and Värde Investment Partners, L.P. (confidential treatment has been requested for this exhibit and confidential portions have been filed with the Securities and Exchange Commission) (incorporated herein by reference to Exhibit 10.59 of the Company's Form 10-Q dated August 16, 2010)
	10.54	—	Securities Purchase Agreement, dated June 29, 2010, by and among FirstCity Financial Corporation and Värde Investment Partners, L.P. (incorporated herein by reference to Exhibit 10.60 of the Company's Form 10-Q dated August 16, 2010)
	10.55	—	Form of Restricted Stock Award Agreement under the FirstCity Financial Corporation 2010 Stock Option and Award Plan (incorporated herein by reference to Exhibit 10.61 of the Company's Form 10-Q dated August 16, 2010)
	10.56	—	Approval by the Company's Board of Directors of the Compensation Committee's recommendation for a 2011 bonus plan for certain executive officers of the Company (incorporated herein by reference to the Company's Form 8-K dated March 21, 2011)
	10.57	—	Amended and Restated Reducing Note Facility Agreement, dated as of December 19, 2011, among FirstCity Commercial Corporation, as borrower, FLBG Corporation, as guarantor, and Bank of Scotland plc, as lender, agent and collateral agent (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K dated December 23, 2011)
	10.58	—	Amended and Restated Guaranty Agreement, dated as of December 19, 2011, by FirstCity Financial Corporation, for the benefit Bank of Scotland plc, as lender and party to the Amended and Restated Reducing Note Facility Agreement dated December 19, 2011 (incorporated herein by reference to Exhibit 10.2 of the Company's Form 8-K dated December 23, 2011)
	10.59	—	Reducing Note Facility Agreement, dated as of December 19, 2011, among FLBG2 Holdings LLC, as borrower, BOS (USA) Inc., as lender, and Bank of Scotland plc, as agent and collateral agent (incorporated herein by reference to Exhibit 10.3 of the Company's Form 8-K dated December 23, 2011)
	10.60	—	Term Loan Agreement, dated as of December 19, 2011, among FH Partners LLC, as borrower, and Bank of America, N.A., as agent and lender (incorporated herein by reference to Exhibit 10.4 of the Company's Form 8-K dated December 23, 2011)
	10.61	—	Form of Indemnification Agreement between FirstCity Financial Corporation and each of its directors and officers (incorporated herein by reference to Exhibit 10.61 of the Company's Form 10-K dated March 30, 2012)
	10.62	—	Amended and Restated Loan Agreement dated January 31, 2012 between American Business Lending, Inc., as borrower, and Wells Fargo Capital Finance LLC, as lender (incorporated herein by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated January 31, 2012)

170

Exhibit Number			Description of Exhibit
	10.63	—	Omnibus Amendment and Reaffirmation of Loan Documents dated January 31, 2012 by and among Wells Fargo Capital Finance LLC, as lender, American Business Lending, Inc., as borrower, FirstCity Financial Corporation, as credit party, and the other parties thereto (incorporated herein by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K dated January 31, 2012)
	10.64	—	Approval by the Company's Compensation Committee of the Board of Directors for a 2012 bonus plan for certain executive officers of the Company (incorporated herein by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K dated March 2, 2012)
	10.65	—	Loan Agreement dated May 16, 2012 between FC Investment Holdings Corporation, as borrower, and FirstCity Financial Corporation, as guarantor, and First National Bank of Central Texas, as lender (incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-Q dated August 14, 2012)
	10.66	—	Commercial Guaranty dated May 16, 2012 between FC Investment Holdings Corporation, as borrower, and FirstCity Financial Corporation, as guarantor, and First National Bank of Central Texas, as lender (incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-Q dated August 14, 2012)
	10.67	—	Share Transfer Agreement dated November 7, 2012 between FirstCity Diversified Holdings LLC, FirstCity Europe Corporation and FirstCity Servicing Corporation, as the transferors, and Miromesnil Gestion, as the tranferee. (incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-Q dated November 14, 2012)
	10.68	—	Equity Commitment Letter, dated as of December 20, 2012, by and among The Värde Fund X (Master) L.P., Värde Investment Partners, L.P., Värde Investment Partners (Offshore) Master,  L.P., The Värde Fund VI-A, L.P. and Hotspurs Holdings LLC (incorporated herein by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated December 26, 2012)
	10.69	—	Limited Guarantee, dated as of December 20, 2012, by and among The Värde Fund X (Master) L.P., Värde Investment Partners, L.P., Värde Investment Partners (Offshore) Master, L.P., The Värde Fund VI-A, L.P. and FirstCity Financial Corporation (incorporated herein by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K dated December 26, 2012)
	10.70	—	Support Agreement, dated as of December 20, 2012, by and among Hotspurs Holdings LLC and certain stockholders of FirstCity Financial Corporation (incorporated herein by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K dated December 26, 2012)
	10.71	—	Separation Agreement, dated as of December 20, 2012, by and between Jim W. Moore and FirstCity Financial Corporation (incorporated herein by reference to Exhibit 10.4 of the Company's Current Report on Form 8-K dated December 26, 2012)
	10.72	—	Separation Agreement, dated as of December 20, 2012, by and between J. Bryan Baker and FirstCity Financial Corporation (incorporated herein by reference to Exhibit 10.5 of the Company's Current Report on Form 8-K dated December 26, 2012)

171

Exhibit Number			Description of Exhibit
	10.73	—	Separation Agreement, dated as of December 20, 2012, by and between Joe S. Greak and FirstCity Financial Corporation (incorporated herein by reference to Exhibit 10.6 of the Company's Current Report on Form 8-K dated December 26, 2012)
	10.74	—	Retirement and Consulting Agreement, dated as of December 20, 2012, by and between James T. Sartain and Värde Partners, Inc. (incorporated herein by reference to Exhibit 10.7 of the Company's Current Report on Form 8-K dated December 26, 2012)
	10.75*	—	Stock Purchase Agreement dated January 22, 2013, by and between FirstCity Business Lending Corporation and CS ABL Holdings, LLC
	21.1*	—	Subsidiaries of the Registrant
	23.1*	—	Consent of KPMG LLP
	31.1*	—	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2*	—	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1*	—	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2*	—	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101.INS**	—	XBRL Instance Document
	101.SCH**	—	XBRL Taxonomy Extension Schema Document
	101.CAL**	—	XBRL Taxonomy Calculation Linkbase Document
	101.LAB**	—	XBRL Taxonomy Label Linkbase Document
	101.PRE**	—	XBRL Taxonomy Presentation Linkbase Document
	101.DEF**	—	XBRL Taxonomy Definition Linkbase Document

*

Filed herewith.

**

In accordance with Rule 406T of Regulation S-T, the XBRL information in Exhibit 101 to this annual report on Form 10-K shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

172

SIGNATURES

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

FIRSTCITY FINANCIAL CORPORATION
By:	/s/ JAMES T. SARTAIN James T. Sartain President and Chief Executive Officer

March 21, 2013

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ W. P. HENDRY William P. Hendry	Chairman of the Board and Director	March 21, 2013
/s/ JAMES T. SARTAIN James T. Sartain	President, Chief Executive Officer and Director (Principal Executive Officer)	March 21, 2013
/s/ J. BRYAN BAKER J. Bryan Baker	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	March 21, 2013
/s/ C. IVAN WILSON C. Ivan Wilson	Vice Chairman of the Board and Director	March 21, 2013
/s/ RICHARD E. BEAN Richard E. Bean	Director	March 21, 2013
/s/ DANE FULMER Dane Fulmer	Director	March 21, 2013
/s/ ROBERT E. GARRISON, II Robert E. Garrison, II	Director	March 21, 2013
/s/ D. MICHAEL HUNTER D. Michael Hunter	Director	March 21, 2013
/s/ F. CLAY MILLER F. Clay Miller	Director	March 21, 2013

173

EX-10.75

Exhibit 10.75

EXECUTION COPY

STOCK PURCHASE AGREEMENT

dated as of January 22, 2013,

among

FIRSTCITY BUSINESS LENDING CORPORATION

as the Seller

and

CS ABL HOLDINGS, LLC

as the Purchaser

Table of Contents

	Page
ARTICLE I Defined Terms	2
Section 1.01. Definitions	2
ARTICLE II The Transaction	18
Section 2.01. Purchase and Sale of the Purchased Interests	18
Section 2.02. Calculation of the Initial Purchase Price	21
Section 2.03. Post-Closing Adjustment to Purchase Price	21
Section 2.04. Deliveries	24
ARTICLE III The Closing; Conditions to Closing	25
Section 3.01. The Closing	25
Section 3.02. Conditions Precedent to the Obligations of the Seller	25
Section 3.03. Conditions Precedent to the Obligations of the Purchaser	26
ARTICLE IV Representations and Warranties of the Seller About the Company	29
Section 4.01. Existence and Power	29
Section 4.02. Authorization; Binding Effect	30
Section 4.03. Contravention	30
Section 4.04. Consents	30
Section 4.05. Capitalization	30
Section 4.06. Financial Statements	31
Section 4.07. Taxes	31
Section 4.08. Litigation	32
Section 4.09. Permits; Compliance with Laws	32
Section 4.10. Absence of Certain Changes or Events	32
Section 4.11. Assets; Property	33
Section 4.12. Material Contracts	34
Section 4.13. Portfolio Loans	37
Section 4.14. Intellectual Property	40
Section 4.15. Insurance	42
Section 4.16. Books and Records	42
Section 4.17. Environmental Matters	42
Section 4.18. Employees; ERISA	43
Section 4.19. Certain Business Relationships with the Company	44
Section 4.20. Undisclosed Liabilities	44
Section 4.21. Subsidiaries	44
Section 4.22. Pending Loans	44
Section 4.23. Non-Recourse Assets	45
Section 4.24 Disclosure	45
ARTICLE V Representations and Warranties of Seller About Seller	45
Section 5.01. Existence and Power	45

i

Section 5.02. Authorization; Binding Effect	45
Section 5.03. Contravention	45
Section 5.04. Consents	46
Section 5.05. Litigation	46
Section 5.06. Title to Securities	46
Section 5.07. Sophisticated Seller; Adequate Information; Securities Laws	46
Section 5.08. Transactions With the Company	47
Section 5.09. Brokers, Finders	47
Section 5.10. Solvency	47
Section 5.11. Seller Guarantee	47
ARTICLE VI Representations and Warranties of the Purchaser	47
Section 6.01. Existence and Power	47
Section 6.02. Authorization; Binding Effect	48
Section 6.03. Contravention	48
Section 6.04. Consents	48
Section 6.05. Litigation	48
Section 6.06. Investment Representations	49
Section 6.07. Brokers, Finders	49
Section 6.08. Disclosure	50
Section 6.09. Purchaser Guarantee	50
ARTICLE VII Covenants of the Seller and Purchaser	50
Section 7.01. Conduct of Business Pending Closing	50
Section 7.02. Access to Information; Cooperation	51
Section 7.03. Disclosure Schedules	52
Section 7.04. Reporting Requirements	53
Section 7.05. No Solicitation of Purchase or Sale	54
Section 7.06. Public Announcements; Confidentiality	55
Section 7.07. Non-Solicitation	56
Section 7.08. Seller Guarantee	56
Section 7.09. Purchaser Guarantee	57
Section 7.10. Instructions to Escrow Agent	57
ARTICLE VIII Indemnification	57
Section 8.01. Indemnification	57
Section 8.02. Survival of Indemnification	59
Section 8.03. Certain Limitations; Allocation of Liability	59
Section 8.04. Fraud Exception	60
ARTICLE IX Termination and Expenses	61
Section 9.01. Termination	61
Section 9.02. Effect of Termination	62
Section 9.03. Treatment of Deposit	62

ii

ARTICLE X Miscellaneous	63
Section 10.01. Notices	63
Section 10.02. Counterparts	63
Section 10.03. Amendment of Agreement	63
Section 10.04. Successors and Assigns; Assignability	63
Section 10.05. Governing Law	63
Section 10.06. Integration	63
Section 10.07. Fees and Expenses	63
Section 10.08. Severability	64
Section 10.09. Further Assurances	64
Section 10.10. No Third-Party Rights	64
Section 10.11. Submission to Jurisdiction	64
Section 10.12. Waiver of Jury Trial	64
Section 10.13. No Waiver; Remedies	65
Section 10.14. Interpretation	65
Section 10.15. Ambiguities	65
Section 10.16. Incorporation of Schedules and Exhibits	65

iii

Exhibits
Exhibit A	Form of Purchaser Officer’s Certificate
Exhibit B	Form of Key Officer Employment Agreement
Exhibit C	Form of Seller Officer’s Certificate
Exhibit D	Form of Secretary’s Certificate
Exhibit E	Transition Servicing Agreement
Exhibit F	Escrow Agreement
Exhibit G	Wells Fargo Term Sheet
Exhibit H	Portfolio Loan Schedule
Exhibit I	Pioneer Loan Acquisition Procedure
Schedules
4.04	Seller Required Consents
4.05(c)	No Other Agreements
4.08	Litigation
4.09(a)	Permits
4.10	Absence of Certain Changes or Events
4.12(a)	Material Contracts (Datasite)
4.12(c)(ii)	Material Breach or Default Under Material Contracts
4.12(c)(iii)	Forfeiture or Frustration of Material Contracts
4.12(d)	Liens
4.13(a)	Outstanding Principal
4.13(g)	Default Under Portfolio Credit Documents
4.13(h)(i)	Self Insurance of Portfolio Loan Collateral

iv

4.13(h)(ii)	Insurance of Portfolio Loan Collateral
4.14(a)	Intellectual Property
4.18(a)	Employees
4.18(c)	Benefit Plans
4.19(a)	Certain Transactions of Agreements
4.19(b)	No Other Related Party Transactions
4.21	Subsidiaries
4.22	Pending Loans
5.08	Transactions With the Company
6.04	Purchaser Required Consents

v

STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of January 22, 2013, among FirstCity Business Lending Corporation, a Texas corporation (“Seller”); and CS ABL Holdings, LLC, a Delaware limited liability company (the “Purchaser”).  Each of the Seller and the Purchaser may hereinafter be referred to as a “Party” and collectively as the “Parties”.

RECITALS

A.As of the date of this Agreement, the Seller owns 100,000 shares of Common Stock and 800,000 shares of Preferred Stock (collectively, the “Shares”) of American Business Lending, Inc., a Texas corporation (the “Company”), which represent one hundred percent (100%) of the issued and outstanding capital stock of the Company.  Seller is a direct wholly-owned subsidiary of FirstCity Commercial Corporation, a Texas corporation (“FCC”), which is a direct wholly-owned subsidiary of FLBG Corporation, a Texas corporation (“FLBG”), which is a direct wholly-owned subsidiary of FirstCity Financial Corporation, a Delaware corporation (“FirstCity”);

B.Purchaser is a direct wholly-owned subsidiary of CapitalSpring Finance Company, LLC, a Delaware limited liability company (“CapitalSpring” or the “Purchaser Guarantor”);

C.Concurrently with the execution and delivery of this Agreement, and as a condition and inducement to the Purchaser’s willingness to enter into this Agreement, FirstCity (the “Seller Guarantor”) is entering into a guarantee in favor of the Purchaser, dated as of the date hereof (the “FirstCity Guarantee”), with respect to certain obligations of Seller under this Agreement;

D.Concurrently with the execution and delivery of this Agreement, and as a condition and inducement to the Seller’s willingness to enter into this Agreement, the Purchaser Guarantor is entering into a guarantee in favor of the Seller, dated as of the date hereof (the “Purchaser Guarantee”), with respect to certain obligations of Purchaser under this Agreement; and

E.On the terms and subject to the conditions and for the consideration set forth in this Agreement, the Purchaser desires to acquire from the Seller, and the Seller desire to sell to the Purchaser, all of Seller’s right, title and interest in and to the Shares (collectively, the “Purchased Interests”).  As of the Closing (as defined below), the Purchased Interests shall, in aggregate, represent one hundred percent (100%) of the outstanding capital stock in the Company, and Purchaser shall be the sole equity owner thereof.

AGREEMENT

In consideration of the premises and the mutual covenants and the agreements herein set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE I

Defined Terms

Section 1.01.  Definitions.  As used in this Agreement, the following terms have the meanings stated:

“Action” means an action, suit, litigation, arbitration, investigation, complaint, contest, hearing, inquiry, inquest, audit, examination or other proceeding, whether civil, criminal, administrative, investigative or appellate, in law or equity before any arbitrator or Governmental Body.

“Affiliate” of a Person means any other Person (a) that directly or indirectly Controls, is Controlled by or is under common Control with, the Person or any of its Subsidiaries, (b) that directly or indirectly beneficially owns or holds 10% or more of any class of Equity Security or other similar interests of the Person or any of its Subsidiaries or (c) 10% or more of the Equity Securities of which is directly or indirectly beneficially owned or held by the Person or any of its Subsidiaries.  With respect to a natural person, such natural person’s Affiliates shall also include such natural person’s spouse, and their siblings, parents and lineal descendants.

“ASBA” shall mean AMRESCO SBA Holdings, Inc., a Delaware corporation, and its successors and assigns.

“ASBA Asset Purchase Agreement” shall mean the Asset Purchase Agreement dated as of June 30, 2006, by and among NCS I, LLC, a Delaware limited liability company, and ASBA, as “sellers,” Company, as the “purchaser,” Seller, and FirstCity, and including all amendments, modifications and supplements hereto and any appendices, exhibits or schedules to any of the foregoing, pursuant to which Borrower acquired the SBA 7(a) Loan lending authority of ASBA and the Serviced ASBA Assets.

“ASBA Note” shall mean the Note dated November 30, 2006, executed by Company in favor of ASBA in the original principal amount of $4,197,926, to pay part of the purchase price under the ASBA Asset Purchase Agreement and secured solely by the Serviced ASBA Assets and as to which recourse against Company is limited to proceeds of the serviced ASBA Assets as provided in such Note and the ASBA Asset Purchase Agreement.

“ASBA Security Agreement” shall mean the Security Agreement dated November 30, 2006, executed by Company in favor of ASBA to grant to ASBA a security interest in the Serviced ASBA Assets and related collateral to secure the obligations of Company under the ASBA Asset Purchase Agreement, the ASBA Note and the ASBA Security Agreement.

“Asset Purchase Documents” shall mean the ASBA Asset Purchase Agreement, the ASBA Note, and all other agreements, instruments, certificates, legal opinions, and other documents required to be executed or delivered in connection with the

2

consummation of the transactions contemplated by the ASBA Asset Purchase Agreement.

“Assets” has the meaning set forth in Section 4.11.

“Benefit Plan” means any employee pension benefit plan covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code, and  any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, restricted stock, stock appreciation rights, phantom stock, retirement, supplemental retirement, vacation, severance, termination, disability, death benefit, hospitalization, retiree medical or other plan, program, insurance, arrangement, agreement, commitment or understanding (whether or not legally binding) providing benefits to any current or former employee, officer, director or shareholder of the Company.

“Business” means the business and operations of the Company as conducted by the Company on the date of this Agreement.

“Business Day” means any day that is not a Saturday, Sunday or a day on which banks are required or authorized by Law to be closed in New York or Texas.

“CapitalSpring” has the meaning set forth in the Recitals.

“Charges” means all Taxes, levies, assessments, charges, Liens, claims or encumbrances upon or relating to (a) the Assets, (b) the employees, payroll, income or gross receipts of Company, (c) the ownership or use of any of the Assets, or (d) and any other aspect of Company’s business.

“Cleanup” means all actions required to (a) cleanup, remove, treat or otherwise remediate Hazardous Materials present in the indoor or outdoor environment, (b) prevent, pursuant to Law, the Release of Hazardous Materials so that they do not enter the environment, migrate, endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform pre-remedial studies and investigations and post-remedial monitoring and care, or (d) respond to any government directives, orders, requests for information or other documents in any way relating to cleanup, removal, treatment or remediation or potential cleanup, removal, treatment or remediation of Hazardous Materials in the indoor or outdoor environment.

“Closing” has the meaning set forth in Section 3.01.

“Closing Balance Sheet” has the meaning set forth in Section 2.03(a).

“Closing Date” has the meaning set forth in Section 3.01.

“Code” means the Internal Revenue Code of 1986, as amended.

3

“Collateral” means the inventory, Equipment, Fixtures, accounts, Real Property, general intangibles (including franchises and licenses), Securities, vehicles and other property in which a security interest or Lien is retained or granted to a lender pursuant to a Portfolio Credit Document, and all cash and non-cash proceeds thereof, but does not include the Non-Recourse Assets.

“Common Stock” means common stock of the Company, par value $0.001.

“Company” has the meaning set forth in the heading of this Agreement.

“Company Debt” means all Debt of the Company as of the Closing Date, excluding the Non-Recourse Debt.

“Company Intellectual Property” has the meaning set forth in Section 4.14(a).

“Company Stock” has the meaning set forth in Section 4.05(a).

“Competing Transaction” means any (a) merger, consolidation, recapitalization, reorganization or other business combination directly involving the Company, (b) acquisition in any manner, directly or indirectly, of an interest in any Securities of the Company, or (c) acquisition in any manner, directly or indirectly, of all or a substantial portion of the Assets, other than the Transactions.

“Confidential Information” means all information, data, “know-how”, documents, reports, agreements, interpretations, plans, studies, forecasts and records (whether in oral or written form, electronically stored or otherwise) containing or otherwise reflecting information concerning the Company, the Business, the Assets or the Transactions, including, without limitation (a) financial information, books and records, cost information and Contracts, (b) marketing plans and strategies, customer, client, vendor and supplier Contracts, information relating to, and lists of, past, current and prospective customers, suppliers, vendors, business contacts and clients, (c) operating procedures, techniques, systems, processes and methods, all Company Intellectual Property, product information, including research and development and proposed products and services, (d) employee records and information, and (e) other commercial “know-how”, trade secrets and information not available to the public generally; provided, however, that “Confidential Information” does not include information which (i) is in the public domain at the time other than as a result of any breach of Section 7.06(b) by the Seller or its Representatives after the date of this Agreement other than such disclosures as occur in the ordinary course of business of the Company, (ii) was known to the Seller or its Representatives prior to the acquisition by the Seller of the Company, (iii) which becomes public through no fault of the Company, the Seller or any other Person, or (iv) which is information possessed by FirstCity and its Affiliates (including, without limitation, FirstCity Servicing) that is related to their business operations or to the acquisition of distressed assets and is not specifically related to the Business or the Company.

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“Consents” means any approval, consent, authorization or order of, notice to or registration or filing with, or any other action by, any Governmental Body or other Person.

“Contract” means any agreement, contract, license, lease, instrument, document, note, bond, mortgage, indenture, guarantee, purchase order, letter of credit, undertaking, obligation, commitment, or other legally binding commitment or obligation, whether or not written, each as amended or modified from time to time.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by Contract or otherwise.

“Controlled Group” for any Person at any date means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common Control which, together with the Person, are treated as a single employer under Sections 414(b) or 414(c) of the Code.

“Datasite” means the information hosted in the folder “CapitalSpring” on the FCFC SharePoint Extranet Portal located at https://sxp.fcfc.com.

“Datasite Download Date” has the meaning set forth in Section 4.12(a).

“Debt” of a Person at any date means, without duplication (a) all obligations of the Person (i) for borrowed money, (ii) evidenced by bonds, debentures, notes or other similar instruments, (iii) conditional sale, title retention or other similar agreements or arrangements creating an obligation with respect to the payment of the deferred purchase price of property or services, (iv) as lessee under capitalized leases, (v) under letters of credit or guarantees issued for the account of the Person and (vi) arising under acceptance facilities, (b) all obligations of the type referred to in clause (a) above of others guaranteed by the Person, (c) all obligations of the type referred to in clause (a) above of others secured by a Lien on any asset of the Person whether or not such obligation is assumed by the Person, (d) all obligations of such Person with respect to interest rate, currency and total return swaps, hedges and similar arrangements, and (e) all obligations of such Person with respect to the aggregate Unfunded Vested Liabilities under each Benefit Plan of the Person.

“Debtor” shall mean a borrower under any Portfolio Loan and any Persons obligated or liable (other than the SBA), whether as guarantor, endorser, surety or otherwise, on or with respect to any Portfolio Loan and their successors and assigns, including any debtor-in-possession or trustee-in-bankruptcy.

“Deposit” means a good faith deposit, in the amount of Two Hundred Fifty Thousand Dollars ($250,000.00), to be delivered by the Purchaser to the Escrow Agent upon the execution and delivery of this Agreement.

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“Dollars” and “$” refer to United States dollars and other lawful currency of the United States of America from time to time in effect.

“Due Diligence Period” has the meaning set forth in Section 2.01(b).

“Environmental Laws” means all federal, state, local and foreign Laws  relating to pollution, human health, safety, industrial hygiene or protection of the environment, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, disposal, Cleanup, transport or handling of Hazardous Materials and all Laws with regard to record keeping, notification, disclosure and reporting requirements respecting Hazardous Materials, and all similar Laws.

“Equipment” means all tangible personal property of a Person, including, without limitation, all equipment and machinery in all of its forms, wherever located, now or hereafter existing.

“Equity Securities” of a Person means (a) shares of capital stock, limited liability company membership interests, partnership interests, joint venture interests, or other equity securities, stock or shares of any kind of such Person, including the Purchased  Interests (b) securities directly or indirectly convertible into or exercisable or exchangeable for any of the securities referred to in (a) above, (c) rights, warrants, options, calls, subscriptions or commitments of any kind or character relating to, or entitling any Person directly or indirectly to purchase or otherwise acquire, any of the securities or rights referred to in (a) or (b) above, and (d) equity equivalents, interests in the ownership or earnings of, or equity appreciation, phantom stock or other similar rights of, or with respect to, such Person.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the related regulations and published interpretations.

“Escrow Agent” means the party named as the Escrow Agent under the Escrow Agreement.

“Escrow Agreement” means the Escrow Agreement, dated on or about the date hereof, among the Seller, the Purchaser and the Escrow Agent, which is attached hereto as Exhibit F.

“Escrow Amount” has the meaning set forth in Section 2.01(a).

“Estimated Balance Sheet” has the meaning set forth in Section 2.02(a)(ii).

“Estimated Total Equity” has the meaning set forth in Section 2.02(a)(ii).

“FCC” has the meaning set forth in the recitals of this Agreement.

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“Financial Statements” has the meaning set forth in Section 4.06.

“FirstCity” has the meaning set forth in the recitals of this Agreement.

“FirstCity Servicing” means FirstCity Servicing Corporation, a Texas corporation.

“Final Closing Balance Sheet” has the meaning set forth in Section 2.03(c)(iii).

“Final Total Equity” has the meaning set forth in Section 2.03(c)(iii).

“Fixtures” means, to the extent not covered by the definition of Equipment, all fixtures appurtenant to Real Property or Leaseholds in all of their forms, wherever located, now or hereafter existing.

“FLBG” has the meaning set forth in the recitals of this Agreement.

“Fundamental Representations” has the meaning set forth in Section 8.02.

“GAAP” means generally accepted accounting principles in the United States as in effect from time to time, consistently applied throughout the periods to which reference is made.

“Gateway Non-Performing Loans” means the loans acquired under the Gateway Portfolio Purchase Agreement that were designated as “Non-Performing Loans” as defined in the Gateway Portfolio Purchase Agreement.

“Gateway Promissory Note” means the promissory note dated February 27, 2007, in the stated principal amount of $6,945,694.08 delivered in connection with the Gateway Portfolio Purchase Agreement, executed by Company in favor of State Bank, Gateway National Bank, and GNB Financial, n.a. in the amount of and to evidence the purchase price payable by Company for the Gateway Non-Performing Loans, and payable solely from payments collected by Company on the Gateway Non-Performing Loans.

“Gateway Portfolio Purchase Agreement” means that certain SBA Loan Portfolio Purchase Agreement dated as of December 21, 2006 (as amended or modified from time to time) by and among State Bank, Gateway National Bank, GNB Financial, n.a. and Company.

“Governmental Body” means any government or any agency, bureau, commission, court, department, official, political subdivision, tribunal, board or other instrumentality of any administrative, judicial, legislative, executive, regulatory, police or taxing authority of any government, whether supranational, national, federal, state, regional, provincial, local, domestic or foreign.

“Guaranteed Portion” means the portion of each Portfolio Loan guaranteed by the SBA.

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“Guaranty” means a guaranty of any obligor’s obligations under the Portfolio Loan Agreements.

“Hazardous Materials” means any hazardous or toxic substance, waste, contaminant, pollutant, gas or material, including, without limitation, radioactive materials, oil, petroleum and petroleum products and constituents thereof, which are regulated under any Environmental Law.

“Indemnification Cap” has the meaning set forth in Section 8.03(b).

“Independent Accounting Firm” means an accounting firm of international reputation independent of the Seller and the Purchaser which accounting firm is mutually acceptable to the Purchaser and the Seller.

“Initial Purchase Price” means an amount equal to (a) the Estimated Total Equity plus (b) an amount equal to the lesser of (i) Three Million Seven Hundred Thousand Dollars ($3,700,000.00) or (ii) fifty percent (50%) of the Estimated Total Equity of the Company.

“Initial Schedule Updates” has the meaning set forth in Section 7.03(a).

“Intellectual Property” means all copyrights, uncopyrighted works, trademarks, trademark rights, trademark registrations, patents, including, without limitation, all reissues, divisions, continuations and extensions thereof, patent rights, unpatented inventions, service marks, logos, trade names, trade name rights, computer software licenses, data, software, permits, trade secrets, know-how, protected models, designs, methods, concepts, plans, specifications, schematics, formulas, inventions, technology, processes and intellectual property rights and other proprietary rights, whether or not subject to statutory registration, together with applications and licenses for, and the goodwill of the Business relating to, any of the foregoing.

“Key Officer Employment Agreement” has the meaning set forth in Section 3.02(f).

“Key Officer” means Charles Bell.

“Law” means each applicable treaty, statute, law, rule, regulation, order, guidance or recommendation (or any change in its interpretation or administration) by any Governmental Body, central bank or comparable agency and any request or directive (whether or not having the force of law) of any of those Persons and each judgment, injunction, order, writ, decree or award of any Governmental Body, arbitrator or other Person.

“Leaseholds” means all real property interests as lessee, together with all tenements, hereditaments, easements, rights of way, privileges and appurtenances to those and improvements on or to those interests.

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“Licensed Intellectual Property” has the meaning set forth in Section 4.14(a).

“Lien” means any security interest, lien (statutory or otherwise), claim, pledge, mortgage, deed of trust, hypothecation, charge, easement, deposit arrangement, preference, priority, license, lease, conveyance of any right, option, right of first refusal or offer, restriction or encumbrance of any kind, including, without limitation, any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership, and the filing of or agreement to give any financing statement under the uniform commercial code or comparable law of any jurisdiction to evidence any of the foregoing.

“Loan File” means the file(s) maintained by Company with respect to all Portfolio Loans, Pending Loans and Non-Recourse Assets, containing the Portfolio Credit Documents pertaining to such Portfolio Loans and the Non-Recourse Asset Documents pertaining to such Non-Recourse Assets, together with a copy of each note or other instrument evidencing each Portfolio Loan or Non-Recourse Asset, any secondary sales documents related to each Portfolio Loan or Non-Recourse Asset, any and all other documents, instruments, credit files and underwriting materials in the possession of the Company (or any agent or representative of Company) related to all Portfolio Loans, Pending Loans and Non-Recourse Assets, including documents relating to the management, servicing and correspondence of such Portfolio Loans and Non-Recourse Assets compiled by Company since the origination of such Portfolio Loans or the acquisition such Portfolio Loans or Non-Recourse Assets (and all documents received by it from a prior originator or seller, if not originated by Company), and including all documents, files and written information of any kind existing with respect to such Portfolio Loans and Non-Recourse Assets in the possession of the Company (or any agent or representative of Company), and, including without limitation loan history and other data residing on Company’s loan accounting system, provided that the term “Loan File” shall not include any Records or stored computer data of FirstCity Servicing maintained by FirstCity Servicing in its capacity as servicer for the Company or pursuant to the Transition Servicing Agreement, though FirstCity Servicing will, subject to Purchaser and Company being responsible for and paying any conversion costs related to such computer data, provide a download of computer data stored by it in connection with its servicing duties.

“LOI” means that certain non-binding letter of intent, dated October 3, 2012, by and among CapitalSpring, the Company and the Seller, as such letter of intent has been amended by that certain letter dated December 31, 2012, by and among those Persons.

“Losses” means any and all liabilities, obligations, losses, damages, costs, expenses, claims, penalties, Actions, judgments, diminution in value, disbursements of any kind or nature whatsoever, interest, fines, Cleanup costs, settlements, costs of preparation and investigation, costs incurred in enforcing any of the Transaction Documents and reasonable attorneys’ fees and expenses.

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“Material Adverse Effect” means, with respect to any Person, an effect, event, development, change, state of facts, condition (financial or otherwise), circumstance or occurrence, either singly or in the aggregate, that is or would be reasonably expected to be materially adverse to the financial condition, assets, liabilities, business or results of operations of such Person, taken as a whole; provided, however, that a Material Adverse Effect shall not be deemed to include effects, events, developments, changes, states of facts, conditions, circumstances or occurrences arising out of, relating to or resulting from: (a)  changes in general economic, regulatory or business conditions in the United States generally or in world capital markets, (b) changes in the economy, financial or credit markets or political or regulatory conditions that affect the SBA lending industry; (c) any change in Law or the interpretation thereof or GAAP or the interpretation thereof (but not changes made by such Person to its own accounting requirements or principles); or (d) acts of war, armed hostility, terrorism or natural disasters; provided, however, that each event in (a) through (d) above shall constitute a “Material Adverse Effect” with respect to a Person if such Person is reasonably expected to be affected in a materially disproportionate manner relative to other participants in such Person’s industry.

“Material Contract” has the meaning set forth in Section 4.12(a).

“Non-Performing Loan Schedule” means that section of Exhibit H reflecting each Portfolio Loan that is either in default or is projected to be in default in the next ninety (90) days.

“Non-Recourse Assets” means (i) the Serviced ASBA Assets, and (ii) the Gateway Non-Performing Loans and related assets which are collateral for the Gateway Promissory Note and obligations related to the Gateway Portfolio Purchase Agreement.

“Non-Recourse Asset Documents” means all loan agreements and all Guaranties (including without limitation all Secondary Participation Guaranty Agreements), security documents, deeds of trust, letters of credit, waivers, amendments, modifications, supplements, forebearances, intercreditor agreements and all other documents or instruments in the possession of the Company which evidence or secure a Non-Recourse Asset.

“Non-Recourse Debt” means (i) the Debt evidenced by the ASBA Note, ASBA Security Agreement and ASBA Asset Purchase Agreement, and (ii) the Debt evidenced by the Gateway Promissory Note.

“Organizational Documents” means the articles of incorporation, certificate of incorporation, charter, bylaws, articles of formation, certificate of formation, regulations, operating agreement, certificate of limited partnership, partnership agreement, and all other similar documents, instruments or certificates executed, adopted or filed in connection with the creation, formation or organization of a Person, including any amendments thereto.

“Owned Intellectual Property” has the meaning set forth in Section 4.14(a).

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“Party” has the meaning set forth in the Preamble.

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“PCB” has the meaning set forth in Section 4.17.

“Pending Loans” has the meaning set forth in Section 4.22.

“Performing Loan Schedule” means that section of Exhibit H reflecting each Portfolio Loan that is not in default and is not currently projected to be in default in the next ninety (90) days.

“Permit” means any permit, license, approval, consent, permission, notice, franchise, confirmation, endorsement, waiver, certification, registration, qualification, or other authorization issued, granted, or given by or under the authority of any Governmental Body or pursuant to any federal, state, local or foreign Law.

“Permitted Liens” means (i) Liens associated with Debt reflected in the Company’s Financial Statements or disclosed in the notes to the Company’s Financial Statements; (ii) any Liens created pursuant to the Wells Fargo Credit Documents or any loan documents executed pursuant to the terms of the Wells Fargo Credit Documents for the benefit of Wells Fargo Capital Finance, LLC, as the Lender to secure the Debt and obligations under the Wells Fargo Credit Documents and which have been disclosed to the Purchaser; (iii) Liens for Charges which are not yet due and payable, or claims and unfunded liabilities under ERISA not yet due and payable or which are being contested in good faith by appropriate proceedings diligently pursued; (iv) Liens arising in connection with worker’s compensation, unemployment insurance, old age pensions and social security benefits which are not overdue or are being contested in good faith by appropriate proceedings diligently pursued, provided that in the case of any such contest any proceedings commenced for the enforcement of such Lien shall have been duly suspended and such provision for the payment of such Lien has been made on the books of Borrower as may be required by GAAP; (v) Liens incurred in the ordinary course of business to secure the performance of statutory obligations arising in connection with progress payments or advance payments due under contracts with the United States Government or any agency thereof entered into in the ordinary course of business; (vi) Liens created in favor of ASBA on the Serviced ASBA Assets solely to secure payment and performance of the ASBA Note and obligations under the ASBA Security Agreement which have been disclosed to the Purchaser; (vii) easements, covenants, conditions, restrictions and other similar matters of record affecting title to real property which do not or would not materially impair the use or occupancy of such real property in the operation of the business conducted thereon; (viii) Liens arising under sales contracts and equipment leases with third parties entered into in the ordinary course of business of the Company.

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“Person” means any individual, corporation, partnership, limited liability company, association, joint venture, trust or any other entity or organization, including, without limitation, any Governmental Body.

“Pioneer Loan” means the guaranteed and unguaranteed portion of that certain loan, in the aggregate principal amount of $1,115,900, made to Pioneer Discount Furniture, Inc. and Gregory L. Ratliff, as borrowers, by the Company, as evidenced by that certain promissory note dated March 29, 2010.

“Pooling and Servicing Documents” means, collectively, (i) the Pooling and Servicing Agreement, dated as of October 31, 1997, between Marine Midland Bank, as Trustee and the Company, the assignee of Independence Funding, LLC, as seller and servicer, (ii) the Pooling and Servicing Agreement, dated as of August 31, 1999, between LaSalle Bank National Association, as trustee and the Company, the assignee of AMRESCO Independence Funding, Inc., as seller and servicer and (iii) the Pooling and Servicing Agreement, dated as of August 31, 2000, between HSBC Bank USA, as trustee and the Company, the assignee of AMRESCO Independence Funding, Inc., as seller and servicer and (iv) any ancillary documents entered into by the Seller and/or the Company in connection with any of the foregoing, each of (i)-(iv) as amended or modified.

“Portfolio Credit Documents” means all Portfolio Loan Agreements and all Guaranties (including without limitation all Secondary Participation Guaranty Agreements), security documents, deeds of trust, letters of credit, waivers, amendments, modifications, supplements, forebearances, intercreditor agreements and all other documents or instruments executed and delivered in connection with a Portfolio Loan.

“Portfolio Loans” means the 7(a) loans made by the Company (or a predecessor-in-interest) as part of the Business, as set forth on Exhibit H and any Portfolio Loans originated by the Company after the date of Exhibit H in the ordinary course of business of the Company; the term Portfolio Loans does not include any Non-Recourse Assets.

“Portfolio Loan Agreements” means those loan agreements related to each Portfolio Loan pursuant to which the Company made Portfolio Loans to the obligors thereunder.

“Pre-Closing Schedule Updates” has the meaning set forth in Section 7.03(a).

“Preferred Stock” means preferred stock of the Company, par value $0.001.

“Principal Balance” means, for a Portfolio Loan and as of the date of determination, the funds which have been actually advanced to or for the benefit of the Debtor pursuant to the related Portfolio Credit Document, less any principal payments made by the Debtor.

“Public Announcement” has the meaning set forth in Section 7.06(a).

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“Purchase Price” means an amount equal to (a) the Total Equity as of the Closing Date plus (b) an amount equal to the lesser of (i) Three Million Seven Hundred Thousand Dollars ($3,700,000) or (ii) fifty percent (50%) of the Total Equity of the Company as of the Closing Date.

“Purchase Price Statement” has the meaning set forth in Section 2.03(a).

“Purchased Interests” has the meaning set forth in the Recitals.

“Purchaser” has the meaning set forth in the heading of this Agreement, and its successors and permitted assigns; provided that the Purchaser shall have no right to assign any or all of its rights under this Agreement to any Person prior to the Closing except to a direct or indirect wholly-owned Subsidiary of CapitalSpring and only with the consent of the Seller, such consent to an assignment to not be unreasonably withheld or delayed, provided that any refusal of the Seller to consent to any assignment shall not be unreasonable if based on any assignment by CapitalSpring, the Purchaser or the Purchaser Guarantor not providing for CapitalSpring, the Purchaser and the Purchaser Guarantor to remain liable for all their obligations under this Agreement or not providing for the assignee not to assume all obligations and duties of the Purchaser under this Agreement.

“Purchaser Confidential Information” means any information, data, “know-how”, documents, reports, agreements, interpretations, plans, studies, forecasts and records (whether in oral or written form, electronically stored or otherwise) containing or otherwise reflecting information concerning CapitalSpring, the Purchaser, the Purchaser Guarantor and their Affiliates which is limited to (a) financial information, books and records and cost information, (b) marketing plans and strategies with respect to the Company, and (c) any other information concerning CapitalSpring, the Purchaser and their Affiliates identified to Seller as confidential; provided, however, that “Purchaser Confidential Information” does not include information which (i) is in the public domain at the time other than as a result of any breach of Section 7.06(b) by the Seller or its Representatives, (ii) which becomes public through no fault of the Seller or any of its Representatives or of the Company and its Representatives while the Company is a Subsidiary of the Seller, or (iii) information which was known to the Seller and its Affiliates prior to the execution of the LOI.

“Purchaser Guarantee” shall have the meaning set forth in the recitals.

“Purchaser Guarantor” shall have the meaning set forth in the recitals.

“Purchaser Indemnified Person” means the Purchaser and its Affiliates and each of their respective shareholders, partners, members, managers, directors, officers, employees, agents and Affiliates and any successors and assigns of the foregoing.

“Purchaser Required Consents” means the Consents set forth on Schedule 6.04.

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“Purchaser DD Termination Notice” has the meaning set forth in Section 2.01(b).

“Real Property” means all real property interests, other than as lessee, together with all tenements, hereditaments, easements, rights of way, privileges and appurtenances to those interests and improvements and fixtures on or to those interests.

“Records” means the following items to the extent that they relate to or are connected with the Portfolio Loans, Pending Loans and Non-Recourse Assets: all ledgers, journals, bookkeeping memoranda, account cards relating to the Portfolio Loans, reports, computer listings, indexes, stored computer data, credit and other files specifically relating to the Portfolio Loans, Collateral records, certificates of title and all other correspondence, memoranda and other related record; provided that the term “Records” shall not include any records or stored computer data of FirstCity Servicing maintained by FirstCity Servicing in its capacity as servicer for the Company or pursuant to the Transition Servicing Agreement, though FirstCity Servicing will, subject to Purchaser and Company being responsible for and paying any conversion costs related to such computer data, provide a download of computer data stored by it in connection with its servicing duties.

“Related Party” means any officer, director, employee, agent, representative, member, manager, Affiliate, or advisor of the Company or the Seller or any third party acting on behalf of, or at the direction of, the Company or the Seller.

“Release” means (a) any releasing, spilling, discharging, disposing, leaking, pumping, injecting, pouring, depositing, dispersing, emitting, leaching or migrating into the indoor or outdoor environment and (b) the abandonment or discarding of barrels, tanks, containers or receptacles, whether or not sealed or closed, containing, or which formerly contained, Hazardous Materials.

“Repurchase Consideration” has the meaning set forth in Section 8.03(c).

“Repurchase Right” has the meaning set forth in Section 8.03(c).

“Restricted Payment” means (a) any dividend or other distribution of any kind on or in respect of any Equity Securities, and (b) any payments in cash or otherwise, on account of the purchase, redemption, retirement or acquisition of (i) any Equity Securities, or (ii) any option, warrant or other right to acquire any Equity Securities.

“Restricted Person” has the meaning set forth in Section 7.01.

“SBA” shall mean the United States Small Business Administration or any other federal agency administering the SBA Act.

“SBA Act” shall mean the Small Business Act of 1953, as in effect from time to time.

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“SBA Authorization and Loan Agreement” means as to each Portfolio Loan, the Authorization (SBA 7(a) Guaranteed Loan) between the Company, the SBA, and borrower as approved in accordance with the SBA Rules and Regulations.

“SBA Rules and Regulations” shall mean the SBA Act, as amended, any other legislation binding on SBA relating to financial transactions, any Loan Guaranty Agreement, all rules and regulations promulgated from time to time under the SBA Act, and SBA Standard Operating Procedures and Official Notices, all as from time to time in effect.

“Schedule Updates” has the meaning set forth in Section 7.03(a).

“SEC” means the United States Securities and Exchange Commission and includes any Governmental Body succeeding to the functions thereof.

“Secondary Participation Guaranty Agreement” means a Secondary Participation Guaranty Agreement entered into in connection with a Portfolio Loan, in the form required by the SBA.

“Securities” means (a) Equity Securities, (b) notes, bonds, debentures, certificates of deposit and all other evidences of indebtedness, (c) securities directly or indirectly convertible into or exercisable or exchangeable for any of the securities referred to in (b) above, (d) rights, warrants, options, calls, subscriptions or commitments of any kind or character relating to, or entitling any Person to purchase or otherwise acquire, any of the securities or rights referred to in (b) or (c) above, and all other securities of any type.

“Securities Act” means the Securities Act of 1933, as amended, and the related regulations and published interpretations.

“Securitization Trust” means a securitization trust identified in a Pooling and Servicing Document.

“Seller” has the meaning set forth in the heading of this Agreement.

“Seller Financing Restructure Related Termination Notice” has the meaning set forth in Section 2.01(d).

“Seller Financing Restructure Related Termination Period” has the meaning set forth in Section 2.01(d).

“Seller Guarantee” shall have the meaning set forth in the recitals.

“Seller Guarantor” shall have the meaning set forth in the recitals.

“Seller Indemnified Person” means the Seller, each Key Officer and their shareholders, partners, members, managers, directors, officers, employees, agents and Affiliates, and any successors and assigns of the foregoing.

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“Seller Key Employee Agreement Termination Notice” has the meaning set forth in Section 2.01(f).

“Seller Key Employee Agreement Termination Period” has the meaning set forth in Section 2.01(c).

“Seller Required Consents” means the Consents set forth on Schedule 4.04.

“Seller SBA-Related Termination Notice” has the meaning set forth in Section 2.01(c).

“Seller SBA-Related Termination Period” has the meaning set forth in Section 2.01(c).

“Seller Servicing Termination Notice” has the meaning set forth in Section 2.01(e).

“Seller Servicing Termination Period” has the meaning set forth in Section 2.01(e).

“Seller’s Knowledge” means the knowledge, after reasonable inquiry, of the Key Officers, James Holmes and James Sartain.

“Serviced ASBA Assets” shall mean (i) the unguaranteed portions of any SBA-guaranteed note receivable originated by ASBA and transferred to Company pursuant to the Asset Purchase Agreement and being serviced by the Company, and (ii) excepting only the “SBLC License” (as defined in the Asset Purchase Agreement), any other “Transferred Assets” (as defined in the Asset Purchase Agreement) transferred by ASBA to Company pursuant to the Asset Purchase Agreement, and (iii) all proceeds of the property described in clause (i) above.

“Shares” has the meaning set forth in the Recitals.

“Solvent” means, with respect to Seller, that as of the date of determination both (a)(i) the sum of Seller’s Debt (including contingent liabilities) does not exceed all of its property, at a fair valuation, (ii) the present fair saleable value of the property of the Seller is not less than the amount that will be required to pay the probable liabilities of Seller’s then existing Debts as they become absolute, and matured, (iii) Seller’s capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction, and (iv) Seller does not intend to incur, or believe (nor should it reasonably believe) that it will incur, Debt beyond its ability to pay such Debt as they become due, and (b) Seller is “solvent” within the meaning given that term and similar terms under applicable Laws relating to fraudulent transfers and conveyances.  For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability

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(irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5).

“Subsidiary” of any Person means any Person (a) of which such first Person (either alone or through or together with any other Subsidiary) owns, directly or indirectly, more than 50% of the Equity Securities of such other Person, the holders of which are generally entitled to vote for the election of the board of directors, general partner, the manager or other governing body of, or otherwise control the business and affairs of, such other Person, or (b) the operations of which are consolidated with such first Person, pursuant to GAAP, for financial reporting purpose.

“Tax” or “Taxes” means all taxes, charges, fees, levies, duties, imposts, deposits, withholdings, restrictions, fines, interests, penalties, additions to tax or other tax, assessment or charge of any kind, including, without limitation, income, excise, personal property, real property, withholding, sales, use, gross receipts, value added, franchise, profits, capital, premium, occupational, production, severance, ad valorem, occupancy, stamp, transfer, employment, payroll, unemployment insurance, social security, disability, workers compensation imposed by any Governmental Body, and all interest and penalties thereon and additions thereto.

“Tax Return” means any federal, state, local or foreign return, report, claim for refund, declaration, statement or other form relating to Taxes, including, without limitation, any schedule thereto or amendment thereof.

“Termination Date” means July 15, 2013, as it may be extended by the mutual written consent of the Parties.

“Threshold Amount” means an amount equal to $75,000.

“Total Equity” means the “Total Equity” of the Company as shown on the most recent available internally prepared monthly financial statements of the date of determination, which amount was $7,507,331.50 as of November 30, 2012.

“Transaction Documents” means this Agreement, the Transition Servicing Agreement, the Purchaser Guarantee, the Seller Guarantee and each other document required to be delivered in connection therewith.

“Transactions” means the transactions contemplated by, or described in, the Transaction Documents, including, without limitation, the sale, transfer, assignment, conveyance and delivery of the Purchased Interests by the Seller to the Purchaser.

“Transfer” means a direct or indirect offer, transfer, sale, assignment, pledge, conveyance, hypothecation, license, sublicense or other disposition of all or any interest.

“Transfer Agent” means Colson Services Corp. or any successor acting as fiscal transfer agent for the SBA.

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“Transition Servicing Agreement” means that certain transition servicing agreement dated the Closing Date, between Company and FirstCity Servicing.

“Unfunded Portfolio Loan Commitments” means the outstanding commitments of the Company to originate Portfolio Loans.

“Unfunded Vested Liabilities” of a Person means, with respect to any Benefit Plan at any time, the excess, if any, of (a) the present value of all vested nonforfeitable benefits under the Benefit Plan, over (b) the fair market value of all Benefit Plan assets allocable to those benefits, all determined as of the then most recent valuation date for the Benefit Plan, but only to the extent that the excess represents a potential liability of the Person or any member of its Controlled Group to the PBGC or the Benefit Plan under Title IV of ERISA.

“Unguaranteed Portion” means the portion of each Portfolio Loan not guaranteed by the SBA.

“WARN ACT” means the Workers Adjustment and Retraining Notification Act, 29 U.S.C. §2101, et seq.

“Wells Fargo Credit Documents” means (a) the Amended and Restated Loan Agreement, dated as of January 31, 2012, between the Company, as the borrower and Wells Fargo Capital Finance, LLC, as the lender, and (b) any documents entered into by Seller, FirstCity and/or the Company in connection therewith, each as amended.

“Wells Fargo Term Sheet” has the meaning set forth in Section 3.03(q).

ARTICLE II

The Transaction

Section 2.01.  Purchase and Sale of the Purchased Interests.

(a)  Payment at Closing.  Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, as payment in full of the Purchase Price for the purchase of the Purchased Interests, which Purchase Price shall be subject to adjustment after the Closing Date as provided in this Article II, the Purchaser shall pay, or cause to be paid, (i) to the Seller, by wire transfer of immediately available funds, an amount in cash equal to the Initial Purchase Price less an amount equal to five percent of such Initial Purchase Price (the “Escrow Amount”) and (ii) to the Escrow Agent, the Escrow Amount less the Deposit.

(b)  Due Diligence Period.  The Purchaser has performed due diligence related to the Company and its operations and has had access to financial information related to the Company.  Company grants to Purchaser the right to perform additional due diligence related to the Company which shall commence upon execution of this

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Agreement and conclude thirty (30) days after the date of execution of this Agreement (the “Due Diligence Period”).  During the Due Diligence Period, the Company agrees to allow the Purchaser, and its lenders, counsel, accountants, and other representatives, upon reasonable notice and at reasonable times, access to any and all of the Company’s books, tax returns, Assets and records, that Purchaser may reasonably wish to consider in the evaluation of the Purchased Interests and to complete its legal, financial, accounting, tax, and other customary due diligence reviews of the Seller, the Company, their financial condition, their operations, the Assets, the Business, the Real Property and legal and tax matters, with results satisfactory to the Purchaser in its sole and absolute discretion.  The Company further agrees to allow the Purchaser to consult with members of the Company’s staff regarding the status of Company and its business operations during the Due Diligence Period and will provide the Purchaser with physical space and support at the offices of Company sufficient to allow the Purchaser to conduct the due diligence.  During the Due Diligence Period, all costs of the Purchaser’s due diligence will be borne by the Purchaser.  If within the Due Diligence Period, the Purchaser determines not to proceed with the purchase of the Purchased Interests for any reason, or no reason, the Purchaser shall deliver written notice to the Seller (the “Purchaser DD Termination Notice”) on or before the expiration of the Due Diligence Period and such Purchaser DD Termination Notice shall have the effect of terminating this Agreement as set forth in Article IX.  Without limitation on the Purchaser’s rights under Article IX, except to the extent the Purchaser timely delivers such Purchaser DD Termination Notice to the Seller prior to the expiration of the Due Diligence Period, the Purchaser shall no longer be permitted to deliver a Purchaser DD Termination Notice.

(c)  SBA Application.  The Purchaser shall commence preparation of the application to the SBA for approval of the acquisition and transfer of the Purchased Interests upon execution of this Agreement and shall provide the completed application to the Seller and the Company on or before February 28, 2013.  The Seller and the Company shall each provide its full cooperation with respect to the preparation and submission of the application.  If the application to the SBA is not provided to the Seller and the Company on or before February 28, 2013, the Seller may elect not to proceed with the sale of the Purchased Interests and the Seller shall furnish written notice to the Purchaser (the “Seller SBA-Related Termination Notice”) within five (5) Business Days (the “Seller SBA-Related Termination Period”) after February 28, 2013. Such Seller SBA-Related Termination Notice shall have the effect of terminating this Agreement as set forth in Article IX. Without limitation on the Seller’s rights under Article IX, except to the extent the Seller timely delivers such Seller SBA-Related Termination Notice to the Purchaser prior to the expiration of the Seller SBA-Related Termination Period, the Seller shall no longer be permitted to deliver a Seller SBA-Related Termination Notice.

(d)  Financing Restructure.  The Purchaser shall have reached written agreement with Wells Fargo Capital Finance, LLC regarding the terms for an amendment to the Wells Fargo Credit Documents on substantially the terms set forth on the Wells Fargo

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Term Sheet, or shall have reached written agreement with another lender of comparable size and reputation for a financing facility on substantially similar terms to those set forth in the Wells Fargo Term Sheet.  If no such written agreement shall have been reached on or before February 28, 2013, the Seller may elect not to proceed with the sale of the Purchased Interests and the Seller shall furnish written notice to the Purchaser (the “Seller Financing Restructure Related Termination Notice”) within five (5) Business Days (the “Seller Financing Restructure Related Termination Period”) after February 28, 2013. Such Seller Financing Restructure Related Termination Notice shall have the effect of terminating this Agreement as set forth in Article IX. Without limitation on the Seller’s rights under Article IX, except to the extent the Seller timely delivers such Seller Financing Restructure Related Termination Notice to the Purchaser prior to the expiration of the Seller Financing Restructure Related Termination Period, the Seller shall no longer be permitted to deliver a Seller Financing Restructure Related Termination Notice.

(e)  Transition Servicing Agreement.  The Seller and the Purchaser shall commence negotiation and preparation of the Transition Servicing Agreement upon execution of this Agreement.  If the event that the Seller and Purchaser have not executed the Transition Servicing Agreement on or before February 28, 2013, the Seller may elect not to proceed with the sale of the Purchased Interests and the Seller shall furnish written notice to the Purchaser (the “Seller Servicing Termination Notice”) within five (5) Business Days (the “Seller Servicing Termination Period”) after February 28, 2013. Such Seller Servicing Termination Notice shall have the effect of terminating this Agreement as set forth in Article IX. Without limitation on the Seller’s rights under Article IX, except to the extent the Seller timely delivers such Seller Servicing Termination Notice to the Purchaser prior to the expiration of the Seller Servicing Termination Period, the Seller shall no longer be permitted to deliver a Seller Servicing Termination Notice.

(f)  Key Officer Employment Agreement.  The Key Officer and the Purchaser shall commence negotiation and preparation of the Key Officer Employment Agreement upon execution of this Agreement.  If the event that the Key Officer and Purchaser have not agreed to the terms of the Key Officer Employment Agreement on or before February 28, 2013, the Seller may elect not to proceed with the sale of the Purchased Interests and the Seller shall furnish written notice to the Purchaser (the “Seller Key Employee Agreement Termination Notice”) within five (5) Business Days (the “Seller Key Employee Agreement Termination Period”) after February 28, 2013. Such Seller Key Employee Agreement Termination Notice shall have the effect of terminating this Agreement as set forth in Article IX. Without limitation on the Seller’s rights under Article IX, except to the extent the Seller timely delivers such Seller Key Employee Agreement Termination Notice to the Purchaser prior to the expiration of the Seller Key Employee Agreement Termination Period, the Seller shall no longer be permitted to deliver a Seller Key Employee Agreement Termination Notice.

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Section 2.02.  Calculation of the Initial Purchase Price.

(a)  Preparation of Estimated Balance Sheet.

(i)  From the date of this Agreement through the earlier to occur of (x) the Closing Date, and (y) the date on which this Agreement is terminated in accordance with the provisions of Section 9.01 hereof, the Seller shall cause the Company to, on each by no later than the 25th day of the following month deliver the estimates of the Total Equity as of the end of the prior calendar month.

(ii)  On or prior to the date which is two (2) Business Days prior to the Closing Date, the Seller shall cause the Company’s chief financial officer to prepare and deliver to the Purchaser, and the Purchaser shall have the right to discuss, review and object to, a monthly internally prepared balance sheet prepared in conformity with GAAP applied on a basis consistent with the preparation of the Financial Statements (excluding adjustments required by the consummation of the Transactions) which reasonably estimates the financial position of the Company as of the end of the month prior to the Closing Date (as so prepared the “Estimated Balance Sheet”) and sets forth a detailed calculation of such officer’s estimate of the Total Equity as of the Closing Date (the “Estimated Total Equity”); provided, however, that in the event that the Purchaser reasonably objects to such computation, the Purchaser and the Seller shall engage in good faith negotiations for a period of five (5) days to resolve such objection. If the Parties cannot come to a resolution within such five (5)-day period, Purchaser shall have the right to terminate this Agreement in accordance with Article IX, provided that Purchaser shall not be entitled to the return of the Deposit unless the objections of the Purchaser to the computation were based upon reasonable positions supportable by GAAP and consistent with prior positions taken by the Company.

(b)  Calculation of Estimated Purchase Price.   Simultaneously with the delivery of the Estimated Balance Sheet to the Purchaser, the Seller shall cause the Company’s chief financial officer to prepare, deliver and certify to the Purchaser, and the Purchaser shall have the right to reasonably consent or object to, a statement setting forth the calculation of the Initial Purchase Price using the Estimated Total Equity shown on the Estimated Balance Sheet.

Section 2.03.  Post-Closing Adjustment to Purchase Price.

(a)  Preparation of Closing Balance Sheet.  As promptly as practicable, but in any event within sixty (60) calendar days following the Closing Date, the Purchaser shall cause the Company to deliver to the Seller a balance sheet (the “Closing Balance Sheet”), certified by the Company’s chief financial officer as fairly presenting the financial position of the Company and its Subsidiaries as of the end of the month prior to the Closing Date in conformity with GAAP applied on a basis consistent with the preparation of the Financial Statements and the Estimated Balance Sheet (excluding adjustments required by the consummation of the Transactions) and setting forth a calculation of the Total Equity as of the date of the Closing Balance Sheet.  Subject to

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Section 2.03(c), the Closing Balance Sheet and the calculation of Total Equity delivered by the Purchaser to the Seller shall be deemed to be and will be final, binding and conclusive on the Parties.

(b)  Calculation of Purchase Price.  Simultaneously with the delivery of the Closing Balance Sheet to the Seller, the Company’s chief financial officer shall prepare, deliver and certify to the Seller a written statement (the “Purchase Price Statement”) setting forth the calculation of the Purchase Price using the Total Equity shown on the Closing Balance Sheet.

(c)  Right to Review and Dispute.

(i)  During the thirty (30) calendar day period following the Seller’s receipt of the Closing Balance Sheet and the Purchase Price Statement, the Seller shall be permitted to review the working papers of the Company relating to the preparation of the Closing Balance Sheet and the Purchase Price Statement and the calculation of Total Equity and the Purchase Price shown on the Purchase Price Statement.

(ii)  The Seller may dispute the preparation of the Closing Balance Sheet, the Purchase Price Statement and/or the determination of Total Equity, and the Purchase Price set forth thereon; provided, however, that the Seller must notify the Purchaser in writing of each disputed item, specifying the amount thereof in dispute and setting forth, in reasonable detail, the basis for such dispute, within thirty (30) calendar days of the Company’s delivery of the Closing Balance Sheet and the Purchase Price Statement to the Seller.  In the event written notice of such a dispute is received by the Purchaser in a timely manner, such a dispute will be resolved in accordance with the provisions of Section 2.03(d) below.

(iii)  The Closing Balance Sheet, the Purchase Price Statement and the calculation of Total Equity and the Purchase Price will be deemed final for the purposes of this Article II upon the earliest to occur of (A) the failure of the Seller to notify the Purchaser of a dispute in accordance with this Agreement within thirty (30) calendar days of the Company’s delivery of the Closing Balance Sheet and the Purchase Price Statement to the Seller, (B) the resolution of all disputes in writing by the Seller and the Purchaser, (C) the resolution of all disputes pursuant to Section 2.03(d) by the Purchaser’s accountants and the Seller’s accountants, and (D) the resolution of all disputes pursuant to Section 2.03(d) by an Independent Accounting Firm.  The Closing Balance Sheet and the Total Equity, as deemed final pursuant to this Section 2.03(c)(iii), are referred to herein as the “Final Closing Balance Sheet” and “Final Total Equity”, respectively.

(d)  Resolution of Disputes Under This Section 2.03.

(i)  In the event that written notice of a dispute is received by the Purchaser under Section 2.03(c) in a timely manner, the Purchaser and the Seller shall attempt in good faith to resolve their dispute for a period of fifteen (15) calendar days.  In the event that the Purchaser and the Seller are unable to resolve such dispute within such period, the

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Purchaser’s accountants and the Seller’s accountants will attempt to reconcile their differences, and any resolution by them as to any disputed amounts will be final, binding and conclusive on the parties hereto.  If the Purchaser’s accountants and the Seller’s accountants are unable to reach a resolution with such effect within 30 calendar days after receipt of such written notice of dispute under Section 2.03(c), the Purchaser’s accountants and the Seller’s accountants will submit the items (together with their respective positions thereon and the reasons therefor) remaining in dispute for resolution to the Independent Accounting Firm.  The Independent Accounting Firm shall be instructed to determine the appropriate amount of each disputed item in accordance with GAAP applied on a consistent basis with the Financial Statements and render a report to the Purchaser and the Seller within twenty (20) calendar days after such submission; provided, however, that in no case may such determination of any such disputed item be outside the range established by the respective positions of the Purchaser’s accountants and the Seller’s accountants.  The report of the Independent Accounting Firm as to the disputed items will be conclusive as to each disputed item and will be final and binding on the parties hereto.  In the event that the aggregate amount of the disputed items as finally determined by the Independent Accounting Firm differs from, in a manner detrimental to the Company, the aggregate amount of such disputed items as set forth on the Closing Balance Sheet or the Purchase Price Statement, as the case may be, by greater than ten percent (10%) of such disputed items, the fees and expenses of the Independent Accounting Firm shall be borne by the Purchaser and in all other circumstances, the fees and expenses of the Independent Accounting Firm shall be borne by the Seller.

(ii)  The procedures for resolution of disputes concerning the Closing Balance Sheet and the Purchase Price set forth in this Section 2.03(d) are intended to be final and exclusive of any other contest or appeal in relation thereto, so that when the Closing Balance Sheet and the Purchase Price Statement are deemed final hereunder, neither party will be entitled to subject the Closing Balance Sheet or the Purchase Price Statement or, such agreement or the report to any court or tribunal.

(e)  Adjustment of Purchase Price and Payment of Adjustment Amount.

(i)Calculation of Adjustment Amount.  Within five (5) Business Days of the Purchase Price being deemed final hereunder, in the event that the Purchase Price set forth in the Purchase Price Statement (as finally determined in accordance with this Article II) is (A) less than the Initial Purchase Price, the Seller shall pay to the Purchaser an amount in cash equal to such shortfall by wire transfer of immediately available funds (and/or full or partial disbursement of the Escrow Amount as described in clause (ii) below); or (B) is greater than the Initial Purchase Price, the Purchaser shall (1) together with the Seller, instruct the Escrow Agent to deliver to the Seller the Escrow Amount and (2) deliver to the Seller an amount in cash equal to such excess by wire transfer of immediately available funds.

(ii)Treatment of Escrow Amount. For the avoidance of doubt, to the extent that the shortfall described in clause (i)(A) above is (A) greater than the Escrow Amount,

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the entire Escrow Amount shall be distributed to the Purchaser and the Seller shall be required to pay to the Purchaser any additional amounts owed in cash, or (B) less than the entire Escrow Amount, the Seller shall be entitled to receive the distribution of the remaining Escrow Amount not disbursed to the Purchaser.  If the amount caused by subtracting (1) the Initial Purchase Price less the Escrow Amount from (2) the Purchase Price is positive, but less than the Escrow Amount, then the Purchaser and the Seller shall instruct the Escrow Agent to (I) deliver such difference to the Seller and (II) deliver the remainder of the Escrow Amount to the Purchaser.

Section 2.04.  Deliveries.

(a)On the date hereof, the Parties shall make the following deliveries:

(i)The Purchaser shall deliver to the Seller (A) this Agreement, executed by the Purchaser, (B) the fully executed Purchaser Guarantee, (C) the Wells Fargo Term Sheet and (D) the Escrow Agreement, executed by the Purchaser.

(ii)The Seller shall deliver to the Purchaser (A) this Agreement, executed by the Seller, (B) the fully executed Seller Guarantee, and (C) the Escrow Agreement, executed by the Seller.

(iii)The Purchaser and the Seller shall deliver to the Escrow Agent the Escrow Agreement, executed by each of them.

(iv)The Purchaser shall deliver to the Escrow Agent the Deposit, via wire transfer of immediately available funds.

(b)On the Closing Date, the Parties shall make the following deliveries:

(i)the Purchaser shall deliver

(A)to the Seller (1) the Initial Purchase Price less the Escrow Amount, via wire transfer of immediately available funds to one or more accounts designated in writing by the Seller, and (2) each document or certificate required to be delivered by the Purchaser in order to satisfy the conditions to Closing of the Seller set forth in Section 3.02 below; and

(B)to the Escrow Agent, the Escrow Amount less the Deposit; and

(ii)the Seller shall (A), sell, assign, transfer, convey and deliver to the Purchaser the Purchased Interests, together with one or more duly executed stock certificates and such other documentation as is required to evidence the Purchased Interests, and (B) deliver each document or certificate required to be delivered by the Seller in order to satisfy the conditions to Closing of the Purchaser set forth in Section 3.03 below.

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ARTICLE III

The Closing; Conditions to Closing

Section 3.01.  The Closing.  The consummation of the Transactions (the “Closing”), will take place remotely via the electronic exchange of fully-executed documents at 10:00 a.m. (New York City time), on or as soon as practicably possible after the satisfaction of the conditions to Closing set forth in Section 3.02 and 3.03 below, or at such other location or time as the Parties may agree in writing (the date of the Closing being hereinafter referred to as the “Closing Date”); provided that the Closing Date shall occur no later than thirty (30) days after the receipt of the Seller Required Consents.

Section 3.02.  Conditions Precedent to the Obligations of the Seller.  The obligations of the Seller to consummate the Transactions under the Transaction Documents are expressly subject to the fulfillment of each of the following conditions, unless waived by the Seller in writing at or before the Closing:

(a)Representations and Warranties; Performance of Agreements.

(i)All of the representations and warranties of the Purchaser set forth herein that are qualified as to materiality shall be true and correct in all respects and all of the representations and warranties of the Purchaser set forth herein that are not qualified as to materiality shall be true and correct in all material respects, in each case, on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date.

(ii)The Purchaser shall have performed and complied in all material respects with all of its covenants and other obligations set forth in the Transaction Documents required to be performed or complied with by the Purchaser at or before the Closing.

(iii)The Seller shall have received a certificate of a senior executive or manager of the Purchaser, substantially in the form of Exhibit A, as to the fulfillment of the conditions set forth in clauses (i) and (ii) above, which certificate shall have the effect of a representation and warranty of the Purchaser as to the matters set forth therein.

(b)Purchaser Required Consents.  The Seller shall have received copies of all of the Purchaser Required Consents (including without limitation the consent of the SBA), which shall be in form and substance reasonably satisfactory to the Seller and shall be in full force and effect as of the Closing Date, and shall include, without limitation, the consent to the transactions contemplated hereby of any counterparty under any agreements to which CapitalSpring, the Purchaser Guarantor, or Purchaser is a party whose consent is required to effect the transactions contemplated hereby.

(c)No Actions.  Since the date of this Agreement, there shall be no Action (A) challenging or seeking to restrain or prohibit the Transactions or (B) seeking to obtain from the

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Seller, the Company or any of their Affiliates damages that are material in relation to the Purchase Price.

(d)Initial Purchase Price.  (i) The Seller shall have received the Initial Purchase Price less the Escrow Amount and (ii) the Escrow Agent shall have received the Escrow Amount less the Deposit.

(e)Purchase Agreement.  The Purchaser shall have executed and delivered this Agreement and all certificates and other documents required to be delivered by the Purchaser in connection herewith.

(f)Wells Fargo Release.  The Seller and the Purchaser shall have obtained a release of all obligations of FirstCity, the Seller and their Affiliates under the Wells Fargo Credit Documents.

(g)Approval.  The Seller shall have received the written approval of the board of directors of each of FirstCity and Seller with respect to Agreement and the Transactions.

(h)Escrow Agreement.  Each of the parties hereto (other than the Seller) and the Escrow Agent shall have executed and delivered the Escrow Agreement and such agreement shall be in full force and effect.

(i)Secretary’s Certificate.  The Seller shall have received a certificate of the secretary of the Purchaser and of the Purchaser Guarantor substantially in the form of Exhibit D with respect to (i) the Organizational Documents of the Purchaser or the Purchaser Guarantor, as applicable, (ii) the resolutions of the member of the Purchaser and the Purchaser Guarantor, as applicable approving each Transaction Document to which such Person is a party and the other documents to be delivered by that Person under the Transaction Documents and the performance of the obligations of the Purchaser and Purchaser Guarantor hereunder, and (iii) the names and true signatures of the officers of the Purchaser or the Purchaser Guarantor authorized to sign each Transaction Document to which it is a party and the other documents to be delivered by it under the Transaction Documents.

(j)Good Standing Certificate.  The Seller shall have received a certificate of the Secretary of State of the jurisdiction in which each of the Purchaser and the Purchaser Guarantor is organized, dated as of a recent date, as to the good standing of each of the Purchaser and the Purchaser Guarantor, and as to the Organizational Documents of the Purchaser and the Purchaser Guarantor on file in the office of the Secretary of State.

(k)Purchaser Guarantee.  The Purchaser Guarantee shall be in full force and effect and enforceable in accordance with its terms.

Section 3.03.  Conditions Precedent to the Obligations of the Purchaser.  The obligations of the Purchaser to consummate the Transactions under the Transaction Documents are expressly subject to the fulfillment of each of the following conditions, unless waived by the Purchaser in writing, at or before the Closing:

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(a)Representations and Warranties; Performance of Agreements.

(i)All of the representations and warranties of the Seller set forth in the Transaction Documents to which the Seller is a party that are qualified as to materiality shall be true and correct in all respects and all of the representations and warranties of the Seller set forth in the Transaction Documents to which the Seller is a party that are not qualified as to materiality shall be true and correct in all material respects, in each case, on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date.

(ii)Seller shall have performed and complied with all of its covenants and other obligations contained in the Transaction Documents to which the Seller is a party required to be performed or complied with by Seller at or before the Closing.

(iii)The Purchaser shall have received a certificate of a senior executive officer of Seller substantially in the form of Exhibit C as to the fulfillment of the conditions set forth in clauses (i) and (ii) above, which certificate shall have the effect of a representation and warranty of the Seller as to the matters set forth therein.

(b)Seller Required Consents.  The Purchaser shall have received copies of all of the Seller Required Consents (including without limitation the consent of the SBA and the consent of ASBA pursuant to the ASBA Security Agreement), which shall be in form and substance reasonably satisfactory to the Purchaser and shall be in full force and effect as of the Closing Date, and shall include, without limitation, the consent to the transactions contemplated hereby of any counterparty under any agreements to which Seller or the Company is a party whose consent is required to effect the transactions contemplated hereby.

(c)Secretary’s Certificate.  The Purchaser shall have received a certificate of the secretary of the Company, the Seller and the Seller Guarantor, substantially in the form of Exhibit D with respect to (i) the articles of incorporation of the Company, the Seller and the Seller Guarantor, (ii) the bylaws of the Company, the Seller and the Seller Guarantor, (iii) the resolutions of the board of directors and shareholders of the Company and the Seller and of the executive committee of the board of directors of the Seller Guarantor approving each Transaction Document to which the Company, the Seller or the Seller Guarantor is a party and the other documents to be delivered by them under the Transaction Documents and the performance of the obligations of the Company, the Seller and the Seller Guarantor thereunder, and (iv) the names and true signatures of the officers of the Company, the Seller and the Seller Guarantor authorized to sign each Transaction Document to which they are a party and the other documents to be delivered by them under the Transaction Documents.

(d)No Actions.  There shall be no (i) Action (A) challenging or seeking to restrain or prohibit the Transactions, or (B) seeking to (x) impose any material limitation on the ability of the Purchaser to effectively exercise full rights of ownership of the Purchased Interests, including the right to vote such Purchased Interests, (y) impose any material limitation on the Purchaser’s or the Company’s operation of their respective businesses, or (z) compel the Purchaser or the Company to dispose of or hold separate any of their businesses or assets or (ii) Law in effect that

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has had or could reasonably be expected to have any of the consequences referred to in clause (i) above.

(e)Good Standing Certificate.  The Purchaser shall have received a certificate of the Secretary of State or Comptroller’s Office of the jurisdiction in which each of the Company, Seller and Seller Guarantor is organized, dated as of a recent date, as to the good standing of each of the Company, Seller and Seller Guarantor, and as to the charter documents of the Company, Seller and Seller Guarantor.

(f)Seller Guarantee.  The Seller Guarantee shall be in full force and effect and enforceable in accordance with its terms.

(g)Material Adverse Effect.  No Material Adverse Effect shall have occurred and be continuing with respect to the Company.

(h)Purchase Agreement.  The Seller shall have executed and delivered this Agreement and all certificates and other documents required to be delivered by the Seller in connection herewith.

(i)Employment and Non-Competition Agreements.  The Key Officer shall have entered into the Key Officer Employment Agreement, such agreement shall be in full force and effect on the Closing Date, and the Key Officer shall not be under an incapacity or disability (as defined in such written employment agreements without regard to any time periods contained therein) as of the Closing Date.

(j)FIRPTA.  The Purchaser shall have received from the Company a certificate executed by the Company that, as of the Closing Date, the Company is not a “foreign person” within the meaning of Section 1445 of the Code and the Regulations thereunder, in form and substance acceptable to counsel for the Purchaser.

(k)Cancellation of Intercompany Debt. All outstanding Debt between the Company and the Seller or any of its Affiliates, including without limitation that certain Promissory Note, dated December 15, 2006, between the Company, as maker and FirstCity, as payee, as amended by the First Amendment, Second Amendment and the Third Amendment shall have been cancelled and any security interests thereunder shall have been terminated.

(l)Termination of Existing Services Agreement.  That certain Loan Operations, Administrative and General Services Agreement, dated as of December 15, 2006, among FirstCity Servicing, the Company and Wells Fargo Foothill, LLC shall have been terminated and be of no further force and effect.

(m)Transition Servicing Agreement.  The Purchaser shall have received an executed copy of the Transition Servicing Agreement, in the form agreed to by the Seller and the Purchaser, which shall be delivered in accordance with Section 2.01(e) and attached hereto as Exhibit E.

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(n)Delivery of Stock Certificates and Assignments.  Each of the stock certificates representing all of the Preferred Stock and Common Stock held by the Seller immediately prior to the Closing Date shall have been delivered to the Company along with assignments in form reasonably acceptable to the Purchaser.

(o)Escrow Agreement.  Each of the parties hereto (other than the Purchaser) and the Escrow Agent shall have executed and delivered the Escrow Agreement and such agreement shall be in full force and effect.

(p)No Events of Default.  No monetary events of default shall have occurred or be continuing with respect to the ASBA Note or Gateway Promissory Note.

(q)Wells Fargo Credit Documents.  The Purchaser shall have obtained an amendment to the Wells Fargo Credit Documents, on substantially the terms set forth on Exhibit G (the “Wells Fargo Term Sheet”), or the Purchaser shall have obtained a committed senior financing facility with another lender of comparable size and reputation, on substantially similar terms to those set forth in the Wells Fargo Term Sheet.

(r)Pioneer Loan.  Prior to the Closing, the Company shall have acquired the guaranteed portion of the Pioneer Loan from the SBA and the Seller or its designated Affiliate shall have acquired the entire Pioneer Loan in accordance with the procedures set forth on Exhibit I.

(s)Financing.  The Purchaser, together with its controlling Affiliates, shall have obtained third-party financing for the purpose of consummating the Transactions in an aggregate amount sufficient to (i) pay all of the cash consideration set forth in Section 2.01, (ii) provide the Purchaser and the Company with sufficient working capital immediately following the Closing, and (iii) otherwise permit the Purchaser to consummate the Transactions, all on terms satisfactory to the Purchaser and such controlling Affiliates.

(t)Termination of Bank of Scotland Lien.  Seller shall have delivered to Purchaser a UCC-3 Partial Termination Statement with respect to the lien held by Bank of Scotland on the capital stock of the Company.

ARTICLE IV

Representations and Warranties of
the Seller About the Company

The Seller represents and warrants to the Purchaser as of the date hereof and as of the Closing Date as follows:

Section 4.01.  Existence and Power.  The Company (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, (b) is duly qualified under the laws of, or is licensed to do business as a foreign company in good standing in, each jurisdiction in which such qualification or license is required to own, lease or license the Assets

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or to operate or carry on the Business and in which the failure to so qualify would have a Material Adverse Effect on (i) the Business, properties, operations, prospects or condition (financial or otherwise) of the Company, taken as a whole, and (c) has all necessary corporate power and authority required to own, lease or license the Assets, and to operate and carry on the Business.  The Company has previously delivered to the Purchaser correct and complete copies of the Organizational Documents of the Company.

Section 4.02.  Authorization; Binding Effect.  No other proceedings on the part of the Seller or the Key Officers are necessary to approve and adopt the Transaction Documents to which the Company is a party or to approve the consummation of the Transactions.  Each of the Transaction Documents to which the Company is or may become a party is, or, when executed and delivered in accordance with this Agreement will be, legal, valid and binding obligations of the Company enforceable against the Company in accordance with its terms except as enforcement may be limited by applicable bankruptcy, insolvency or other Laws affecting creditors’ rights generally or by legal principles of general applicability governing the availability of equitable remedies.

Section 4.03.  Contravention.  Neither the execution, delivery and performance of the Transaction Documents by the Seller or the Company nor the consummation of the Transactions will (with or without notice or lapse of time or both) (a) conflict with, violate or breach any provision of the Company’s certificate of incorporation, bylaws, or other Organizational Documents, (b) conflict with, violate or breach any Law by which the Company, the Business or any of the Assets may be bound or affected, (c) conflict with, material breach or result in a default under, result in the acceleration of, or give rise to a material adverse change in the terms of or a right of termination, cancellation, modification or acceleration or require any notice under any Material Contract, (d) result in or require the creation or imposition of any Lien on any of the Assets, or (e) otherwise result in a Material Adverse Effect on the Company.

Section 4.04.  Consents.  Except for the Consents set forth on Schedule 4.04, no Consents are required in connection with (a) the due execution and delivery by the Company of the Transaction Documents to which it is a party and the performance of the Company’s obligations thereunder, or (b) the consummation of the Transactions by the Company.  As of the Closing Date, all of such Consents have been obtained and are in full force and effect.

Section 4.05.  Capitalization.

(a)Authorized, Issued and Outstanding Securities.  As of the Closing Date (but prior to the consummation of the Transactions), the authorized Securities of the Company consist of 3,000,000 shares of capital stock, consisting of (i) 1,000,000 shares of Common Stock, of which 100,000 are issued and outstanding, and (iv) 2,000,000 shares of Preferred Stock, of which 800,000 are issued and outstanding (collectively, the “Company Stock”).  All of the issued and outstanding Company Stock has been duly authorized, validly issued and are fully paid and non-assessable.  The Company has not violated the Securities Act or any applicable Law in connection with the offer, sale or issuance of any of its Securities to the Seller.  Other than the Company Stock, the Company has no other Equity Securities.

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(b)Rights, Options, Warrants, Etc.  There are no (i) Securities of the Company, (ii) statutory or contractual preemptive rights, subscriptions, conversion rights, rights of first refusal or other similar rights, or (iii) Contracts, commitments or understandings of any character, in each case, that obligate the Company contingently or otherwise, to (A) issue, sell or Transfer, or cause to be issued, sold or Transferred, any Securities of the Company, (B) purchase, redeem, retire, defease or otherwise acquire any Securities of the Company, or (C) that give any Person the right to receive any benefits or rights substantially similar to any enjoyed by or accruing to holders of any Securities of the Company, and no authorization for any of the foregoing has been given.

(c)No Other Agreements.  There are no voting trusts, stockholder agreements, investor rights agreements, proxies or any other Contracts or understandings in effect with respect to the voting or Transfer of any Securities of the Company or with respect to the management or governance of the Company, except under the Wells Fargo Credit Documents, SBA Loan Guaranty Agreement, the SBA Act or related rules and regulations, and as disclosed in Schedule 4.05(c).

Section 4.06.  Financial Statements.  The Seller has delivered to the Purchaser the Company’s audited financial statements as of December 31, 2010 and for the fiscal year ended December 31, 2011 and its unaudited financial statements (including balance sheet, income statement and statement of cash flows) for the three-month periods ended June 30, 2012 and September 30, 2012 (collectively, the “Financial Statements”).  The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated.  The Financial Statements fairly present in all material respects the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject in the case of the unaudited Financial Statements to normal year-end audit adjustments. Except as set forth in the Financial Statements, the Company has no material liabilities or obligations, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent the date of the Financial Statements, (ii) obligations under contracts and commitments incurred in the ordinary course of business and (iii) liabilities and obligations of a type or nature not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in all such cases, individually and in the aggregate would not have a Material Adverse Effect on the Company.  The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles.

Section 4.07.    Taxes.  There are no federal, state, county, local or foreign Taxes due and payable by the Company which have not been timely paid.  There are no accrued and unpaid federal, state, country, local or foreign Taxes of the Company which are due, whether or not assessed or disputed.  There have been no examinations or audits of any Tax Returns or reports by any applicable Governmental Body.  The Company has duly and timely filed all federal, state, county, local and foreign Tax Returns required to have been filed by it and there are in effect no waivers of applicable statutes of limitations with respect to Taxes for any year.

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Section 4.08.  Litigation.  Except as set forth on Schedule 4.08, to the Seller’s Knowledge there is no Action pending, or to the Seller’s Knowledge, threatened (a) against the Company, (b) that questions the validity of any of the Transaction Documents or that involves or relates to any of the Transactions, (c) affecting any of the Assets or the Business, or (d) that could reasonably be expected to materially adversely affect the Purchaser’s or the Company’s ability to conduct the Business after the Closing or the ownership or use by the Company of the Assets after the Closing.

Section 4.09.  Permits; Compliance with Laws.

(a)Permits. Schedule 4.09(a) sets forth a correct and complete list and description of all material Permits necessary to entitle or permit the Company to use its corporate name, to own, lease, operate and use the assets, and to carry on and conduct the Business.  The Company has all material Permits necessary for the conduct of the Business (including without limitation all Permits required to make and service the Portfolio Loans in each jurisdiction in which the Company conducts the Business).  The Company is not in default in any material respect under any of such Permits.

(b)Compliance with Laws.  The Company is not violating and has not violated in any material respect any Law applicable to it or any of its properties or Business.  To the Seller’s Knowledge, the Company is not under investigation with respect to any material violation of any Laws.

(c)Governmental Approvals. All Governmental Approvals necessary for the conduct of the Business have been duly obtained and are in full force and effect.   There are no proceedings pending or, to the Seller’s Knowledge, threatened that would result in the revocation, cancellation or suspension, or any adverse modification, of any such Governmental Approval.

Section 4.10.  Absence of Certain Changes or Events.  Since the date of the Company’s most recent Financial Statements: (a) there has not occurred any event, fact, circumstance or change that has had or which could reasonably be expected to have a Material Adverse Effect on the Company or the Business, (b) the Company has conducted the Business in the ordinary course consistent with past practice, and (c) except as specifically set forth in Schedule 4.10 hereto, the Company has not:

(i)(A) Transferred any of the Assets other than in the ordinary course of business consistent with past practice, (B) caused or permitted any of the Assets to become subject to any Liens other than Permitted Liens, (C) purchased or acquired any Securities or otherwise made or acquired any investment in any Person (not including a loan pursuant to a Portfolio Loan), or (D) incorporated or formed any Subsidiary, or merged, or consolidated with or into, or entered into any business combination, with any Person;

(ii)(A) incurred any Debt (other than borrowings under the Wells Fargo Credit Documents) or guaranteed any obligation of any Person, or (B) waived, released,

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canceled, settled, written off or compromised any Debt, obligation, claim or other right owed to the Company, or (C) made any loan or advance to any Person other than pursuant to a Portfolio Loan;

(iii)(A) entered into any Contract or transaction with any of its Affiliates, or (B) made or declared any Restricted Payment;

(iv)suffered, or has taken or omitted to take any action that could reasonably be expected to cause the Company to suffer, an event of default with respect to any of the Business or give rise to a right of termination with respect to all or any portion thereof;

(v)(A) paid or agreed to pay any bonus, extra compensation, pension or severance pay, (B) increased the benefits payable under the Company’s or its Benefit Plans, or (C) otherwise increased the wage, salary or compensation (of any nature) or benefits to any of its directors, officers or employees, earning more than $125,000 per year, provided that the Company shall be permitted to pay performance bonuses for fiscal year 2012, in an amount per person not to exceed $35,000, to non-executive employees who were employed by the Company as of December 31, 2012;

(vi)(A) written down or written up (or failed to write down or write up in accordance with GAAP consistent with past practice) the value of any accounts receivable, (B) revalued of any of the Assets, or (C) increased or changed any assumptions underlying, or methods of calculating, any bad debt, contingency or other reserves;

(vii)allowed any Permit to lapse or terminate or failed to renew any material Permit that is scheduled to terminate or expire within 60 calendar days after the Closing Date;

(viii)taken any action that would cause a Portfolio Loan to become impaired or otherwise result in an event of default under any Portfolio Credit Document;

(ix)suffered any damage, destruction or casualty loss (whether or not covered by insurance) or any material operating or other loss or any taking of any of the Assets, by condemnation or eminent domain;

(x)failed to remit in compliance with SBA Rules and Regulations any amounts due and payable to the Transfer Agent with respect to the guaranteed portion of any Portfolio Loan prior to the Closing Date; or

(xi)entered into, or authorized, any Contract to do any of the foregoing.

Section 4.11.  Assets; Property.  The Company has the legal and valid title to or leasehold interest in, and right to use, all of the properties and assets, tangible or intangible, including, without limitation, Leaseholds, Equipment, Fixtures, Contract rights (excluding any rights of the Company under the Portfolio Credit Documents or Non-Recourse Asset Documents), Owned

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Intellectual Property and personal property, used in or necessary for the conduct of the Business, which assets and properties, for avoidance of doubt, do not include any Portfolio Loans, any Portfolio Credit Documents, any Non-Recourse Assets or Non-Recourse Asset Documents (such properties and assets other than the Portfolio Loans and the Non-Recourse Assets and the Portfolio Credit Documents and Non-Recourse Asset Documents, being the “Assets”) free and clear of all Liens, except for Permitted Liens.  No assets, properties, rights or interests, other than the Assets, are required for the Company to conduct their business and operations as currently conducted or as proposed to be conducted.  The Assets and the Portfolio Loans comprise all assets and properties reflected in the Financial Statements, except for Portfolio Loans and assets and properties sold or otherwise disposed of since the date of the most recent Financial Statements in the ordinary course of business consistent with past practice.  The Company does not own any Real Property.

Section 4.12.  Material Contracts.

(a)Schedule of Material Contracts.  Schedule 4.12(a) consists of the contents of the Datasite as of the date hereof.  On the date that is two (2) Business Days prior to the Closing, the Seller shall prepare a DVD-ROM (or similar physical file storage medium) containing the contents of such Datasite as of such date (the “DataSite Download Date”). Such Schedule 4.12(a) contains (and as of the Closing Date, shall contain) all Contracts of the following types to which the Company is a party or a beneficiary or by which any of its properties are bound, excepting documents included in the Loan Files (“Material Contracts”):

(i)Pooling and Servicing Documents;

(ii)Wells Fargo Credit Documents;

(iii)Asset Purchase Documents;

(iv)the Gateway Portfolio Purchase Agreement and Gateway Promissory Note;

(v)deposit agreements, indentures, mortgages, pledge agreements, security agreements, deeds of trust, conditional sale agreements or other Contracts granting a Lien on the Assets, Non-Recourse Assets or Portfolio Loans to any Person;

(vi)credit agreements, guarantees, indentures, loan agreements, purchase agreements, bonds, capitalized leases, bonds, debentures, notes, foreign exchange or other hedging arrangements, interest rate swaps, investments and other evidences of Company Debt providing for or relating to Debt in respect of which the Company is in any manner directly or contingently obligated or liable;

(vii)Contracts under which the Company has, directly or indirectly, purchased or acquired any Securities or otherwise made any advance, loan, extension of credit or capital contribution to, or other investment in, any Person other than a Portfolio Loan, and all joint venture, partnership and limited liability company Contracts;

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(viii)custody arrangements, administration agreements, transfer agent agreements, accounting agreements, clearing agreements, revenue and fee sharing agreements, and similar agreements;

(ix)licenses and arrangements pursuant to which the Company is permitted by any Person to use any Intellectual Property (the “Licensed Intellectual Property”) that is material to the conduct of the Business or permits any Person to use any Owned Intellectual Property;

(x)joint venture, partnership, limited liability company, acquisition or divestiture agreements, finder’s agreements or other similar agreements;

(xi)agreements or legally binding commitments between the Company, on the one hand, and any Affiliate of the Seller or any Affiliate of the Company not Controlled by the Company, on the other;

(xii)leases of Real Property;

(xiii)Contracts (A) for the sale or Transfer by the Company, or for the purchase or other acquisition by the Company, of Assets, including, without limitation, purchase orders, goods, materials, supplies, machinery, capital assets or services or capital expenditures or research and development, and (B) granting any Person any right of first refusal, right of first offer, buy-sell or economically preferential right or other similar rights, to purchase any of the Assets;

(xiv)Contracts which (A) require the Company to deal on an exclusive basis with any Person, (B) restrict or purport to restrict the Company from doing any kind of business or from doing business with any Person or in any geographic area or from competing with any Person, (C) require the Company to maintain the confidentiality of any matter, and (D) require the Company to indemnify any Person;

(xv)(A) employment, retainer, severance, separation, non-competition, non-solicitation, agency, bonus, profit-sharing, compensation, stock option, pension, retirement, deferred compensation and consulting Contracts with, and any other plans, trusts, funds, agreements or arrangements for the benefit of, current and former employees, officers, directors, sales representatives, agents, consultants and independent contractors, (B) Contracts with any labor union or other collective bargaining group, and (C) Contracts setting forth the terms of or otherwise relating to Benefit Plans;

(xvi)(A) Contracts with any shareholder, director, officer or other Affiliate of the Company, (B) shareholders’ agreements, investor rights agreements, registration rights agreements, voting agreements and other similar agreements relating to the Company’s Equity Securities, and (C) proxies, voting trusts, or powers of attorney to act on behalf of the Company;

(xvii)Contracts with any Governmental Body;

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(xviii)Contracts not made in the ordinary course of business consistent with past practice or which would have a Material Adverse Effect on the Company;

(xix)other Contracts to which the Company is a party, or by or to which it or any of its Assets or the Business is bound or subject, which has an aggregate future liability, benefit or right to payment to any Person in excess of $100,000 or which are otherwise material to the Business; and

(xx)all amendments, waivers, modifications and supplements to the foregoing.

(b)Copies of Material Contracts.  Prior to the date of this Agreement, the Company has made available to the Purchaser for inspection all Material Contracts through Purchaser’s access to the DataSite.

(c)Breach.

(i)Each of the Material Contracts (A) has been duly authorized, executed and delivered by the Company and, to the Seller’s Knowledge, the other parties thereto, and the Company has not received any written notice or claim (or, to the Seller’s Knowledge, any other notice or claim) that any Material Contract is not in full force and effect, and (B) constitutes the legal, valid and binding obligation of the Company and, to the Seller’s Knowledge, the other parties thereto, enforceable against the Company and, to the Seller’s Knowledge, the other parties thereto in accordance with the terms of each such Material Contract except as enforcement may be limited by applicable bankruptcy, insolvency or other Laws affecting creditors’ rights generally or by legal principles of general applicability governing the availability of equitable remedies.

(ii)Except as set forth on Schedule 4.12(c)(ii), there exists no material breach or default (or event which with or without the lapse of time or the giving of notice, or both would constitute a material breach or default) under the Material Contracts by the Company, or the other parties thereto, and neither the Company nor, to the Seller’s Knowledge, any other party to any Material Contract has given any notice of any material breach or default thereunder.  The Company has not given or received any written notice (or, to the Seller’s Knowledge, any other notice) that any party to any Material Contract intends to terminate, amend or modify any Material Contract.

(iii)Except as disclosed on Schedule 4.12(c)(iii), the consummation of the Transactions will not cause (A) any of the Material Contracts to cease to be in full force and effect, (B) the material breach of any terms or conditions of any Material Contract, (C) the forfeiture or impairment of any material rights under any Material Contract or (D) any material penalty or other material adverse consequence under any Material Contract.

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(d)Liens.  Schedule 4.12(d) sets forth a correct and complete list and description of all of the Liens affecting or attaching to the Assets, the Portfolio Loans, the Non-Recourse Assets, the Portfolio Credit Documents and the Non-Recourse Asset Documents, except Permitted Liens.

Section 4.13.  Portfolio Loans.  With respect to the Portfolio Loans, Portfolio Credit Documents, and Collateral:

(a)All of the Portfolio Credit Documents in the possession of the Company are included in the Loan Files.  The outstanding principal amount(s) of the Portfolio Loans and the principal amount(s) of the Unfunded Portfolio Loan Commitments (if any) are accurately stated on Schedule 4.13(a).

(b)Except as set forth on Section (b) of Exhibit H, the Company is the sole owner of all of both (i) the Unguaranteed Portions of the Portfolio Loans and (ii) the Guaranteed Portions of the Portfolio Loans indicated on the Performing Loan Schedule and Non-Performing Loan Schedule as being owned by the Company, all of which are free and clear of all Liens of whatsoever kind or nature except Permitted Liens.  No Guaranteed Portion of any Portfolio Loan has been sold to any Person other than (x) to the SBA or (y) pursuant to a Secondary Participation Guaranty Agreement.

(c)The Company has not effected or received the benefit of any setoff against any obligor under any of the Portfolio Loan Agreements.

(d)Each Portfolio Loan is (i) an interest-bearing loan, (ii) issued in accordance with Section 7(a) of the SBA Act and the SBA Authorization and Loan Agreement, (iii) originated and serviced by the Company in accordance with SBA rules and regulations, (iv) evidenced by promissory notes reflecting the interest rate required under and security documents granting Liens on collateral as required under the SBA Authorization and Loan Agreement, and (v) a loan for which an SBA guarantee is in effect in the percentage and dollar amount set forth in Exhibit H. The SBA guarantee on each Portfolio Loan is valid and enforceable against the SBA and, if presented upon a default in the underlying Portfolio Loan, will be honored by the SBA without denial or repair (other than any denial or repair arising solely from the actions of the Company or the Purchaser after the Closing Date).  The Company has in its possession the originals of all documents or instruments constituting the Portfolio Credit Documents, and the Portfolio Credit Documents are the only agreements between, and contain the complete terms of the agreement between, the Debtors under the Portfolio Loans, on the one hand, and the Company (or any predecessor-in-interest), on the other hand, regarding the Portfolio Loans and the Collateral.

(e)All Records are materially true and correct and accurately reflect all information set forth therein as of the date thereof, including the Principal Balance, the status thereof and all transactions relating thereto, all holdbacks, deposits or other sums due and owing by Seller to others with respect thereto, and all payments, credits and adjustments required to be applied to the balance thereof.

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(f)The Performing Loan Schedule and the Non-Performing Loan Schedule are accurate as of the date thereon and, as updated, shall accurately reflect the information therein including, without limitation, accurately reflecting as of the date thereon and as updated the Principal Balance of and the accrued and unpaid interest owing on each Portfolio Loan.

(g)Except as listed on Schedule 4.13(g), no Debtor is in monetary default under the terms of any Portfolio Credit Document nor is any Debtor, to the Seller’s Knowledge, projected to be in monetary default under any Portfolio Credit Document in the next ninety (90) days and, except in accordance with SBA rules, regulations or authorization, neither the Company, nor Seller, nor any of their Affiliates nor any prior holder of a Portfolio Loan has (i) modified the Portfolio Loan or any Portfolio Credit Document in any material adverse respect; (ii) satisfied, canceled, or subordinated any Collateral, in whole or in part, from the stated lien therein; or (iii) executed any instrument of release, cancellation, modification, or satisfaction relating to a Portfolio Loan.

(h)

(i)Except as indicated on Schedule 4.13(h)(i), no Debtor of a Portfolio Loan secured by a first lien on Real Property is permitted to self-insure physical damage insurance relating to the Collateral in excess of deductibles permitted in accordance with the related Portfolio Credit Document.  Collateral constituting Real Property must carry physical damage insurance to the extent of the replacement value of improvements thereon as of the date of the Portfolio Loan.

(ii)Except as indicated on Schedule 4.13(h)(ii), the Company has received insurance certificates showing all insurance coverage required to be procured by the Debtors pursuant to the Portfolio Credit Documents and such insurance is in full force and effect in accordance with such requirements or Company has, after it has received notice of termination of insurance coverage, obtained force-placed insurance through the servicing agreement with FirstCity Servicing which will be required to be replaced on the Closing Date unless force-placed coverage is continued under the terms of the Transition Servicing Agreement; Company and Seller will provide a listing of all force-placed insurance covering Collateral within ten (10) days prior to the Closing Date and an updated list as of the Closing Date; Company will bear the risk of loss as to any Collateral not covered by insurance after the Closing Date.  On the Closing Date, or if the Transition Servicing Agreement provides for continued force-placed coverage, then on termination of the Transition Servicing Agreement or through the term of the Transition Servicing Agreement in the event that such coverage is to be provided under that contract, all such force-placed coverage shall be cancelled.

(i)All checks, drafts, notes, monies, and other payments received by or on behalf of Company on account of any Portfolio Loan have been credited against the appropriate Principal Balance in accordance with the Company’s ordinary course of business, and there are no unapplied payments, receipts, or unidentified cash balances held by Company or FirstCity Servicing other than in the ordinary course of business.

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(j)Neither the Company nor any Seller has assumed any liability for any maintenance agreement or otherwise agreed to maintain or service any Collateral. Neither the Company nor any Seller has any obligation to provide liability or physical damage insurance under any Portfolio Credit Document.

(k)All Debtor payments are required to be paid to the Company at the Company’s offices.

(l)All Collateral consisting of Real Property is secured by a Portfolio Credit Document which is a valid and subsisting first priority lien, or where provided by the SBA Authorization and Loan Agreement or as set forth in a subordination agreement executed in accordance with SBA Rules and Regulations and with appropriate approval, is a valid and subsisting subordinate lien, except for the liens for real estate taxes and special assessments not yet due and payable or which are shown on Exhibit H, platted utility easements common to the subdivision or property in which the Real Property is located, or other Permitted Liens.

(m)Each of the Portfolio Credit Documents entered into by the Company with respect to a Portfolio Loan it originated is a genuine, legal, valid and binding obligation of each of the Debtors thereto, enforceable in accordance with its terms, subject only to any limitations imposed by applicable bankruptcy, insolvency, reorganization, moratorium or other Laws affecting the enforcement of creditors’ rights generally.  The Portfolio Credit Documents entered into by the Company with respect to Portfolio Loans it originated are, in all manners, what they purport to be and arose out of a bona fide transaction in the ordinary course of business of the Company or a prior holder of such Portfolio Loans.

(n)Each Portfolio Credit Document originated by the Company was in compliance with the requirements of applicable Law at the time that it was originated and was legally sufficient in the jurisdiction where executed and in which the Collateral is located and any Portfolio Credit Documents which are required to be recorded or should be recorded are recorded, as applicable.  To the Seller’s Knowledge, there are no defects or deficiencies in any Portfolio Credit Document which would cause or allow any Debtor to avoid liability thereunder or create any right of set-off, counterclaim or defense to the enforcement thereof.

(o)The Company and, to the Seller’s Knowledge, any prior holder(s) of the Portfolio Loans, have materially complied with all the terms, provisions, and conditions of the Portfolio Credit Documents applicable to such Person.

(p)No Portfolio Credit Document or Portfolio Loan originated by the Company is subject to any defense, set-off, or counterclaim to the payment of the amount of the Principal Balance thereof or any payment due thereunder as a result of any action by Company.

(q)For any Collateral constituting Real Estate, there is no pending proceeding for the total or partial condemnation of all or any portion thereof and, to the Seller’s Knowledge, such Real Estate is undamaged by waste, fire, earthquake or earth movement, wind storm, flood, tornado, or other casualty so as to materially adversely affect the value of the Real Estate as Collateral for a Portfolio Loan or the use for which such Real Estate was intended.

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(r)The Company has not advanced any funds or induced, solicited, or knowingly received any advance of funds by any party other than a Debtor, directly or indirectly, for the payment of any amount required to be paid under the Portfolio Credit Documents.

(s)For each Portfolio Loan originated by the Company, and, to the Seller’s Knowledge, for each Portfolio Loan acquired by the Company, the Company, or the owner of the Portfolio Loan at the time the loan was originated, acquired a title insurance policy in the name of the Company or the prior owner of the Portfolio Loan, in an amount equal to the lesser of (x) the appraised value (as of the date the applicable Portfolio Loan was made) of the Real Property that secures the Portfolio Loans, or (y) the Principal Balance of the Portfolio Loan (as of the date the applicable Portfolio Loan was made), and which insures that: (i) the Company has a first recorded lien, or other subordinate lien as required or allowed by the SBA Authorization and Loan Agreement or as set forth in a subordination agreement executed in accordance with SBA Rules and Regulations and with appropriate approval, on the Real Property which constitutes a portion of the Collateral; and (ii) to the Seller’s Knowledge, all improvements on Real Property which constitutes a portion of the Collateral and is included for purposes of determining the appraised value of any Collateral that is Real Property lie wholly within the boundaries and building restriction lines of such Real Property and no improvement on adjoining properties encroach upon such Real Property.

(t)All Portfolio Loans meet, or are exempt from, applicable Laws pertaining to usury and no Loan is usurious.

(u)Except for those Portfolio Loans as disclosed in Exhibit H hereof, the proceeds of all Portfolio Loans have been fully disbursed and there is no requirement for future advances under any Portfolio Credit Document.  There are no outstanding costs, fees, or expenses incurred in making, closing, recording, or servicing any Portfolio Loan, other than fees owed to the Transfer Agent or the SBA under the Secondary Participation Guaranty Agreements, the yearly fee owed to the SBA under Section 7(a)(23) of the SBA Act and routine costs and expenses in connection with servicing the Portfolio Loans.

(v)All collection and servicing practices utilized by the Company have been in all material respects in accordance with applicable Law. The Company possesses and will possess at Closing all of the Records for each Portfolio Loan.

(w)The Loan Files contain all material documents relating to or in connection with all Portfolio Loans and all Pending Loans, including without limitation a copy of each note or other instrument evidencing each Portfolio Loan or Pending Loan and any secondary sales documents related to each Portfolio Loan or Pending Loan.

Section 4.14.  Intellectual Property.

(a)Schedule 4.14(a) lists all Intellectual Property owned by the Company that is material to the Business (the “Owned Intellectual Property”) and all other material Intellectual Property not owned by the Company in which the Company has an interest, whether as licensee, licensor, sublicensee, sublicensor or otherwise that is used by the Company and/or is necessary

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to conduct the Business (the “Licensed Intellectual Property”).  The Owned Intellectual Property and the Licensed Intellectual Property (collectively, the “Company Intellectual Property”) constitute all Intellectual Property used or held for use by or in connection with the Business, or that is necessary for the conduct of or otherwise material to the Business.

(b)The Company owns or has a valid license to use the Company Intellectual Property, free and clear from any Liens other than Permitted Liens and free from any requirement of any past, present or future royalty payments, license fees, charges or other payments, or conditions or restrictions whatsoever.

(c)The Company is in compliance with all applicable contractual and legal requirements pertaining to data protection or information privacy and security, including any privacy policy concerning the collection or use of such data or information used in the Business.  The Company has implemented, through its servicing agreement with FirstCity Servicing which will continue through the term of the Transition Servicing Agreement commercially reasonable backup and disaster recovery arrangements to ensure the continued operation of the Business in the event of a disaster or business interruption.

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Section 4.15.  Insurance.  The Company, all of the Assets and the Business are covered by valid and currently effective insurance policies or binders of insurance, including, without limitation, general liability insurance, property insurance, workers’ compensation insurance and business interruption insurance, issued in favor of the Company, in each case, with financially sound and reputable insurance companies and in such types and amounts and covering such risks as are consistent with customary practices and standards of companies engaged in business and operations substantially similar to those of the Company.  The Company is not in default with respect to its obligations under any insurance policy maintained by any of them, and all premiums thereunder will have been timely paid in full for all periods up to and through the Closing Date.  The Company has in effect, and is the named insured under and/or beneficiary of, all fidelity bonds, insurance policies or other required policies set forth in the Portfolio Credit Documents.

Section 4.16.  Books and Records.  The records and books of account of the Company are accurate, correct and complete in all respects, have been maintained in accordance with good business practices, including the maintenance of an adequate system of financial controls, accurately reflect the transactions and other information purported to be contained therein and are reflected accurately in all respects in the Financial Statements.  Correct and complete copies of all of the Company’s books and records have been provided to the Purchaser or its representatives.  The minute books of the Company, copies of which have been delivered to the Purchaser or its representatives prior to the date of this Agreement, contain accurate records of all meetings and accurately reflect all corporate action of the Shareholders and the Board of Directors (including committees) of the Company.  The stock books and ledgers of the Company, copies of which have been delivered to the Purchaser or the Purchaser’s representatives prior to the date of this Agreement, correctly record all transfers and issuances of all Securities of the Company, and contain all canceled and unused stock certificates of the Company.

Section 4.17.  Environmental Matters.  Except as could not reasonably be expected to have a Material Adverse Effect on the Company, (a) the Company is and has been in compliance with all Environmental Laws; (b) there has been no release, or to the Seller’s Knowledge threatened release, of any Hazardous Material on, upon, into or from any site currently or heretofore owned, leased or otherwise used by the Company; (c) there has been no Hazardous Material generated by the Company that have been disposed of or come to rest at any site that has been included in any published U.S. federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published by any governmental authority in the United States; and (d) there are no underground storage tanks located on, no polychlorinated biphenyls (“PCBs”) or PCB-containing equipment used or stored on, and no hazardous waste as defined by the Resource Conservation and Recovery Act, as amended, stored on, any site owned or operated by the Company, except for the storage of hazardous waste in compliance with Environmental Laws.  Seller has not received notice that any Collateral securing any Portfolio Loan has been contaminated with, exposed to or is subject to liability for any Hazardous Material, the presence of which (A) requires any reporting, investigation or remediation under any Environmental Laws; (B) causes or threatens to cause a nuisance on any adjacent property or poses or threatens to pose a hazard to the health or safety of the persons on the Collateral or

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adjacent property; or (C) which, if it emanated or migrated from the Collateral, could constitute a trespass.  The Company has made available to the Purchaser true and complete copies of all material environmental records, reports, notifications, certificates of need, permits, pending permit applications, correspondence, engineering studies, and environmental studies or assessments.

Section 4.18.  Employees; ERISA.

(a)Schedule of Employees.  Schedule 4.18(a) sets forth a correct and complete list and description of all of the employees of, and consultants and independent contractors to, the Company and each employee’s place of employment, compensation, bonuses, deferred or contingent compensation, pension, accrued vacation, accrued sick pay, severance, “golden parachute” and other like benefits and term of employment, in effect as of the date of this Agreement.

(b)Employment Agreements.  The Company has not entered into, and is not bound by, any (i) employment, consulting or severance Contract with any of its directors, officers or employees other than those agreements disclosed to the Purchaser as Material Contracts, or (ii) collective bargaining agreements with its employees. None of the Company’s employees is subject to any non-compete, non-disclosure, confidentiality, employment, consulting or similar agreements relating to, affecting or in conflict with the Company’s conduct of the Business.  The Company has entered into normal and customary non-competition and non-solicitation agreements with all former officers and other members of management of the Company.

(c)Benefit Plans.  Schedule 4.18(c) sets forth a correct and complete list of all Benefit Plans of the Company, true, correct and complete copies of which have been delivered to the Purchaser or its representatives prior to the date of this Agreement.

(d)Plan Qualifications.  Each of the Company’s Benefit Plans which is an “employee pension benefit plan” (as defined in Section 3(2) of ERISA) and intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service that the Benefit Plan is qualified and that its related trust has been determined to be exempt from taxation under Section 501(a) of the Code.  No events or circumstances have occurred (other than changes for which the remedial amendment period under Section 401(b) of the Code has not expired) since the date of such letters that will materially adversely affect the qualification or exemption of such Benefit Plan.  No Benefit Plan sponsored by the Company is under audit, nor, to the Seller’s Knowledge, is any such audit pending.

(e)Workers’ Compensation.  There are no liabilities to any of the Company’s employees relating to workers’ compensation benefits that are not fully insured against by third-party insurance carriers.

(f)WARN Act.  The Company has not laid off or involuntarily dismissed (other than for cause) any employees within the six months immediately prior to the Closing Date.  The Company has not, within the 90 days immediately prior to the Closing Date, taken any action or

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actions which would, independently of the Transactions, result in a plant closing or mass layoff within the meaning of the WARN Act.

Section 4.19.  Certain Business Relationships with the Company.

(a)Certain Transactions or Arrangements.  Except as set forth on Schedule 4.19(a), no partner, shareholder, member, manager, officer, director, employee or other Affiliate of the Seller or the Company, nor any spouse, former spouse, parent, sibling or child of any such Person or Affiliate thereof, (i) is, or has been during the twelve (12)-month period immediately preceding the date of this Agreement, involved in any business arrangement, relationship or transaction with the Company, other than an employment relationship, (ii) is, or has been during the 12-month period immediately preceding the date of this Agreement, a party to any Contract with the Company, or (iii) will after the Closing have any interest in any of the Assets.  Each transaction or arrangement set forth on Schedule 4.19(a) has been conducted at all times on arm’s length commercial terms.

(b)No Other Related Party Transactions.  Except as set forth on Schedule 4.19(b), no Seller nor any partner, shareholder, member, manager, officer, director, employee or other Affiliate of any Seller or the Company, nor any spouse, former spouse, parent, sibling or child of any such Person or Affiliate thereof, owns, holds or possesses, directly or indirectly, any financial or other interest in, or is a partner, shareholder, member, manager, officer, director, employee or other Affiliate of, (i) any Person that is a supplier, vendor, client, customer, lessor, lessee, lender, Debtor, or competitor of the Company or the Business, or (ii) any other business which engages in any transactions or other business relationships with the Company.

Section 4.20.  Undisclosed Liabilities.  The Company does not have any obligation or liability, whether accrued, absolute, contingent or otherwise, except (a) to the extent fully and specifically reflected or reserved for on the Company’s most recent Financial Statements, (b) obligations or liabilities incurred since the date of the Company’s most recent Financial Statements in the normal and ordinary course of business of the Company consistent with past practice, and not in violation of the Transaction Documents, which obligations do not exceed $50,000 in the aggregate, or (c) the obligations under the Non-Recourse Loans.

Section 4.21.  Subsidiaries.  The Company has no Subsidiaries and the Company does not own or hold any Securities in any Person, other than to the extent provided in any of the Portfolio Credit Documents or as set forth on Schedule 4.21.

Section 4.22.  Pending Loans.  With respect to any loans to be made by the Company for which a binding commitment on behalf of the Company has been made and funding is pending, each of which is set forth on Schedule 4.22 (“Pending Loans”), (a) the Company has acted at all times in the ordinary course of business with respect to such Pending Loans, in compliance with all applicable Law and (b) the Company is not aware of any fact with respect to such Pending Loans that could result in an event of default or other impairment with respect to such Pending Loans once funded.

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Section 4.23.  Non-Recourse Assets. With respect to the Non-Recourse Assets, all of the Non-Recourse Asset Documents for each Non-Recourse Asset in the possession of the Company are included in the Loan File for that Non-Recourse Asset.

Section 4.24  Disclosure.  To the Seller’s Knowledge, there are no facts pertaining to the Seller, the Company, any of their Affiliates, the Assets or the Business which could reasonably be expected to have a Material Adverse Effect on the Company or the Seller which have not been disclosed in this Agreement.

ARTICLE V

Representations and Warranties of Seller About Seller

The Seller represents and warrants to the Purchaser as of the date hereof and as of the Closing Date as follows:

Section 5.01.  Existence and Power.  The Seller (a) is a Texas corporation which is  validly existing and in good standing under the laws of the jurisdiction of its organization and (b) has all corporate power and authority to execute and deliver each of the Transaction Documents to which it is a party, to consummate the Transactions and to perform its obligations under the Transaction Documents, except in the case of clauses (a) and (b) where the failure to have such status or authority would not materially and adversely affect the ability of the Seller to perform its obligations under the Transactions Documents or to consummate the Transactions.

Section 5.02.  Authorization; Binding Effect.  The execution and delivery by the Seller of each of the Transaction Documents to which the Seller is a party, the performance by the Seller of its obligations under such Transaction Documents and the consummation of the Transactions by the Seller has been duly authorized by all necessary corporate action on the part of the Seller.  No other proceedings on the part of the Seller are necessary to approve and adopt the Transaction Documents or to approve the consummation of the Transactions.  Each of the Transaction Documents to which the Seller is or may become a party is, or, when executed and delivered in accordance with this Agreement will be, a legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency or other Laws affecting creditors’ rights generally or by legal principles of general applicability governing the availability of equitable remedies.

Section 5.03.  Contravention.  Neither the execution, delivery and performance of the Transaction Documents by the Seller nor the consummation of the Transactions by the Seller will (with or without notice or lapse of time or both) (a) conflict with, violate or breach any provision of the Seller’s Organizational Documents (if applicable), (b) assuming the receipt of all of the Seller Required Consents prior to the Closing, conflict with, violate or breach any Law by which the Seller or any of its material assets or properties may be bound or affected, or (c) assuming the receipt of all of the Seller Required Consents prior to Closing, conflict with, breach or result in a default under, result in the acceleration of, or give rise to a change in the terms of or a right of termination, cancellation, modification or acceleration or require any notice under, any material Contract to which the Seller is a party or by which the Seller or any of their respective assets or properties may be bound or affected, except with respect to clauses (b) or (c), for such violations, breaches, conflicts, other events which would not materially and adversely affect the

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ability of the Seller to perform its obligations under the Transaction Documents or to consummate the Transactions.

Section 5.04.  Consents.  Except for the Consents set forth on Schedule 4.04, no material Consents are required or advisable in connection with (a) the due execution and delivery by the Seller of the Transaction Documents and the performance of the Seller’s obligations thereunder, (b) the consummation of the Transactions by the Seller, (c) the exercise by the Purchaser of its rights and remedies under the Transaction Documents, and (d) the conduct of the Business or the ownership or use of the Assets by the Company immediately following the Closing Date.  As of the Closing Date, all of the Seller Required Consents will have been obtained and will be in full force and effect.

Section 5.05.  Litigation.  There is no Action against the Seller or, to the Seller’s Knowledge, any other Person, that involves any of the Transactions or any Asset owned, licensed, leased or used by the Company or the Seller that, individually or in the aggregate, if determined adversely the Company or the Seller, could reasonably be expected to have a material adverse effect on the Seller’s ability to consummate the Transactions to which they are a party or perform their respective obligations under the Transaction Documents to which they are a party.

Section 5.06.  Title to Securities.  The Seller is the sole record, legal and beneficial owners of the Purchased Interests, and have good and marketable title to the Purchased Interests, free and clear of all Liens that will not be released at Closing, Transfer restrictions, rights of first refusal or first offer, options, voting trusts, voting Contracts and restrictions of any nature whatsoever.  Upon consummation of the Closing, the Purchaser shall become the sole record legal and beneficial owner of the Purchased Interests and good and marketable title to the Purchased Interests will pass to the Purchaser, free and clear of any Liens, Transfer restrictions, rights of first refusal or first offer, options, voting trusts, voting Contracts and restrictions of any nature.  The Purchased Interests are the only Securities of any kind, debt or equity, of the Company owned by the Seller or by any other Person.

Section 5.07.  Sophisticated Seller; Adequate Information; Securities Laws.  The Seller is a sophisticated seller with respect to the Purchased Interests and has such knowledge and experience in financial and business matters that the Seller is capable of evaluating the merits and risks of such sale, is aware of and has considered the financial risks and financial hazards of selling the Purchased Interests on the terms set forth in the Transaction Documents and is willing to forego through such sale the potential for future economic gain that might be realized from the Purchased Interests.  The Seller has adequate information concerning the business and financial condition of the Company and such other matters with respect to the Company as a reasonable person would consider in evaluating the Transactions, including, without limitation, all information necessary to determine the fair market value of the Purchased Interests, to make an informed decision regarding the sale of the Purchased Interests to the Purchaser hereunder.   The Seller has evaluated the merits and risks of selling the Purchased Interests on the terms set forth in the Transaction Documents, and has independently, without reliance upon the Purchaser and based on such information as the Seller deemed appropriate, made the analysis and decision to

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enter into this Agreement, the other Transaction Documents and to sell the Purchased Interests to the Purchaser.  The Seller has not offered to sell any portion of the Purchased Interests or any interest therein in a manner which violates any applicable securities law or would require the sale hereunder to be registered under the Securities Act.

Section 5.08.  Transactions With the Company.  Except as set forth on Schedule 5.08 hereof, neither the Seller nor any of the Seller’s Affiliates is, nor has the Seller or any of the Seller’s Affiliates been during the 12-month period immediately preceding the date of this Agreement, (a) involved in any business arrangement, relationship or transaction with the Company or any of its Affiliates, or (b) a party to any Contract with the Company or any of its Affiliates.  Each transaction, arrangement or Contract set forth on Schedule 5.08 has been conducted at all times, and/or was negotiated, on arm’s length commercial terms.

Section 5.09.  Brokers, Finders.  Other than Mr. Timothy Terry, the fees and expenses of whom shall be borne in accordance with Section 10.07, neither the Company nor the Seller has retained any broker or finder in connection with the Transactions, and is not obligated and has not agreed to pay any brokerage or finder’s commission, fee or similar compensation for which the Purchaser or the Company may be liable.

Section 5.10.  Solvency.  As of the date of this Agreement, and as of the Closing Date, before and after giving effect to the Transactions, the Seller is, and will be, Solvent.

Section 5.11.  Seller Guarantee.  Concurrently with the execution of this Agreement, the Seller Guarantor has delivered to Purchaser the Seller Guarantee.  The Seller Guarantee is in full force and effect and is the valid, binding and enforceable obligation of the Seller Guarantor except as enforcement may be limited by applicable bankruptcy, insolvency or other Laws affecting creditors’ rights generally or by legal principles of general applicability governing the availability of equitable remedies, and no event has occurred which, with or without notice, lapse of time or both, would constitute a default on the part of the Seller Guarantor under such Seller Guarantee.

ARTICLE VI

Representations and Warranties of the Purchaser

The Purchaser represents and warrants to the Seller as of the date hereof and as of the Closing Date as follows:

Section 6.01.  Existence and Power.  The Purchaser (a) is a Delaware limited liability company, validly existing and in good standing under the laws of the jurisdiction of its organization, and (b) has all necessary limited liability company power to execute and deliver each of the Transaction Documents and to consummate the Transactions and to perform its obligations under the Transaction Documents, except in the case of clauses (a) and (b) where the failure to have such status or authority would not materially and adversely affect the ability of

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the Purchaser to perform its obligations under the Transaction Documents or to consummate the Transactions.

Section 6.02.  Authorization; Binding Effect.  The execution and delivery by the Purchaser of each of the Transaction Documents to which the Purchaser is a party, the performance by the Purchaser of its obligations under such Transaction Documents and the consummation of the Transactions by the Purchaser has been duly authorized by all necessary limited liability company action on the part of the Purchaser. No other proceedings on the part of Purchaser are necessary to approve and adopt the Transaction Documents or to approve the consummation of the Transactions.   Each of the Transaction Documents to which the Purchaser is or may become a party is, or, when executed and delivered in accordance with this Agreement will be, legal, valid and binding obligations of the Purchaser enforceable against the Purchaser in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency or other Laws affecting creditors’ rights generally or by legal principles of general applicability governing the availability of equitable remedies.

Section 6.03.  Contravention.  Neither the execution, delivery and performance of the Transaction Documents by the Purchaser nor the consummation of the Transactions by the Purchaser will (with or without notice or lapse of time or both) (a) conflict with, violate or breach any provision of the Purchaser’s Organizational Documents, (b) assuming the receipt of all of the Purchaser Required Consents prior to the Closing, conflict with, violate or breach any Law by which the Purchaser or any of its material assets or properties, are bound or affected, or (c) assuming the receipt of all of the Purchaser Required Consents prior to the Closing, conflict with, breach or result in a default under, result in the acceleration of, or give rise to a change in the terms of or a right of termination, cancellation, modification or acceleration or require any notice under any material Contract to which the Purchaser is a party or by which the Purchaser or any of its material assets or properties, are bound or affected, except with respect to clauses (b) or (c), for such violations, breaches, defaults, other events which would not materially and adversely affect the ability of the Purchaser to perform its obligations under the Transaction Documents or to consummate the Transactions.

Section 6.04.  Consents.  Except for the Purchaser Required Consents set forth on Schedule 6.04, no material Consents are required on behalf of the Purchaser in connection with (a) the due execution and delivery by the Purchaser of the Transaction Documents and the performance of the Purchaser’s obligations thereunder, and (b) the consummation of the Transactions by the Purchaser, except, in each case, for those Purchaser Required Consents, the absence of which would not materially and adversely affect the ability of the Purchaser to perform its obligations under the Transaction Documents.  As of the Closing Date, all of the Purchaser Required Consents shall have been obtained.

Section 6.05.  Litigation.  There is no Action against the Purchaser or, to the Purchaser’s Knowledge, any other Person (not including the Company or the Seller), that involves any of the Transactions or any material asset or property owned, licensed, leased or used by the Purchaser that, individually or in the aggregate, if determined adversely to the Purchaser, would materially

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and adversely affect the ability of the Purchaser to perform its obligations under the Transaction Documents or to consummate the Transactions.

Section 6.06.  Investment Representations.

(a)Purchase for Own Account.  The Purchaser is acquiring the Purchased Interests hereunder for its own account, not as a nominee or agent, and not with a view to the distribution of any part thereof in violation of applicable securities Laws.

(b)No Registration.  The Purchaser understands and acknowledges that the Purchased Interests are not and are not being registered under the Securities Act or any state securities laws.  The Purchaser understands that the Purchased Interests cannot be sold unless they are subsequently registered under the Securities Act and applicable state securities laws or an exemption from such registration is available.  The Purchaser understands that there is no public or other market for the Purchased Interests and that no such public or other market is expected to develop.

(c)Accredited Investor; Sophisticated Purchaser; Economic Wherewithal.  The Purchaser is an “accredited investor” as defined in Rule 501(a) of the Securities Act.  The Purchaser, alone or in connection with its financial, legal and other advisers, is sufficiently experienced in financial and business matters to be capable of analyzing and evaluating the merits and risks of an investment in the Purchased Interests, and to make an informed decision relating thereto, and otherwise to protect its own interests with respect to the investment in the Purchased Interests.  The Purchaser’s financial situation is such that the Purchaser can afford to bear the economic risk of holding the Purchased Interests for an indefinite period of time, has adequate means for providing for its current needs and personal contingencies, and can afford to suffer the complete loss of the Purchaser’s investment in the Purchased Interests.

(d)No Reliance.  The Purchaser has made its own independent evaluation of the Business, results of operations, prospects, condition (financial or otherwise) or assets of the Company and its investment in the Purchased Interests and has not relied on the Seller, or any of their Affiliates, accountants, counsel or other representatives in connection with the Purchaser’s investment in the Purchased Interests except for the Purchaser’s reliance on the express representations of the Seller and its Affiliates hereunder or in the other Transaction Documents.  The Purchaser understands that neither the Seller, nor any of its Affiliates, accountants, counsel or other representatives is acting as the Purchaser’s broker or advisor in connection with the Purchaser’s investment in the Purchased Interests. The Purchaser acknowledges that it has been provided adequate access to the personnel, properties, assets, premises, books and records, and other documents and data of the Company for such purpose.

Section 6.07.  Brokers, Finders.  Other than (a) Mr. Timothy Terry, the fees and expenses of whom shall be borne in accordance with Section 10.07, and (b) Milestone Capital, the fees and expenses of which shall be paid by Purchaser, the Purchaser has not retained any broker or finder in connection with the Transactions, and is not obligated and has not agreed to pay any brokerage or finder’s commission, fee or similar compensation for which the Seller or the Company may be liable.

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Section 6.08.  Disclosure.  To the knowledge of the Purchaser, there are no facts pertaining to the Purchaser or its Affiliates which could reasonably be expected to have a Material Adverse Effect on the Purchaser and which have not been disclosed in this Agreement.

Section 6.09.  Purchaser Guarantee.    Concurrently with the execution of this Agreement, the Purchaser Guarantor has delivered to the Seller the Purchaser Guarantee.  The Purchaser Guarantee is in full force and effect and is the valid, binding and enforceable obligation of the Purchaser Guarantor except as enforcement may be limited by applicable bankruptcy, insolvency or other Laws affecting creditors’ rights generally or by legal principles of general applicability governing the availability of equitable remedies, and no event has occurred which, with or without notice, lapse of time or both, would constitute a default on the part of the Purchaser Guarantor under such Purchaser Guarantee.

ARTICLE VII

Covenants of the Seller and Purchaser

Section 7.01.  Conduct of Business Pending Closing.  The Seller agrees that, from the date of this Agreement through the earlier to occur of (x) the Closing Date, and (y) the date on which this Agreement is terminated in accordance with the provisions of Section 9.01 hereof, the Seller shall cause the Company to:

(a)Conduct of Business.  Conduct its business in a manner consistent with the past practice of the Company and the Company shall not engage in any transactions out of the ordinary course of business consistent with past practice, except as contemplated by this Agreement.

(b)Payment of Obligations.  Promptly and timely pay and discharge in the ordinary course of the Company’s business consistent with past practice, all Taxes and other obligations assessed, levied or imposed upon, or required to be withheld by, or otherwise owing by, the Company, or with respect to the Assets or the Business and shall not incur, assume, guarantee or otherwise become liable for any additional Debt.

(c)Material Contracts.  Perform and observe all of the terms and provisions of each Material Contract to be performed or observed by it, enforce each Material Contract in accordance with its terms and not enter into or terminate any Material Contracts or make any material amendments or modifications to any Material Contracts, other than in the ordinary course of business consistent with past practice except as contemplated by this Agreement. In addition, the Company shall not amend or modify any terms or provisions of its Organizational Documents.

(d)Amendments to Certain Contracts.  Not terminate, amend, modify, supplement or change the SBA Authorization and Loan Agreement or any Portfolio Credit Document (except for amendments, modifications, supplements or changes made in accordance with SBA Rules and Regulations), Pooling and Servicing Document, Secondary Participation Guaranty Agreement, or Wells Fargo Credit Document  without the prior written consent of the Purchaser,

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and any purported amendment, modification, supplement or change made without such prior written consent shall be null and void and of no force and effect.

(e)Representations and Warranties; Conditions.  Not engage in any practice, take any action, fail to take any action or enter into any transaction that (i) could reasonably be expected to (A) cause any of the representations and warranties of the Seller contained in the Transaction Documents, to be untrue, inaccurate or incorrect in any material respect on the Closing Date, (B) result in any of the conditions set forth in Section 3.03 not being satisfied on or prior to the Termination Date or (ii) result in the conversion of outstanding Equity Securities of the Company into Equity Securities of the Seller.

(f)Sale of Assets; Liens.  Not (i) Transfer any of the Assets, (ii) dispose of, or trade in, any material portion of the Equipment or Fixtures, or (iii) create, incur, assume, or suffer to exist any Lien upon or with respect to any of the Assets.

(g)Servicing.  Continue to service the Portfolio Loans consistent with past practices and procedures.

(h)Compensation.  Not increase the aggregate amount of compensation of the directors, officers or employees of the Company, including, without limitation, base salaries and bonuses of all types, whether paid or accrued, except in the ordinary course of business consistent with past practice.

(i)Compliance With Laws.  Comply in all material respects with all Laws applicable to the Company, the Business or the Assets.

(j)Maintenance of Existence.  Preserve and maintain its corporate existence and good standing in the jurisdiction of its incorporation, and qualify and cause it to remain qualified and duly licensed to conduct the Business as a foreign corporation in each jurisdiction in which such qualification and/or licensing is required.

(k)Maintenance of Records.  Keep adequate records and books of account reflecting all its financial transactions, keep minute books containing accurate records of all meetings and accurately reflecting all corporate action of its shareholders and its board of directors (including committees) and keep stock books and ledgers correctly recording all transfers and issuances of all Securities of the Company.

(l)Maintenance of Assets.  Maintain, keep and preserve the Assets in good working order and condition, ordinary wear and tear excepted.

Section 7.02.  Access to Information; Cooperation.

(a)  Access to Information.

(i)  The Seller understands and acknowledges that the Purchaser has not completed its examination of the Company, the Assets and the Business and therefore

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requires continuous access to the Company, the Assets and the Business, from the date of this Agreement through the earlier to occur of (x) the Closing Date and (y) the date on which this Agreement is terminated in accordance with the provisions of Section 9.01 hereof.

(ii)  The Seller agrees that during the period from the date of this Agreement through the earlier to occur of (x) the Closing Date and (y) the date on which this Agreement is terminated in accordance with the provisions of Section 9.01 hereof, the Seller shall, and the Seller shall cause the Company to, and the Seller shall cause the respective Affiliates, directors, officers, employees, accountants, counsel, consultants, investment bankers and other representatives of the Company and Seller to:

(A)  give the Purchaser and its authorized representatives, including, without limitation, investors, lenders, consultants and advisors, and respective authorized employees, accountants, counsel and other representatives of any of the foregoing (I) access to all offices, personnel (including the Persons responsible for the preparation of Tax Returns), facilities, properties, books, Contracts, commitments and Records of or relating to the Company, including, without limitation, the Assets and the Business, and (II) such financial and operating data and other information with respect to the Business and the Assets as any of them may from time to time reasonably request; and

(B)  permit the Purchaser and its authorized representatives, including, without limitation, investors, lenders, consultants and advisors, and respective authorized employees, accountants, counsel and other representatives of any of the foregoing to make such inspections thereof as any of them may request.

(b)  Cooperation. The Seller agrees that during the period from the date of this Agreement through the earlier to occur of (x) the Closing Date and (y) the date on which this Agreement is terminated in accordance with the provisions of Section 9.01 hereof, the Seller shall, and the Seller shall cause the Company to, and the Seller shall cause the respective Affiliates, directors, officers, employees, accountants, counsel, consultants, investment bankers and other representatives of the Seller and the Company to, cooperate with the Purchaser and its representatives in carrying out the Transactions.  In furtherance of the foregoing, the Seller shall, and shall cause each of its Affiliates, officers, counsel and employees to, use its best efforts to negotiate and deliver the Transition Servicing Agreement during the required time period set forth in Section 2.01(e).

Section 7.03.  Disclosure Schedules.

(a)  Updating of Disclosure Schedules and Exhibits.  The Seller agrees that during the period from the date of this Agreement through the earlier to occur of (x) the Closing Date and (y) the date on which this Agreement is terminated in accordance with the provisions of Section 9.01 hereof, the Company shall promptly notify the Purchaser of (i) any and all information, facts, events, circumstances, issues or other matters that existed as of the date of this Agreement that should have been set forth or described in the schedules or exhibits to this Agreement

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required or provided for under Articles IV or V of this Agreement as of the date of this Agreement by delivery of appropriate updates to the Schedules and Exhibits attached to this Agreement or new Schedules setting forth such information, facts, events, circumstances, issues or other matters (the “Initial Schedule Updates”), and (ii) any and all information, facts, events, circumstances, issues or other matters arising after the date of this Agreement which, if existing on the date of this Agreement, would have been required to be set forth or described in the schedules to this Agreement required or provided for under Articles IV and V hereof, in each case, by delivery of appropriate updates to the Schedules and Exhibits attached to this Agreement or new Schedules setting forth such information, facts, events, circumstances, issues or other matters (the “Pre-Closing Schedule Updates”), in each case, no later than two (2) Business Days prior to the scheduled Closing Date (any such updates to the Schedules or new Schedules being referred to herein as “Schedule Updates”).

(b)  Effect of Schedule Updates.  In the event that the Seller delivers any Schedule Updates to the Purchaser in accordance with the provisions of Section 7.03(a) above, then such Schedule Updates shall not be (i) deemed to be attached to this Agreement or become a part of this Agreement, or (ii) given effect for any purposes under this Agreement, unless such Schedule Updates shall be accepted by the Purchaser in its reasonable good faith discretion.  In the event that the Schedule Updates are accepted by the Purchaser, then upon such acceptance, (i) such Schedule Updates shall be deemed to be attached to this Agreement and become a part of this Agreement, (ii) all references to the Schedules in this Agreement shall refer to the Schedules as updated by such Initial Schedule Updates, and (iii) such Schedule Updates shall be given effect for all purposes under this Agreement, including, without limitation, for determining whether the conditions to Closing set forth in Section 3.03 have been satisfied and for determining whether a Purchaser Indemnified Person is entitled to indemnification pursuant to Article VIII hereunder.  Notwithstanding the foregoing, the Seller shall have the right to enter into Material Contracts of the type described in Section 4.12 in the ordinary course of business during the period between the date hereof and the Datasite Download Date, and any such Material Contracts entered into in the ordinary course of business by the Seller shall be deemed attached to, and become part of, this Agreement without any further action or agreement by the Purchaser.

(c)  Datasite.  The Seller shall not cause the Company to update or modify the Datasite at any time following the Datasite Download Date.

Section 7.04.  Reporting Requirements.  The Seller agrees that during the period from the date of this Agreement through the earlier to occur of (x) the Closing Date and (y) the date on which this Agreement is terminated in accordance with the provisions of Section 9.01 hereof, the Seller shall, and shall cause the Company to:

(a)  Monthly Financial Statements.  Prepare and promptly (and in any event not later than 25 calendar days following the end of the month to which a statement relates) deliver to the Purchaser monthly financial statements for the Company as well as a reasonably detailed back-up schedule therefor.  These monthly financial statements will be prepared in accordance with GAAP and in a manner consistent with the basis of presentation used in the financial statements

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referred to in Section 4.06 and will fairly present the financial condition and results of operations of the Company as of and for the periods indicated;

(b)  Notice of Litigation.  Promptly after the commencement of each such matter, deliver notice of all Actions affecting the Seller, the Company or any of the Assets or the Business that, if adversely determined, would reasonably be expected to have a Material Adverse Effect on the Company; and

(c)  General Information.  Deliver such other information with respect to the condition or operations, financial or otherwise, or prospects of the Company, the Business or the Assets as the Purchaser may from time to time reasonably request.

Section 7.05.  No Solicitation of Purchase or Sale.

(a)  No Solicitation.  In order to induce the Purchaser to pursue the Transactions and to incur the costs and expenses necessary to evaluate and complete the Transactions, the Seller agree that during the period from the date of this Agreement through the earlier to occur of (x) the Closing Date, and (y) the date on which this Agreement is terminated in accordance with the provisions of Section 9.01 hereof, the Seller shall not, the Seller shall cause the Company not to, directly or indirectly, subject to the fiduciary duties of the Company’s directors, (i) solicit, initiate, assist or accept any offer, inquiry or proposal for, entertain any offer, inquiry or proposal to enter into, take any other action designed to facilitate or encourage (including by way of furnishing any information), any inquiries or the making of any proposal, in any case, which constitutes a Competing Transaction, (ii) provide information to any other Person (other than in the ordinary course of business consistent with past practice) regarding the Company, the Assets, the Business, their liabilities or a Competing Transaction or permit any other Person to conduct a due diligence review of the Company, the Assets, the Business or their liabilities, (iii) initiate, participate in, continue or conduct any discussions or negotiations regarding any Competing Transaction, or (iv) enter into any Contract, arrangement, understanding or commitment with respect to any Competing Transaction.

(b)  Termination of Discussions.  Immediately following the execution and delivery of this Agreement, the Seller shall notify each other Person with which the Seller may, during the preceding sixty (60) days, have been engaged in any discussions or negotiations with respect to a Competing Transaction, that (i) the Seller has entered into this Agreement with the Purchaser, and (ii) all such discussions or negotiations are terminated, effective immediately.  The Seller shall request that all such Persons return all information relating to the Company, the Business and the Assets theretofore provided to such Person or its representatives.

(c)  Notice of Competing Transaction.  The Seller shall promptly (but in any event within one business day) advise the Purchaser in writing of any offer, contact, communication or request for information relating to any Competing Transaction, the material terms and conditions of such offer, contact, communication or request and the Competing Transaction and the identity of the Person making such offer, contact, communication or request.

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(d)  Board Approval. Prior to the termination of this Agreement in accordance with the provisions of Section 9.01, the Seller shall not allow the board of directors of the Company nor any committee thereof to approve or recommend, or propose to approve or recommend, any Competing Transaction.

Section 7.06.   Public Announcements; Confidentiality.

(a)  Public Announcement.  On or prior to the Closing Date, the Seller and the Purchaser shall jointly agree to a public announcement with respect to the Transactions (the “Public Announcement”) provided that in the event that the Seller and the Purchaser cannot agree as to the language of the Public Announcement the Seller will not make any disclosure other than as is required under the securities laws, and the Seller will advise the Purchaser of the disclosure FirstCity intends to make in any securities filings required to be made by the Seller or its Affiliates and will provide the Purchaser an opportunity to submit any comments it may have to such disclosure, provided that the Seller shall make such disclosure as the Seller deems is required by the securities laws in its own judgment and discretion.  Except for (i) the Public Announcement, (ii) the disclosure by the Seller in its discretion as is required by securities laws.  and (iii) general communications to the Company’s employees, lenders, creditors, or others having business or financial relationships with the Company prior to the Closing, the Seller and the Purchaser (and each of their respective Affiliates, managers, members, partners, shareholders, directors, officers, employees, representatives and agents) shall not make any public disclosure of any kind concerning the Transactions.  For the avoidance of doubt, the Purchaser shall have the right to make substantially similar disclosures to those of the Seller described in this Section 7.06.

(b)  Confidential Information.

(i)  With respect to the Confidential Information, prior to the Termination Date and, in the event that the Closing is completed, after the Closing Date, and with respect to the Purchaser Confidential Information, at all times, the Seller agrees not to, and agrees to cause its Affiliates, members, partners, shareholders, directors, officers, employees and agents and any investment banker, financial advisor, attorney, accountant, representative, and any other Person acting on behalf of the Seller or the Company (“Representatives”) not to, directly or indirectly, disclose, reveal, divulge, publish or otherwise make known, any of the Confidential Information or any Purchaser Confidential Information to any Person for any reason or purpose whatsoever, or use any of the Confidential Information or any Purchaser Confidential Information for any reason or purpose whatsoever at any time from and after the date hereof. In addition, the Seller agrees to treat the Confidential Information or any Purchaser Confidential Information as confidential at all times.  The Seller agrees to be fully responsible for any breach of this Section by any of its Representatives.

(ii)  Notwithstanding the provisions of clause (i) above, if the Seller or any of its Representatives is required to disclose any Confidential Information or any Purchaser Confidential Information after the Closing Date pursuant to any applicable Law, subpoena, court order, similar judicial process, regulatory agency or stock exchange rule,

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the Seller shall promptly notify the Purchaser of any such requirement so that the Purchaser may seek an appropriate protective order or waive compliance with the provisions of this Section.  The Seller shall reasonably cooperate with the Purchaser to obtain such a protective order.  If such order is not obtained, or the Purchaser waives compliance with the provisions of this Section, the Seller shall disclose only that portion of the Confidential Information or any Purchaser Confidential Information which it is advised by counsel that it is legally required to so disclose and will exercise commercially reasonable efforts to obtain written assurance that confidential treatment will be accorded the information so disclosed.

Section 7.07.  Non-Solicitation.  The Seller agrees for a period of two (2) years following the Closing Date, neither the Seller nor any of its Affiliates will, in any manner, directly or indirectly:

(a)solicit, hire, induce or attempt to induce, or assist others to solicit, hire, induce or attempt to induce, any employee, contractor, consultant or agent of the Company, the Purchaser or any of their Affiliates to either (A) leave his or her employment, consulting or other position or business relationship with the Purchaser or any of its Subsidiaries, or (B) breach his or her employment, consulting or other agreement with the Purchaser or any of its Subsidiaries; provided, however, that the foregoing provision shall not prohibit the Seller from hiring any such employee, contractor, consultant or agent (x) through general advertising that is not targeted directly at the Purchaser or any of its Subsidiaries, or (y) whose employment or business relationship with the Purchaser or any of its Subsidiaries is terminated by the Purchaser or any of its Subsidiaries, as the case may be; or

(b)solicit, induce or attempt to induce or assist others to solicit, induce or attempt to induce, any customer, contractor, client or financing source associated with the Company’s, the Purchaser’s or their Affiliates’ businesses to terminate its, his or her relationship or association with the Company, the Purchaser or any of their Affiliates, or in any manner, directly or indirectly, interfere with any business relationship between the Company, the Purchaser or any of their Affiliates, on the one hand and any such Person, on the other hand.

(c)Enforcement.  Notwithstanding any other provision of the Transaction Documents, if, at the time of enforcement of any provision of this Section, a court should hold that the duration or scope restrictions stated herein are unreasonable or unenforceable under circumstances then existing, the Parties agree that the maximum duration or scope permitted by applicable Law under such circumstances will be substituted for the stated duration or scope.  Whenever possible, each provision of this Section will be interpreted in such manner as to be effective and valid under applicable law.  If the provisions of this Section are held unenforceable to any extent in any jurisdiction, such holding shall not impair the enforceability of this Section in any other jurisdiction.

Section 7.08.  Seller Guarantee.  The Seller Guarantor will take all action necessary (a) to cause the Seller to perform its obligations under this Agreement and to consummate the sale of the Purchased Interests on the terms and conditions set forth in this Agreement as promptly as reasonably practicable following execution of this Agreement, (b) to ensure that, prior to the

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Closing Date, the Company shall not conduct any business or make any investments other than as specifically contemplated by this Agreement, and (c) to cause the Seller to perform its obligations under Article VIII of this Agreement and to ensure that the Seller has sufficient funds to perform those obligations.  The Seller Guarantor hereby waives diligence, presentment, demand of performance, filing of any claim, any right to require any proceeding first against the Seller, protest, notice and all demands whatsoever in connection with the performance of its obligations set forth in this Section 7.08.

Section 7.09.  Purchaser Guarantee.  Subject to the satisfaction of the condition set forth in Section 3.03(s), the Purchaser Guarantor shall take all action necessary (a) to cause the Purchaser to perform its obligations under this Agreement and to consummate the purchase of the Purchased Interests on the terms and conditions set forth in this Agreement and (b) to cause the Purchaser to perform its obligations under Article VIII of this Agreement.  The Purchaser Guarantor hereby waives diligence, presentment, demand of performance, filing of any claim, any right to require any proceeding first against the Purchaser, protest, notice and all demands whatsoever in connection with the performance of its obligations set forth in this Section 7.09.

Section 7.10.  Instructions to Escrow Agent. Each Party shall deliver such instructions to the Escrow Agent at such times and in the manner required to be delivered in accordance with this Agreement and the Escrow Agreement.  Each Party acknowledges that failure to deliver an instruction to the Escrow Agent in accordance herewith shall constitute a material breach of this Agreement.

ARTICLE VIII

Indemnification

Section 8.01.  Indemnification.

(a)Indemnification by the Seller.  Subject to the limitations set forth in this Article VIII, the Seller shall indemnify and defend the Purchaser Indemnified Persons against, and hold each Purchaser Indemnified Person harmless from, any and all Losses that the Purchaser Indemnified Persons have incurred, suffered or sustained arising out of, relating to, based upon, in connection with or due to:

(i)any inaccuracy or breach of any of the representations and warranties of the Seller, the Company or any of their Affiliates contained in this Agreement, any other Transaction Document or in any certificate delivered thereunder;

(ii)the nonfulfillment or breach of any covenant, undertaking, agreement or other obligation (other than those relating to any representations or warranties) of the Seller or the Company (to the extent such nonfulfillment or breach occurs prior to the Closing Date) or any of their Affiliates contained in this Agreement, any other Transaction Document or in any certificate delivered thereunder;

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(iii)any broker’s, finder’s or consultant’s fees payable to any Person retained, consulted or hired by the Company, the Seller or any of their Affiliates in connection with any Transaction Document, any document to be delivered thereunder or the Transactions, including without limitation the fees and expenses of Mr. Timothy Terry (the “Finder’s Fee”), provided that the Seller’s liability with respect to the Finder’s Fee shall not exceed the lesser of (A) $50,000.00 or (B) 50% of the Finder’s Fee;

(iv)any Taxes related to (A) the operation of the Business by the Company prior to the Closing Date, (B) actions, omissions or failures to act by the Company prior to the Closing Date, (C) the ownership by the Company of the Assets prior to the Closing Date, (D) any distributions, dividends or other payments from the Company to the Seller or any of their Affiliates, or (E) income recognized as a result of the sale of the Purchased Interests;

(v)any (A) denial (full or partial) or attempted denial, repair or other impairment by the SBA of its guaranty of any Portfolio Loan, (B) refusal by the SBA to purchase all or any portion of its guaranty of any Portfolio Loan, or (C) request, suggestion or requirement by the SBA that the Company cancel all or a portion of any guaranty of any Portfolio Loan or repurchase all or any portion of the guaranteed portion of a Portfolio Loan from any Person, in each case as a result of, arising from, or in any way relating to, the actions, inactions or operations of the Seller or the Company, any Related Party or any predecessor-in-interest thereto prior to the Closing Date;

(vi)any threatened, pending or actual action or proceeding by the SBA against the Company seeking to recover amounts paid to any Person on the guaranteed portion of any Portfolio Loan as a result of, arising from, or in any way relating to, the actions, inactions or operations of the Seller or the Company, any Related Party or any predecessor-in-interest thereto prior to the Closing Date; or

(vii)any threatened, pending or actual action or proceeding by any Person seeking recovery on the SBA guaranty of any Portfolio Loan, in each case as a result of, arising from, or in any way relating to, the actions, inactions or operations of the Seller or the Company, any Related Party or any predecessor-in-interest thereto prior to the Closing Date.

(b)Indemnification by the Purchaser.  Subject to the limitations set forth in this Article VII, the Purchaser will indemnify and defend the Seller Indemnified Persons against and hold each Seller Indemnified Person harmless from any and all Losses that the Seller Indemnified Persons have incurred, suffered or sustained arising out of, relating to, based upon, in connection with or due to:

(i)any inaccuracy or breach of any of the representations and warranties of the Purchaser contained in this Agreement or in any other Transaction Document;

(ii)which are attributable to the period, or which arise out of the Purchaser’s actions or failure to act following the Closing Date; or

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(iii)the nonfulfillment or breach of any covenant, undertaking, agreement or other obligation of the Purchaser or any of its Affiliates contained in any Transaction Document.

Section 8.02.  Survival of Indemnification.  The representations and warranties, of the Parties contained in this Agreement, the other Transaction Documents or in any document delivered pursuant thereto and the rights to indemnification under this Agreement with respect thereto will survive the Closing Date and any investigation at any time made by or on behalf of the Purchaser or any other Party for a period of thirty-six (36) months after the Closing Date and will be effective with respect to any inaccuracy therein or breach thereof, notice of which has been given within such thirty-six (36) month period, provided that, Section 4.01 (Existence and Power), 4.02 (Authorization; Binding Effect), Section 4.03 (Contravention), Section 4.05 (Capitalization), Section 4.07 (Taxes), Section 5.01 (Existence and Power of the Seller), Section 5.02 (Authorization and Binding Effect with respect to the Seller), Section 5.03 (Contravention with respect to the Seller) and Section 5.06 (Title to Securities) (the “Fundamental Representations”) shall survive until the conclusion of the applicable statute of limitations. The covenants and agreements of the Parties contained in this Agreement shall survive according to their respective terms.  For the avoidance of doubt, the right to recover Losses with respect to the matters set forth in Section 8.01(a)(ii)-(vii) shall survive irrespective of the survival of the representations and warranties of the Parties set forth herein.

Section 8.03.  Certain Limitations; Allocation of Liability.  The Party making a claim under this Article VIII is referred to as the “Indemnified Party” and the Party against whom such claims are asserted under this Article VIII is referred to as the “Indemnifying Party”. The indemnification provided for in this Article VIII shall be subject to the following limitations:

(a)Indemnification Threshold.  No Purchaser Indemnified Person or Seller Indemnified Person will be entitled to indemnification for any Losses under Section 8.01(a) or 8.01(b) unless and until the aggregate amount of Losses suffered, sustained, or incurred by all of the Purchaser Indemnified Persons or the Seller Indemnified Persons, as the case may be, exceeds the Threshold Amount, calculated on a cumulative basis and not per item basis, and then such party will be entitled to recover such Losses from the first dollar of such Losses and not merely the excess of such Losses above the Threshold Amount; provided, however, that with respect to indemnification pursuant to Section 8.01(a)(vi)-(x) the Purchaser Indemnified Persons shall be entitled to recover any such Losses from the first dollar of such Losses without any threshold, basket or deductible of any kind, and any such payments shall count towards the Threshold Amount.

(b)Indemnification Cap. The Seller shall not be liable to the Purchaser Indemnified Parties pursuant to Section 8.01(a)(i), and the Purchaser shall not be liable to the Seller Indemnified Parties pursuant to Section 8.01(b)(i), for any Losses that are in excess of Five Million Dollars ($5,000,000.00) (the “Indemnification Cap”), provided that, for the avoidance of doubt, the foregoing Indemnification Cap shall not apply to any Losses arising under Section 8.01(a)(ii)-(vii) or under Section 8.01(a)(i) with respect to the Fundamental Representations.

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(c)Repurchase Right.  To the extent that the Purchaser seeks indemnification from the Seller pursuant to Sections 8.01(a)(v)-(vii) for Losses relating to a Portfolio Loan, so long as the amount of such Losses do not exceed the total outstanding balance of such Portfolio Loan, the Seller shall have the right, in lieu of making the indemnification payments required hereunder (and without reference to the Threshold Amount or the Indemnification Cap), to purchase the entire guaranteed and unguaranteed portion of such Portfolio Loan from the Company (the “Repurchase Right”) for an amount equal to the full balance of such Portfolio Loan (the “Repurchase Consideration”).  In order to be effective, the Seller must (i) notify Purchaser and the Company of the exercise of the Repurchase Right no later than thirty (30) Business Days following receipt of a request for indemnification, and (ii) deliver to the Company the Repurchase Consideration, by wire transfer of immediately available funds, no later than thirty (30) additional Business Days following the exercise of the Repurchase Right.  Upon receipt by the Company of the Repurchase Consideration, the Purchaser shall cause the Company to transfer the purchased Portfolio Loan, together with all documentation related thereto, to Seller as soon as practicable, but in no event later than ten (10) Business Days following receipt of such consideration.  The Repurchase Right shall not be deemed effective if (x) the amount of Losses with respect to such Portfolio Loan exceeds its outstanding balance, (y) the Company is unable to acquire 100% of such Portfolio Loan or (z) the Company is not able to terminate any outstanding participation, guarantee or other encumbrance with respect to such Portfolio Loan or is otherwise prohibited by Law or contract from transferring such Portfolio Loan to the Seller. In the event that the Company cannot transfer a Portfolio Loan to the Seller but have received the Repurchase Consideration from Seller, the Purchaser shall cause the Company to refund such Repurchase Consideration to the Seller no later than three (3) Business Days after the Company has confirmed that such transfer cannot take place.

(d)Payments by an Indemnifying Party pursuant to Section 8.01(a) or Section 8.01(b), as the case may be, in respect of any Loss shall be (i) limited to the amount of any liability or damage that remains after deducting therefrom any insurance proceeds and any indemnity, contribution or other similar payment received or reasonably expected to be received by the Indemnified Party (or the Company) in respect of any such claim. The Indemnified Party shall use its commercially reasonable efforts to recover under insurance policies or indemnity, contribution or other similar agreements for any Losses prior to seeking indemnification under this Agreement and (ii) reduced by an amount equal to any Tax benefit realized or reasonably expected to be realized as a result of such Loss by the Indemnified Party.

(e)Each Indemnified Party shall take, and cause its Affiliates to take, all reasonable steps to mitigate any Loss upon becoming aware of any event or circumstance that would be reasonably expected to, or does, give rise thereto, including incurring costs only to the minimum extent necessary to remedy the breach that gives rise to such Loss.

Section 8.04.  Fraud Exception.  Notwithstanding any provision contained in this Article VIII to the contrary, in the event any Loss or failure to discover a fact or condition by a Purchaser Indemnified Person is due to, arises from, or is in connection with, fraud, intentional misrepresentation, grossly negligent misrepresentation or willful misconduct by the Seller or any Person acting on their behalf, such Purchaser Indemnified Person will be entitled to recover any

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such Losses from the Seller, without regard to any of the time limitations, dollar thresholds or dollar limitations set forth above, and will be entitled to recover the full amount of such Losses from the first dollar of any such Loss.

ARTICLE IX

Termination and Expenses

Section 9.01.  Termination.  The obligations of the Parties to consummate the Transactions under the Transaction Documents may be terminated at any time prior to the Closing by:

(a)the mutual written consent of Seller and Purchaser;

(b)the Seller, if (i) the Closing shall not have occurred on or prior to the Termination Date, unless such failure to consummate the Transactions is the result of a breach of any Transaction Document by Seller, (ii) the Purchaser shall have breached in any material respect any of its representations, warranties, covenants or other agreements contained in the Transaction Documents, which breach (A) would give rise to the failure of a condition set forth in Section 3.02, and (B) cannot be or has not been cured by the earlier to occur of (x) the date which is thirty (30) days after the giving of written notice by the Seller to the Purchaser specifying such breach, and (y) the Termination Date, (iii) the Seller has delivered a Seller SBA-Related Termination Notice in accordance with Section 2.01(c), (iv) the Seller has delivered a Seller Financing Restructure Termination Notice in accordance with Section 2.01(d), (v) the Seller has delivered a Seller Servicing Termination Notice in accordance with Section 2.01(e), or (vi) the Seller has delivered a Seller Key Employee Agreement Termination Notice in accordance with Section 2.01(f); or

(c)the Purchaser, if (i) the Closing shall not have occurred on or prior to the Termination Date, unless such failure to consummate the Transactions is the result of a material breach of any Transaction Document by the Purchaser, (ii) if the Seller shall have breached any of its representations, warranties, covenants or other agreements contained in the Transaction Documents, which breach (A) would give rise to the failure of a condition set forth in Section 3.03, and (B) cannot be or has not been cured by the earlier to occur of (x) the date which is thirty (30) days after the giving of written notice by the Purchaser to the Seller specifying such breach, and (y) the Termination Date, (iii) Purchaser has provided a Purchaser DD Termination Notice in accordance with Section 2.01(b), or (iv) the Purchaser and the Seller cannot resolve the objection of the Purchaser pursuant to Section 2.02(a)(ii);

(d)the Seller or the Purchaser if (i) any Law shall have been enacted, adopted, issued or promulgated which, prohibits the Transactions or adversely impairs the conduct or operation of the Business by the Company immediately after the Closing, (ii) any Governmental Body shall have issued an order, decree or ruling or taken any other action, which permanently restrains, enjoins or otherwise prohibits the Transactions, and such order, decree, ruling or other

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action shall have become final and non-appealable, or (iii) the SBA provides written notice of its denial of the application for change of control;

(e)the Purchaser or the Seller, if, as of the Termination Date, each of the conditions to Closing set forth in Section 3.02 and Section 3.03 have been satisfied or waived other than the condition set forth in Section 3.03(s) (Financing); or

(f)the Purchaser or the Seller, if as of February 28, 2013, Purchaser shall have failed to obtain the consent of the Member Committee of the manager of CapitalSpring to consummate the Transactions.

Any such termination shall be in writing delivered to the other Parties (which writing includes a Purchaser DD Termination Notice, a Seller SBA-Related Termination Notice, a Seller Financing Restructure Related Termination Notice, a Seller Servicing Termination Notice, or a Seller Key Employee Agreement Termination Notice) in accordance with the provisions of Section 10.01 hereof.

Section 9.02.  Effect of Termination.  In the event of a termination of this Agreement under Section 9.01, this Agreement shall become void and of no further force or effect, except for the provisions of Section 9.03.  Except as set forth in the provisions of this Article IX, upon termination of this Agreement, no Party shall have any liability to the other Party of any kind or nature whatsoever; provided that neither the termination of this Agreement, nor anything contained in this Section 9.02, will be deemed to release any Party from any liability due to, or prevent the other Party from exercising their rights and remedies under this Agreement with respect to the breach by any such Party of the covenants or agreements of such Party in this Agreement prior to the date of such termination and provided, further, that if each of the conditions to Closing set forth in Section 3.02 and Section 3.03 has been satisfied or waived on or prior to the Termination Date, and no breach of any covenant or other agreement hereunder has occurred as of such time, then each of the Seller and the Purchaser shall be required to consummate the Transactions unless this Agreement is terminated pursuant to Section 9.01.

Section 9.03.  Treatment of Deposit.  The Seller shall be entitled to receive the Deposit if: (a) each of the conditions to Closing set forth in Section 3.03 have been satisfied or waived other than Section 3.03(b) if the failure of the SBA to consent to the transaction is due to the failure of the Purchaser to submit an application to the SBA or the failure of the SBA to consent to a submitted application is only due to the capitalization and/or financing structure of the Purchaser, or Section 3.03(s) (Financing); (b) the Purchaser terminated this Agreement as a result of the failure of the Parties to resolve any objection(s) of the Purchaser to the computation of the Estimated Total Equity under Section 2.02(a)(ii) and the objection(s) of the Purchaser were not based on reasonable positions supportable by GAAP and consistent with prior positions taken by the Company; (c) this Agreement is terminated pursuant to Section 9.01(b)(ii); (d) this Agreement is terminated pursuant to Section 9.01(e); or (e) this Agreement is terminated pursuant to Section 9.01(f).  The Purchaser shall be entitled to receive the Deposit if this Agreement is terminated pursuant to any other Section or subsection of this Article IX.

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ARTICLE X

Miscellaneous

Section 10.01.  Notices.  All notices, requests, demands and other communications to any Party or given under any this Agreement shall be in writing and delivered personally, by overnight delivery or courier, by registered mail, by e-mail or by facsimile (with confirmation received) to the Parties at the address, e-mail address or facsimile number specified for such Parties on the signature pages hereto (or at such other address, e-mail address or facsimile number as may be specified by a Party in writing given at least five (5) Business Days prior thereto).  All notices, requests, demands and other communications will be deemed delivered when actually received.

Section 10.02.  Counterparts.  This Agreement may be executed simultaneously in one or more counterparts, and by different Parties in separate counterparts, each of which when executed will be deemed an original, but all of which taken together will constitute one and the same instrument.  A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

Section 10.03.  Amendment of Agreement.  This Agreement may not be amended, modified or waived except by an instrument in writing signed on behalf of each of the Parties.

Section 10.04.  Successors and Assigns; Assignability.  This Agreement shall be binding upon and inures to the benefit of and is enforceable by the respective successors and permitted assigns of the Parties.  This Agreement may not be assigned by any Party without the prior written consent of all other Parties, except for the assignment of all or any part of the rights and obligations of the Purchaser under this Agreement, which may be freely assigned by the Purchaser to an Affiliate of the Purchaser prior to the Closing Date.  Any assignment or attempted assignment (i) in contravention of this Section 10.04 will be void ab initio and (ii) will not relieve the assigning Party of any obligation under this Agreement

Section 10.05.  Governing Law.  This Agreement will be governed by, and construed in accordance with, the laws of the state of Texas applicable to contracts executed in and to be performed entirely within that state, without reference to conflicts of laws provisions.

Section 10.06.  Integration.  The Transaction Documents contain and constitute the entire agreement of the Parties with respect to the subject matter hereof and supersedes all prior negotiations, agreements and understandings, whether written or oral, of the Parties.

Section 10.07.  Fees and Expenses.  Each Party shall bear its own costs and expenses with respect to the Transactions and the negotiation, execution and delivery of the Transaction Documents, including expenses of counsel.  Notwithstanding the foregoing, at the Closing, solely with respect to the finder’s fee of Mr. Timothy Terry, such fees shall be borne jointly by Purchaser and Seller as follows: Seller shall pay an amount equal to the lesser of (a) $50,000.00 or (b) 50% of Mr. Terry’s total finder’s fee, and the remainder of such finder’s fee shall be borne

63

by Purchaser.  If the Closing does not occur, the fees and expenses of Mr. Terry shall be borne solely by Purchaser.

Section 10.08.  Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law, or public policy, all other conditions and provisions of this Agreement will nevertheless remain in full force and effect Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

Section 10.09.  Further Assurances.  In order to (a) carry out more effectively the purposes of each Transaction Document, (b) enable the Purchaser to exercise and enforce its rights and remedies and collect any payments and proceeds under each Transaction Document to which the Purchaser is a party and (c) transfer, preserve, protect and confirm to the Purchaser the rights granted or now or hereafter intended to be granted to the Purchaser under each Transaction Document to which the Purchaser is a party or under each other instrument executed in connection with any Transaction Document to which the Seller is or may become a party, promptly upon the reasonable request by the Purchaser or the Seller, the Parties shall (i) correct any defect or error that may be discovered in any Transaction Document or in the execution, delivery, acknowledgment or recordation of any Transaction Document and (ii) execute, acknowledge, deliver, record, file and register, any and all such further transfers, certificates, assurances and other instruments, in each case, as such requesting Party may reasonably require from time to time.

Section 10.10.  No Third-Party Rights.  Except as provided in Article VIII, this Agreement is not intended, and will not be construed, to create any rights in any parties other than the Parties, and no Person may assert any rights as third-party beneficiary hereunder.

Section 10.11.  Submission to Jurisdiction.  The Parties hereby (a) agree that any Action with respect to any Transaction Document may be brought only in the courts of the State of Delaware or of the United States of America for the Western District of Texas, (b) accepts for itself and in respect of its property, generally and unconditionally, the exclusive jurisdiction of such courts, (c) irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any Action in those jurisdictions, and (d) irrevocably consents to the service of process of any of the courts referred to above in any Action by the mailing of copies of the process to the Parties as provided in Section 10.01.  Service effected as provided in this manner will become effective ten calendar days after the mailing of the process.

Section 10.12.  Waiver of Jury Trial.  The Parties hereby waive any right to a trial by jury in any Action to enforce or defend any right under any Transaction Document or any amendment, instrument, document or agreement delivered or to be delivered in connection with any Transaction Document and agrees that any Action will be tried before a court and not before a jury.

64

Section 10.13.  No Waiver; Remedies.  No failure or delay by any Party in exercising any right, power or privilege under this Agreement will operate as a waiver of the right, power or privilege.  A single or partial exercise of any right, power or privilege will not preclude any other or further exercise of the right, power or privilege or the exercise of any other right, power or privilege.  Except as expressly provided for herein, the rights and remedies provided in the Transaction Documents will be cumulative and not exclusive of any rights or remedies provided by law.

Section 10.14.  Interpretation.  As used in this Agreement, references to the singular will include the plural and vice versa and references to the masculine gender will include the feminine and neuter genders and vice versa, as appropriate.  Unless otherwise expressly provided in this Agreement (a) the words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement will refer to this Agreement as a whole and not to any particular provision of this Agreement and (b) article, section, subsection, schedule and exhibit references are references with respect to this Agreement unless otherwise specified.  Unless the context otherwise requires, the term “including” will mean “including, without limitation.”  The headings in this Agreement and in the Schedules are included for convenience of reference only and will not affect in any way the meaning or interpretation of this Agreement. References in this Agreement to any law or regulation will refer to such laws and regulations as from time to time amended and to any laws or regulations successor thereto.

Section 10.15.  Ambiguities.  This Agreement was negotiated between legal counsel for the Parties and any ambiguity in this Agreement shall not be construed against the Party who drafted this Agreement.

Section 10.16.  Incorporation of Schedules and Exhibits.  The Schedules and Exhibits hereto are incorporated into this Agreement and will be deemed a part hereof as if set forth herein in full.  References to “this Agreement” and the words “herein”, “hereof” and words of similar import refer to this Agreement (including the Schedules and Exhibits) as an entirety.  In the event of any conflict between the provisions of this Agreement and any Schedule or Exhibit, the provisions of this Agreement will control.  Capitalized terms used in the Schedules have the meanings assigned to them in this Agreement.  The Section references referred to in the Schedules are to Sections of this Agreement, unless otherwise expressly indicated.

[Signature Page Follows]

65

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

SELLER:
Address for Notices:		FIRSTCITY BUSINESS LENDING CORPORATION
6400 Imperial Drive (delivery only)		By:	/s/ James C. Holmes
Waco, Texas 76710		Name:	James C. Holmes
P.O. Box 8216 (mail)		Title:	Executive Vice President
Waco, Texas 76714-8216
254-761-2953 (telecopier)
254-761-2953 (phone)
With a copy to:
Haley & Olson, P.C.
Triangle Tower, Suite 600
510 N. Valley Mills Dr.
Waco, Texas 76710
Phone :	254-751-8519
Fax :	254-776-6823

66

PURCHASER:
Address for Notices:			CS ABL HOLDINGS, LLC
c/o CapitalSpring Finance Company, LLC
950 Third Avenue, 24th Floor
Attention: Pierrette A. Bradshaw,			By:	/s/ Chris Unrath
General Counsel			Name:	Chris Unrath
Telephone No.:	(212) 981-0146		Title:	Authorized Person
Facsimile No.:	(212) 981-0159
With a copy to:
Richards Kibbe & Orbe LLP
One World Financial Center
Attention: Jahan Sharifi
Telephone No.:		(212) 530-1826
Facsimile No.:		(212) 530-1801

67

EXHIBIT A

Form of Purchaser Officer’s Certificate

68

EXHIBIT B

Form of Key Officer Employment Agreement

[To come]

69

EXHIBIT C

Form of Seller Officer’s Certificate

70

EXHIBIT D

Form of Secretary’s Certificate

71

EXHIBIT E

Form of Transition Servicing Agreement

[To come]

72

EXHIBIT F

Escrow Agreement

73

EXHIBIT G

Wells Fargo Term Sheet

74

EXHIBIT H

Portfolio Loan Schedule

Form of Portfolio Loan Schedule is located on the Datasite.

75

EXHIBIT I

Pioneer Loan Acquisition Procedure

The procedure for the acquisition of the Pioneer Loan will be as follows:

1.On or before the Closing Date, the Seller, or its designated Affiliate, and the Company will enter into a loan sale agreement in form acceptable to the Company, the Seller and the Purchaser.

2.Upon execution of the loan sale agreement, the Seller or its designated Affiliate will wire funds into the ABL Collection Account in an amount represented by the total of (a) the SBA guaranteed portion, (b) the ABL unguaranteed portion, (c) the capitalized legal fees, and (d) any FAS costs; with the amount of the sum of (a) through (d) decreased by any discounts and reserves held on the books of ABL.  As of 19 December 2012, this total was $1,125,910.28.

3.Upon receipt of the wired funds as described in step 2, the Company will immediately wire to the SBA the amount of those funds designated for the repurchase of the SBA guaranteed portion.

4.The Company will make the additional book entries to pay the debt off in full on the Company’s books.

5.The Company will endorse the original note to the Seller and deliver the original note and all related Portfolio Credit Documents and the Loan File to the Seller or its designated Affiliate.

6.The Company will prepare (or cause to be prepared by counsel) and execute transfers to the designated Affiliate of the Seller of all Portfolio Credit Documents, UCCs financing statement any all other collateral documents.

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EX-21.1

Exhibit 21.1

FIRSTCITY FINANCIAL CORPORATION

(21)	Subsidiaries of the Registrant
1.	FirstCity Financial Corporation.  The following corporations, limited partnerships, limited liability companies and other entities are entities in which FirstCity Financial Corporation or certain of its subsidiaries own an equity interest.
A.	Corporations:
	Name:	FLBG Corporation
	Jurisdiction:	Texas; incorporated on June 2, 2010
	Shareholder:	FirstCity Financial Corporation	1,000 Common	(100			)%
	Name:	J-Hawk Corporation
	Jurisdiction:	Texas; incorporated on September 12, 1997
	Shareholders:	FirstCity Financial Corporation	1,000 Shares	(100			)%
	Name:	J-Hawk Corporation
	Jurisdiction:	Delaware
	Shareholders:	FirstCity Financial Corporation	1,000 Shares	(100			)%
	Name:	FC Investment Holdings Corporation
	Jurisdiction:	Texas; formed March 26, 2010
	Shareholders:	FirstCity Financial Corporation	1,000 Common	(100			)%
	Name:	FirstCity Fund Advisors, Inc.
	Jurisdiction:	Delaware; incorporated on May 22, 2008
	Shareholder:	FirstCity Financial Corporation	50,000 Shares	(100			)%
B.	Corporate General Partners of Limited Partnerships:
	Name:	Bosque Asset GP Corp. (formerly SLP Assets GP Corp.)
	Jurisdiction:	Texas, incorporated on April 12, 2001
	Shareholder:	FirstCity Financial Corporation	400 Shares	(100			)%
	Name:	FirstCity US Opportunity Fund GP, Inc.
	Jurisdiction:	Delaware; incorporated on May 22, 2008
	Shareholder:	FirstCity Financial Corporation	50,000 Shares	(100			)%
C.	Limited Partnerships:
	Name:	Bosque Asset Funding, L.P. (formerly SLP Assets, Ltd.)
	Jurisdiction:	Texas, certificate filed on April 12, 2001
	Partners:	Bosque Asset GP Corp.		General	0.50		%
		FirstCity Financial Corporation		Limited	99.50		%
	Name:	FirstCity US Opportunity Fund, LP
	Jurisdiction:	Delaware; formed on June 10, 2008
	Partners:	FirstCity US Opportunity Fund GP, Inc.		General -		1.0	%
2.	FC Investment Holdings Corporation. The following entities are entities in which FC Investment Holdings Corporation or certain of its subsidiaries own an equity interest.
	Name:	FC Diversified Holdings LLC
	Jurisdiction:	Texas; formed on March 29, 2010
	Member:	FC Investment Holdings Corporation		(100			)%
	Name:	FC Diversified Holdings Europe LLC
	Jurisdiction:	Texas; formed on August 2, 2010

1

Member:	FC Investment Holdings Corporation		(100	)%
Name:	FirstCity Servicing Corporation (formerly J-Hawk Servicing Corporation)
Jurisdiction:	Texas, incorporated on July 25, 1995
Shareholders:	FC Investment Holdings Corporation	1,000 Shares	(100	)%
Name:	FC Highway 6 Holdings LLC
Jurisdiction:	Texas; formed on March 29, 2010
Member:	FC Diversified Holdings LLC		100	%
Name:	MPortfolio 2 LLC
Jurisdiction:	Texas; formed on September 20, 2010
Member:	FC Highway 6 Holdings LLC		90	%
Name:	FirstStorm Partners 1 LLC
Jurisdiction:	Texas; formed on January 31, 2011
Member:	FC Highway 6 Holdings LLC		90	%
Name:	FirstStorm Partners 2 LLC
Jurisdiction:	Texas; formed on August 10, 2011
Member:	FC Highway 6 Holdings LLC		90	%
Name:	FirstStorm Properties 2 LLC
Jurisdiction:	Texas; formed on October 14, 2011
Member:	FirstStorm Partners 2 LLC		100	%
Name:	FC Imperial Holdings LLC
Jurisdiction:	Texas; formed on April 5, 2010
Member:	FC Diversified Holdings LLC		100	%
Name:	VFC Partners 4 LLC
Jurisdiction:	Delaware; formed on April 8, 2010
Members:	FC Imperial Holdings LLC		15	%
Name:	VFC Properties 4 LLC
Jurisdiction:	Delaware; formed on May 20, 2010
Member:	VFC Partners 4 LLC		100	%
Name:	VFC Realty 4 LLC
Jurisdiction:	Delaware; formed on July 28, 2011
Member:	VFC Partners 4 LLC		100	%
Name:	VFC-4 1520 Hoolihan LLC
Jurisdiction:	Delaware; formed on May 20, 2010
Member:	VFC Realty 4 LLC		100	%
Name:	VFC-4 1801 Madison LLC
Jurisdiction:	Delaware; formed on May 20, 2010
Member:	VFC Realty 4 LLC		100	%
Name:	VFC-4 Carrabelle LLC
Jurisdiction:	Delaware; formed on May 20, 2010
Member:	VFC Partners 4 LLC		100	%
Name:	Cincy Office Properties, Inc.
Jurisdiction:	Ohio; formed on March 18, 2010
Shareholder:	VFC Realty 4 LLC		100	%
Name:	Oakland Park Center, LLC
Jurisdiction:	Florida; formed on September 9, 2009
Shareholder:	VFC Partners 4 LLC		100	%
Name:	Loke Properties LLC

2

Jurisdiction:	New York; formed on July 28, 2009
Shareholder:	VFC Partners 4 LLC	100	%
Name:	VFC Partners 5 LLC
Jurisdiction:	Delaware; formed on May 12, 2010
Members:	FC Imperial Holdings LLC	50	%
Name:	VFC Properties 5 LLC
Jurisdiction:	Delaware; formed on July 2, 2010
Member:	VFC Partners 5 LLC	100	%
Name:	VFC Partners 6 LLC
Jurisdiction:	Delaware; formed on May 12, 2010
Members:	FC Imperial Holdings LLC	25	%
Name:	VFC Properties 6 LLC
Jurisdiction:	Delaware; formed on June 30, 2010
Member:	VFC Partners 6 LLC	100	%
Name:	VFC Partners 7 LLC
Jurisdiction:	Delaware; formed on December 8, 2010
Members:	FC Imperial Holdings LLC	25	%
Name:	VFC Properties 7 LLC
Jurisdiction:	Delaware; formed on December 15, 2010
Member:	VFC Partners 7 LLC	100	%
Name:	VFC Properties Meadows LLC
Jurisdiction:	Delaware; formed on February 24, 2011
Member:	VFC Partners 7 LLC	100	%
Name:	VFC Partners 8 LLC
Jurisdiction:	Delaware; formed on December 15, 2010
Members:	FC Imperial Holdings LLC	25	%
Name:	VFC Properties 8 LLC
Jurisdiction:	Delaware; formed on December 15, 2010
Member:	VFC Partners 8 LLC	100	%
Name:	VFC Partners 9 LLC	Initial
Jurisdiction:	Delaware; formed on January 24, 2011
Members:	FC Imperial Holdings LLC	25	%
Name:	VFC Properties 9 LLC
Jurisdiction:	Delaware; formed on February 27, 2012
Member:	VFC Partners 9 LLC	100	%
Name:	VFC Partners 10 LLC	Initial
Jurisdiction:	Delaware; formed on April 4, 2011
Members:	FC Imperial Holdings LLC	25	%
Name:	VFC Properties 10 LLC
Jurisdiction:	Delaware; formed on June 30, 2011
Member:	VFC Partners 10 LLC	100	%
Name:	VFC Partners 11 LLC	Initial
Jurisdiction:	Delaware; formed on June 1, 2011
Members:	FC Imperial Holdings LLC	25	%
Name:	VFC Properties 11 LLC
Jurisdiction:	Delaware; formed on May 16, 2012
Member:	VFC Partners 11 LLC	100	%
Name:	VFC Partners 12 LLC	Initial
Jurisdiction:	Delaware; formed on July 14, 2011

3

Members:	FC Imperial Holdings LLC	25	%
Name:	VFC Partners 14 LLC	Initial
Jurisdiction:	Delaware; formed on September 23, 2011
Members:	FC Imperial Holdings LLC	10	%
Name:	VFC Properties 14 LLC
Jurisdiction:	Delaware; formed on October 17, 2011
Member:	VFC Partners 14 LLC	100	%
Name:	VFC Partners 15 LLC	Initial
Jurisdiction:	Delaware; formed on October 4, 2011
Members:	FC Imperial Holdings LLC	10	%
Name:	VFC Properties 15 LLC
Jurisdiction:	Delaware; formed on October 17, 2011
Member:	VFC Partners 15 LLC	100	%
Name:	VFC Partners 16 LLC	Initial
Jurisdiction:	Delaware; formed on November 16, 2011
Members:	FC Imperial Holdings LLC	10	%
Name:	VFC Properties 16 LLC
Jurisdiction:	Delaware; formed on March 14, 2012
Member:	VFC Partners 16 LLC	100	%
Name:	VFC Partners 17 LLC	Initial
Jurisdiction:	Delaware; formed on December 22, 2011
Members:	FC Imperial Holdings LLC	10	%
Name:	VFC Properties 17 LLC
Jurisdiction:	Delaware; formed on December 28, 2011
Member:	VFC Partners 17 LLC	100	%
Name:	VFC Partners 18 LLC
Jurisdiction:	Delaware; formed on July 29, 2011
Member:	FC Imperial Holdings LLC	10	%
Name:	VFC Properties 18 LLC
Jurisdiction:	Delaware; formed on August 17, 2011
Member:	VFC Partners 18 LLC	100	%
Name:	VFC Partners 19 LLC
Jurisdiction:	Delaware; formed on March 7, 2012
Member:	FC Imperial Holdings LLC	10	%
Name:	VFC Properties 19 LLC
Jurisdiction:	Delaware; formed on March 21, 2012
Member:	VFC Partners 19 LLC	100	%
Name:	VFC Partners 20 LLC
Jurisdiction:	Delaware; formed on March 21, 2012
Member:	FC Imperial Holdings LLC	10	%
Name:	VFC Properties 20 LLC
Jurisdiction:	Delaware; formed on June 19, 2012
Member:	VFC Partners 20 LLC	100	%
Name:	VFC Partners 21 LLC
Jurisdiction:	Delaware; formed on May 9, 2012
Member:	FC Imperial Holdings LLC	20	%
Name:	VFC Properties 21 LLC
Jurisdiction:	Delaware; formed on June 14, 2012
Member:	VFC Partners 21 LLC	100	%

4

	Name:	VFC Partners 22 LLC
	Jurisdiction:	Delaware; formed on June 22, 2012
	Member:	FC Imperial Holdings LLC		20			%
	Name:	VFC Properties 22 LLC
	Jurisdiction:	Delaware; formed on October 31, 2012
	Member:	VFC Partners 22 LLC		100			%
	Name:	VFC Partners 23 LLC
	Jurisdiction:	Delaware; formed on July 16, 2012
	Member:	FC Imperial Holdings LLC		20			%
	Name:	VFC Properties 23 LLC
	Jurisdiction:	Delaware; formed on August 7, 2012
	Member:	VFC Partners 23 LLC		100			%
	Name:	VFC Soda Properties LLC
	Jurisdiction:	Delaware; formed on October 17, 2012
	Member:	VFC Partners 23 LLC		100			%
	Name:	VFC Partners 24 LLC
	Jurisdiction:	Delaware; formed on October 17, 2012
	Member:	FC Imperial Holdings LLC		20			%
	Name:	VFC Properties 24 LLC
	Jurisdiction:	Delaware; formed on December 26, 2012
	Member:	VFC Partners 24 LLC		100			%
	Name:	VFC Partners 25 LLC
	Jurisdiction:	Delaware; formed on December 17, 2012
	Member:	FC Imperial Holdings LLC		20			%
	Name:	VFC Properties 25 LLC
	Jurisdiction:	Delaware; formed on February 26, 2013
	Member:	VFC Partners 25 LLC		100			%
	Name:	FC Portfolio Holdings LLC
	Jurisdiction:	Texas; formed on May 2, 2012
	Member:	FC Investment Holdings Corporation		100			%
	Name:	FC Prime Investments LLC
	Jurisdiction:	Texas; formed on June 4, 2012
	Member:	FC Portfolio Holdings LLC		100			%
	Name:	FC Prime Properties LLC
	Jurisdiction:	Texas; formed on June 14, 2012
	Member:	FC Prime Investments LLC		100			%
3.	FLBG Corporation. The following entities are entities in which FLBG Corporation or certain of its subsidiaries own an equity interest.
	Name:	FirstCity Commercial Corporation (formerly J-Hawk Corporation)
	Jurisdiction:	Texas, incorporated on July 21, 1995
	Shareholders:	FLBG Corporation	1,000 Shares	(100			)%
	Name:	FC Capital Corp. (d/b/a FirstCity Capital Corporation)
	Jurisdiction:	New York, incorporated on August 4, 1997
	Shareholders:	FLBG Corporation	1,000,000 Shares			(100	)%
	Name:	FLBG Holdings Corp.
	Jurisdiction:	Texas; incorporated on June 3, 2010
	Shareholder:	FLBG Corporation	1,000 Common		(100		)%
	Name:	FLBG Holdings GP Corp.
	Jurisdiction:	Texas; incorporated on June 3, 2010
	Shareholder:	FLBG Holdings Corp.	1,000 Common		(100		)%

5

	Name:	FLBG Holdings Investment LP
	Jurisdiction:	Texas; formed on June 4, 2010
	Partners:	FLBG Holdings GP Corp.		General		0.50	%
		FLBG Holdings Corp.		Limited		99.50	%
	Name:	FLBG2 Holdings LLC
	Jurisdiction:	Texas; formed on October 27, 2011
	Member:	FLBG Corporation			100		%
4.	FirstCity Commercial Corporation. The following corporations, limited partnerships, limited liability companies and other entities are entities in which FirstCity Commercial Corporation or certain of its subsidiaries own an equity interest.
A.	Corporations and other Entities:
	Name:	FirstCity Denver Investment Corp.
	Jurisdiction:	Texas, incorporated on April 9, 2007
	Shareholder:	FirstCity Commercial Corporation	800 Shares		(80		)%
	Name:	FirstCity Crestone LLC
	Jurisdiction:	Texas, formed on April 9, 2007
	Shareholder:	FirstCity Denver Investment Corp.			(100		)%
	Name:	FC Crestone 07 Corp.
	Jurisdiction:	Texas; formed on June 5, 2007
	Shareholder:	FirstCity Denver Investment Corp.	1,000 shares		(100		)%
	Name:	FC Crestone Colorado 07 LLC
	Jurisdiction:	Colorado; formed September, 2007
	Member:	FC Crestone 07 Corp.			(100		)%
	Name:	FC Crestone 08 Corp.
	Jurisdiction:	Texas; formed on March 26, 2008
	Shareholder:	FirstCity Denver Investment Corp.	1,000 Shares		(100		)%
	Name:	ColoTex Energy Corp.
	Jurisdiction:	Texas; formed on March 26, 2008
	Shareholder:	FC Crestone 08 Corp.	1,000 Shares		(100		)%
	Name:	CAPP Equipment, LLC
	Jurisdiction:	Delaware; formed on March 13, 2008
	Member:	ColoTex Energy Corp.			(39.5		)%
	Name:	FC Crestone Utah, LLC
	Jurisdiction:	Delaware; May 2008
	Member:	FC Crestone 08 Corp.			(100		)%
	Name:	Pierpont Restaurant Group LLC
	Jurisdiction:	Utah; formed March 13, 2009
	Member:	FC Crestone Utah LLC	80,000 Units		(80		)%
	Name:	Oregon Short Line Building LLC
	Jurisdiction:	Delaware; May 15, 2008
	Member:	FC Crestone Utah LLC			(80		)%
	Name:	FC Crestone Wyoming LLC
	Jurisdiction:	Texas; formed on October 14, 2008
	Member:	FC Crestone 08 Corp.			(100		)%
	Name:	FC Crestone Oak, LLC
	Jurisdiction:	Delaware; formed on September 2, 2010
	Member:	FC Crestone Wyoming LLC			(49		)%
	Name:	CBOAK, LLC
	Jurisdiction:	Delaware; formed on October 17, 2008
	Member:	FC Crestone Oak, LLC			(100		)%

6

Name:	FC Crestone 09 Corp.
Jurisdiction:	Texas; formed on January 6, 2009
Shareholder:	FirstCity Denver Investment Corp.	1,000 Shares	(100	)%
Name:	FC Crestone 2009 Corp.
Jurisdiction:	Texas; formed on February 16, 2009
Shareholder:	FirstCity Denver Investment Corp.	1,000 Shares	(100	)%
Name:	Tileco, LLC
Jurisdiction:	Colorado; formed on February 10, 2009
Member:	FC Crestone 2009 Corp.	49,000 Units	(49	)%
Name:	FC Crestone Formation LLC
Jurisdiction:	Colorado; formed on April 24, 2009
Member:	FC Crestone 2009 Corp.		(100	)%
Name:	CPI Retail Lending LLC
Jurisdiction:	Colorado; formed on February 12, 2009
Member:	FC Crestone 2009 Corp.		(100	)%
Name:	FC Crestone Funding LLC
Jurisdiction:	Colorado; formed on May 28, 2009
Member:	FC Crestone 2009 Corp.		(100	)%
Name:	Formation Brands, LLC
Jurisdiction:	Delaware; formed on July 8, 2009
Member:	FC Crestone 2009 Corp.		(47.11	)%
Name:	Inviting Co., LLC
Jurisdiction:	Delaware; formed on October 16, 2012
Member:	Formation Brands, LLC		(100	)%
Name:	Formation Products, LLC
Jurisdiction:	Delaware; formed on July 8, 2009
Member:	Formation Brands, LLC		(100	)%
Name:	Clay Art Products, LLC
Jurisdiction:	Delaware; formed on May 13, 2009
Member:	Formation Brands, LLC		(100	)%
Name:	Slant/Stir Products, LLC
Jurisdiction:	Delaware; formed on July 8, 2009
Member:	Formation Brands, LLC		(100	)%
Name:	Performance Sourcing, LLC
Jurisdiction:	Delaware; formed on July 8, 2009
Member:	Formation Brands, LLC		(100	)%
Name:	Regional Rail, LLC
Jurisdiction:	Delaware; July 25, 2007
Managers:	Alfred M. Sauer
	Robert C. Parker
Members:	FC Crestone 07 Corp.	80,000 Units	(80	)%
Name:	East Penn Railroad LLC
Jurisdiction:	Delaware
Member:	Regional Rail, LLC		(100	)%
Name:	Middletown & New Jersey Railroad, LLC
Jurisdiction:	Delaware; formed on March 23, 2009
Member:	Regional Rail LLC		(100	)%
Name:	Conshohocken Recycling & Rail Transfer LLC
Jurisdiction:	Delaware; formed May 27, 2011
Member:	Regional Rail LLC		(100	)%

7

Name:	Tyburn Railroad LLC
Jurisdiction:	Delaware; formed May 27, 2011
Member:	Regional Rail LLC		(100	)%
Name:	Regional Transload LLC
Jurisdiction:	Delaware; formed May 27, 2011
Member:	Regional Rail LLC		(100	)%
Name:	Diamondback Signal LLC
Jurisdiction:	Delaware; formed on December 5, 2011
Member:	Regional Rail LLC		(70	)%
Name:	FC Crestone Aintree LLC
Jurisdiction:	Delaware; formed on November 5, 2009
Member:	FC Crestone 2009 Corp.		(87.45	)%
Name:	BEI Lending LLC
Jurisdiction:	Colorado; formed February 12, 2009
Member:	FC Crestone 2009 Corp.		(100	)%
Name:	BEI Electronics LLC
Jurisdiction:	Delaware; formed on December 30, 2009
Member:	FC Crestone Aintree LLC		(100	)%
Name:	BE Digital Media Solutions, LLC
Jurisdiction:	Delaware; formed on October 5, 2011
Member:	BEI Electronics LLC		(75	)%
Name:	FC Crestone 2010 Corp.
Jurisdiction:	Texas; formed on January 26, 2010
Shareholder:	FirstCity Denver Investment Corp.		100	%
Name:	Colotex Republic LLC
Jurisdiction:	Texas; formed on February 12, 2010
Member:	FirstCity Denver Investment Corp.		100	%
Name:	TWL Lending LLC
Jurisdiction:	Colorado; formed on June 9, 2010
Member:	FC Crestone 2010 Corp.		100	%
Name:	FH Partners LLC
Jurisdiction:	Texas, certificate filed on December 17, 1996
Member:	FirstCity Commercial Corporation		(100	)%
Name:	Bosque Asset Corp.
Jurisdiction:	Texas, incorporated on March 27, 1997
Shareholder:	FirstCity Commercial Corporation	10,000 Shares	(100	)%
Name:	FirstCity Consumer Lending Corporation
Jurisdiction:	Texas, incorporated on September 5, 1997
Shareholder:	FirstCity Commercial Corporation	1,000 Shares	(100	)%
Name:	FirstCity Business Lending Corporation
Jurisdiction:	Texas, incorporated on June 6, 2006
Shareholder:	FirstCity Commercial Corporation	400 Shares	(100	)%
Name:	American Business Lending, Inc.
Jurisdiction:	Texas, incorporated on June 6, 2006
Shareholder:	FirstCity Business Lending Corporation	100,000 Common Shares	(100	)%
		800,000 Preferred Shares
Name:	FirstCity Europe Corporation
Jurisdiction:	Texas; incorporated on May 12, 2003
Shareholder:	FirstCity Commercial Corporation	1,000 Shares	(100	)%
Name:	FC Funding Corp.
Jurisdiction:	Texas, incorporated on March 26, 1996

8

Shareholder:	FirstCity Commercial Corporation	1,000 Shares	(100	)%
Name:	FirstCity Holdings Corporation of Minnesota
Jurisdiction:	Texas, incorporated on March 11, 2002
Shareholder:	FirstCity Commercial Corporation	400 Shares	(100	)%
Name:	FirstCity International Corporation (formerly J-Hawk International Corp.)
Jurisdiction:	Texas; incorporated on December 19, 1996
Shareholder:	FirstCity Commercial Corporation	200 Shares	(100	)%
Name:	FirstCity Japan Inc.
Jurisdiction:	Texas, incorporated on October 16, 1998
Shareholder:	FirstCity Commercial Corporation	10,000 Shares	(100	)%
Name:	FirstCity Mexico, Inc.
Jurisdiction:	Texas, incorporated on December 9, 1998
Shareholder:	FirstCity Commercial Corporation	1,000 Shares	(100	)%
Name:	FirstCity South America, LLC
Jurisdiction:	Texas, formed December 12, 2003
Managers:	Rodrigo Ignacio Silva Alfaro
	Rene Eduardo Silva Alfaro
	James C. Holmes
	Terry R. DeWitt
Member:	FirstCity Commercial Corporation	500 Units	(50	)%
Name:	FirstCity Chile II, Ltda.
Jurisdiction:	Chile, formed June 23, 2008
Shareholder:	FirstCity Commercial Corporation		(100	)%
Name:	VFC Partners 1 LLC
Jurisdiction:	Delaware; formed on February 20, 2009
Member:	FirstCity Commercial Corporation		(50	)%
Name:	VFC Partners 2 LLC
Jurisdiction:	Delaware; formed on March 23, 2009
Member:	FirstCity Commercial Corporation	2,000 Units	(20	)%
Name:	FirstCity Acquisition LLC
Jurisdiction:	Texas; formed on April 1, 2009
Member:	FirstCity Commercial Corporation		(100	)%
Name:	CityCap Equipment Finance LLC
Jurisdiction:	Delaware; formed on July 17, 2009
Member:	FirstCity Commercial Corporation		(50	)%
Name:	AgriFirst Lending LLC
Jurisdiction:	Texas; formed on August 5, 2009
Member:	FirstCity Commercial Corporation		(20	)%
Name:	AgriFirst Properties LLC
Jurisdiction:	Delaware: formed on October 28, 2010
Member:	AgriFirst Lending LLC		(100	)%
Name:	FirstCity Investment Series LLC
Jurisdiction:	Delaware; formed on August 17, 2009
Managing Member:	Imperial Management Company LLC
Member:	Shelf
Name:	Imperial Management Company
Jurisdiction:	Delaware; formed on August 17, 2009
Member:	FirstCity Servicing Corporation		100	%
Name:	Imperial Capital Company LLC
Jurisdiction:	Delaware; formed on August 17, 2009
Member:	FirstCity Commercial Corporation		100	%

9

B.	Corporate General Partners of Limited Partnerships:
	Name:	DFC Asset Corp.
	Jurisdiction:	Texas, incorporated on July 26, 1995
	Shareholder:	FirstCity Commercial Corporation	11,024.09 Shares			(100		)%
	Name:	First C Corp.
	Jurisdiction:	Texas, incorporated on March 6, 1998
	Shareholder:	FirstCity Commercial Corporation	200 Shares		(100			)%
	Name:	First X Corp.
	Jurisdiction:	Texas, incorporated on October 3, 1996
	Shareholder:	FirstCity Commercial Corporation	200 Shares		(100			)%
	Name:	First B Corp.
	Jurisdiction:	Texas, incorporated on October 10, 1997
	Shareholder:	FirstCity Commercial Corporation	400 Shares		(100			)%
	Name:	FirstGreen GP LLC
	Jurisdiction:	Delaware; formed on August 29, 2003
	Member:	FirstCity Commercial Corporation			(100			)%
	Name:	FC Washington GP LLC
	Jurisdiction:	Texas; formed on April 20, 2005
	Member:	FirstCity Commercial Corporation			(100			)%
	Name:	WAMCO 30 of Texas, Inc.
	Jurisdiction:	Texas, incorporated on January 5, 2001
	Shareholder:	FirstCity Commercial Corporation	400 Shares		(100			)%
	Name:	EuroTex Partners GP Corp.
	Jurisdiction:	Texas; formed on June 18, 2004
	Shareholder:	FirstCity Commercial Corporation	400 Shares		(100			)%
	Name:	FCS Wood GP, Corp.
	Jurisdiction:	Texas, incorporated on September 15, 1998
	Shareholder:	FirstCity Commercial Corporation	200 Shares		(50			)%
	Name:	FCS Creamer GP, Corp.
	Jurisdiction:	Texas, incorporated on April 28, 1999
	Shareholder:	FirstCity Commercial Corporation	200 Shares		(50			)%
	Name:	FCS Wildhorse GP, Corp.
	Jurisdiction:	Texas, incorporated on June 14, 1999
	Shareholder:	FirstCity Commercial Corporation	200 Shares		(50			)%
	Name:	FCS Lancaster GP Corp.
	Jurisdiction:	Texas, incorporated on December 21, 2005
	Shareholder:	FirstCity Commercial Corporation	200 Shares		(50			)%
	Name:	Imperial Partners GP Corp.
	Jurisdiction:	Texas, incorporated on October 4, 2000
	Shareholder:	FirstCity Commercial Corporation	400 Shares		(100			)%
	Name:	MinnTex GP Corp.
	Jurisdiction:	Texas, incorporated on March 11, 2002
	Shareholder:	FirstCity Holdings Corporation of Minnesota	400 Shares		(100			)%
	Name:	FirstVal 1 GP Corp.
	Jurisdiction:	Texas, incorporated on September 14, 2006
	Shareholder:	FirstCity Commercial Corporation	200 Shares		(50			)%
C.	Limited Partnerships:
	Name:	First C Partners, L.P.
	Jurisdiction:	Texas, certificate filed on March 6, 1998
	Partners:	First C Corp.		General			2	%

10

	FirstCity Commercial Corporation	Limited	98	%
Name:	First X Realty, L.P.
Jurisdiction:	Texas, certificate filed on October 3, 1996
Partners:	First X Corp.	General	2	%
	FirstCity Commercial Corporation	Limited	98	%
Name:	First B Realty, L.P.
Jurisdiction:	Texas, certificate filed on October 10, 1997
Partners:	First B Corp.	General	1	%
	FirstCity Commercial Corporation	Limited	99	%
Name:	Diversified Financial Systems, L.P.
Jurisdiction:	Texas, certificate filed on April 19, 1999
Partners:	DFC Asset Corp.	General	1.77970	%
	FirstCity Commercial Corporation	Limited	98.22030	%
Name:	FirstGreen LP
Jurisdiction:	Delaware, August 29, 2003
Partners:	FirstGreen GP LLC	General	1.00	%
	FirstCity Commercial Corporation	Limited	99.00	%
Name:	FC Washington I LP
Jurisdiction:	Texas, April 20, 2005
Partners:	FC Washington GP LLC	General	1.00	%
	FirstCity Commercial Corporation	Limited	99.00	%
Name:	WAMCO 30, Ltd.
Jurisdiction:	Texas, certificate filed on January 5, 2001
Partners:	WAMCO 30 of Texas, Inc.	General	1.05217660	%
	FirstCity Commercial Corporation	Limited	98.9478234	%
Name:	EuroTex Partners, Ltd.
Jurisdiction:	Texas; formed on June 18, 2004
Partners:	EuroTex Partners GP Corp.	General	0.50	%
	FirstCity Commercial Corporation	Limited	99.50	%
Name:	Brazos River Partnership One, L.P.
Jurisdiction:	Texas; formed on September 28, 2006
Partners:	FirstCity Commercial Corporation	Limited	33-1/3	%
Name:	Brazos River Partnership Two, L.P.
Jurisdiction:	Texas; formed on June 18, 2012
Partners:	FC Highway 6 Holdings LLC	Limited	33-1/3	%
Name:	FCS Wood, Ltd.
Jurisdiction:	Texas, certificate filed on September 15, 1998
Partners:	FCS Wood GP Corp.	General	0.50	%
	FirstCity Commercial Corporation	Limited	49.75	%
Name:	FCS Creamer, Ltd.
Jurisdiction:	Texas, certificate filed on April 28, 1999
Partners:	FCS Creamer GP, Corp.	General	0.50	%
	FirstCity Commercial Corporation	Limited	49.75	%
Name:	FCS Wildhorse, Ltd.
Jurisdiction:	Texas, certificate filed on June 14, 1999
Partners:	FCS Wildhorse GP, Corp.	General	0.50	%
	FirstCity Commercial Corporation	Limited	49.75	%
Name:	FCS Lancaster, Ltd.
Jurisdiction:	Texas, certificate filed on December 21, 2005
Partners:	FCS Lancaster GP Corp.	General	0.50	%
	FirstCity Commercial Corporation	Limited	49.75	%
Name:	Imperial Partners, Ltd.
Jurisdiction:	Texas, certificate filed on October 4, 2000

11

	Partners:	Imperial Partners GP Corp.		General	0.50	%
		FirstCity Commercial Corporation		Limited	99.50	%
	Name:	MinnTex Investment Partners LP
	Jurisdiction:	Texas, certificate filed on March 11, 2002
	Partners:	MinnTex GP Corp.		General	1.00	%
		FirstCity Holdings Corporation of Minnesota		Limited	66.00	%
	Name:	Strategic Mexican Investment Partners 2, L.P.
	Jurisdiction:	Texas, certificate filed on July 3, 2001
	Partners:	FirstCity Commercial Corporation		General	1.0	%
		FirstCity Commercial Corporation		Limited	99.0	%
	Name:	Strategic Mexican Investment Partners, L.P.
	Jurisdiction:	Texas, certificate filed on May 8, 2001
	Partners:	FirstCity Mexico, Inc.		General	.4251287	%
		FirstCity Commercial Corporation		Limited	99.5748713	%
	Name:	FirstVal 1, Ltd.
	Jurisdiction:	Texas, certificate filed on September 14, 2006
	Partners:	FirstVal 1 GP Corp.		General	1.0	%
		FirstCity Commercial Corporation		Limited	49.5	%
D.	Corporate General Partners of REO Affiliate Limited Partnerships:
	Name:	SOWAMCO XX of Texas, Inc.
	Jurisdiction:	Texas
	Shareholder:	FirstCity Commercial Corporation	3,600 Shares		(100	)%
	Name:	MA Realco, Inc.
	Jurisdiction:	Texas, incorporated on July 25, 1995
	Shareholder:	FirstCity Commercial Corporation	200 Shares		(100	)%
	Name:	SV Asset Corp.
	Jurisdiction:	Texas, incorporated on July 21, 1995
	Shareholder:	FirstCity Commercial Corporation	200 Shares		(100	)%
	Name:	SVD Realty Asset Corp.
	Jurisdiction:	Texas, incorporated on June 6, 1997
	Shareholder:	FirstCity Commercial Corporation	400 Shares		(100	)%
	Name:	SOWAMCO XXIV of Texas, Inc.
	Jurisdiction:	Texas, incorporated on December 15, 1993
	Shareholder:	FirstCity Commercial Corporation	400 Shares		(100	)%
	Name:	SOWAMCO XXV of Texas, Inc.
	Jurisdiction:	Texas, incorporated on May 26, 1995
	Shareholder:	FirstCity Commercial Corporation	400 Shares		(100	)%
	Name:	SOWAMCO XXVII of Texas, Inc.
	Jurisdiction:	Texas, incorporated on January 18, 2000
	Shareholder:	Diversified Financial Systems, L.P.	400 Shares		(100	)%
	Name:	SOWAMCO XXVIII of Texas, Inc.
	Jurisdiction:	Texas, incorporated on March 24, 2000
	Shareholder:	WAMCO 30, Ltd.	400 Shares		(100	)%
	Name:	SOWAMCO XXIX of Texas, Inc.
	Jurisdiction:	Texas, incorporated on December 11, 2000
	Shareholder:	Diversified Financial Systems, L.P.	400 Shares		(100	)%
	Name:	SOWAMCO 30 of Texas, Inc.
	Jurisdiction:	Texas, incorporated on May 30, 2002
	Shareholder:	WAMCO 30, Ltd.	400 Shares		(100	)%
	Name:	SOWAMCO 31 of Texas, Inc.
	Jurisdiction:	Texas, incorporated on August 20, 2003

12

	Shareholder:	WAMCO 30, Ltd.	400 Shares		(100		)%
	Name:	SOWAMCO 33 of Texas, Inc.
	Jurisdiction:	Texas, incorporated on December 10, 2003
	Shareholder:	WAMCO 30, Ltd.	400 Shares		(100		)%
	Name:	SOWAMCO 34 of Texas, Inc.
	Jurisdiction:	Texas, incorporated on March 21, 2005
	Shareholder:	WAMCO 30, Ltd.	400 Shares		(100		)%
	Name:	SOWAMCO 35 of Texas, Inc.
	Jurisdiction:	Texas, incorporated on March 14, 2006
	Shareholder:	WAMCO 30, Ltd.	400 Shares		(100		)%
	Name:	FirstVal Properties 1 GP Corp.
	Jurisdiction:	Texas, incorporated on September 15, 2006
	Shareholder:	FirstCity Commercial Corporation	200 Shares		(50		)%
	Name:	FirstVal Properties 2 GP Corp.
	Jurisdiction:	Texas; incorporated on November 21, 2008
	Shareholder:	FirstCity Commercial Corporation	200 Shares		(50		)%
	Name:	WH Realty GP Corp.
	Jurisdiction:	Texas, incorporated on June 20, 2001
	Shareholder:	FCS Wildhorse, Ltd.	1,000 Shares		(100		)%
E.	REO Affiliate Limited Partnerships:
	Name:	FH Properties LLC
	Jurisdiction:	Texas, certificate filed on November 19, 1997
	Member:	FH Partners LLC				100	%
	Name:	SOWAMCO XX, Ltd.
	Jurisdiction:	Texas
	Partners:	SOWAMCO XX of Texas, Inc.		General		2	%
		Diversified Financial Systems, L.P.		Limited		98	%
	Name:	MA Realco Partners, Ltd.
	Jurisdiction:	Texas, certificate filed on July 25, 1995
	Partners:	MA Realco, Inc.		General		2	%
		SV Asset Partners, LP		Limited		98	%
	Name:	SV Asset Partners, LP
	Jurisdiction:	Texas, certificate filed on July 25, 1995
	Partners:	SV Asset Corp.		General		2	%
		FirstCity Commercial Corporation		Limited		98	%
	Name:	SVD Realty, L.P.
	Jurisdiction:	Texas, certificate filed on June 6, 1997
	Partners:	SVD Realty Asset Corp.		General		2	%
		FirstCity Commercial Corporation		Limited		98	%
	Name:	SOWAMCO XXIV, Ltd.
	Jurisdiction:	Texas, filed Certificate of Limited Partnership on December 15, 1993
	Partners:	SOWAMCO XXIV of Texas, Inc.		General		2	%
		FH Partners LLC		Limited		98	%
	Name:	SOWAMCO XXV, Ltd.
	Jurisdiction:	Texas, filed Certificate of Limited Partnership on May 26, 1995
	Partners:	SOWAMCO XXV of Texas, Inc.		General		2	%
		WAMCO 30, Ltd.		Limited		98	%
	Name:	SOWAMCO XXVII, Ltd.
	Jurisdiction:	Texas, filed Certificate of Limited Partnership on January 18, 2000
	Partners:	SOWAMCO XXVII of Texas, Inc.		General		1	%
		Diversified Financial Systems, L.P.		Limited		99	%

13

	Name:	SOWAMCO XXVIII, Ltd.
	Jurisdiction:	Texas, filed Certificate of Limited Partnership on March 24, 2000
	Partners:	SOWAMCO XXVIII of Texas, Inc.		General	1	%
		WAMCO 30, Ltd.		Limited	99	%
	Name:	SOWAMCO XXIX, Ltd.
	Jurisdiction:	Texas, filed Certificate of Limited Partnership on December 11, 2000
	Partners:	SOWAMCO XXIX of Texas, Inc.		General	1	%
		Diversified Financial Systems, L.P.		Limited	99	%
	Name:	SOWAMCO 30, Ltd.
	Jurisdiction:	Texas, filed Certificate of Limited Partnership on May 30, 2002
	Partners:	SOWAMCO 30 of Texas, Inc.		General	1.5	%
		WAMCO 30, Ltd.		Limited	98.5	%
	Name:	SOWAMCO 31, Ltd.
	Jurisdiction:	Texas, filed Certificate of Limited Partnership on August 20, 2003
	Partners:	SOWAMCO 31 of Texas, Inc.		General	1	%
		WAMCO 30, Ltd.		Limited	99	%
	Name:	SOWAMCO 33, Ltd.
	Jurisdiction:	Texas, filed Certificate of Limited Partnership on December 10, 2003
	Partners:	SOWAMCO 33 of Texas, Inc.		General	1	%
		WAMCO 30, Ltd.		Limited	99	%
	Name:	SOWAMCO 34, Ltd.
	Jurisdiction:	Texas, filed Certificate of Limited Partnership on March 21, 2005
	Partners:	SOWAMCO 34 of Texas, Inc.		General	1	%
		WAMCO 30, Ltd.		Limited	99	%
	Name:	SOWAMCO 35, Ltd.
	Jurisdiction:	Texas, filed Certificate of Limited Partnership on March 14, 2006
	Partners:	SOWAMCO 35 of Texas, Inc.		General	1	%
		WAMCO 30, Ltd.		Limited	99	%
	Name:	FirstVal Properties 1, Ltd.
	Jurisdiction:	Texas, filed Certificate of Limited Partnership on September 15, 2006
	Partners:	FirstVal Properties 1 GP Corp.		General	1.0	%
		FirstCity Commercial Corporation		Limited	49.5	%
	Name:	FirstVal Properties 2, Ltd.
	Jurisdiction:	Texas; formed on November 21, 2008
	Partners:	FirstVal Properties 2 GP Corp.		General	1.0	%
		FirstCity Commercial Corporation		Limited	49.5	%
	Name:	WH Realty, Ltd.
	Jurisdiction:	Texas, certificate filed on June 20, 2001
	Partners:	WH Realty GP corp.		General	0.5	%
		FCS Wildhorse, Ltd.		Limited	99.5	%
F.	REO Affiliate Corporations:
	Name:	FH Golf Properties I Inc.
	Jurisdiction:	Michigan; formed on February 15, 2008
	Shareholder:	FH Partners LLC	1,000 Shares		(100	)%
	Name:	FH Arizona Properties LLC
	Jurisdiction:	Arizona; formed on August 27, 2009
	Manager:	FH Properties LLC
	Members:	FH Properties LLC			51.675	%
	Name:	MPortfolio Property Corp.
	Jurisdiction:	Texas; formed on April 21, 2008
	Shareholder:	FH Partners LLC	1,000 Shares		100	%
	Name:	VFC Properties 1 LLC
	Jurisdiction:	Delaware; formed on May 12, 2009

14

	Member:	VFC Partners 1 LLC			(100	)%
	Name:	VFC Properties 2 LLC
	Jurisdiction:	Delaware; formed on October 28, 2009
	Member:	VFC Partners 2 LLC			(100	)%
5.	FirstCity Europe Corporation. The following corporations, limited partnerships, limited liability companies and other entities are entities in which FirstCity Europe Corporation or certain of its subsidiaries own an equity interest.
A.	Corporations and other Entities:
	Name:	HMCS Investment GmbH
	Jurisdiction:	Germany
	Ownership:	FirstCity Europe Corporation			24.50	%
	Name:	HMCS Portfolio GmbH
	Jurisdiction:	Germany; formed August, 2006
	Ownership:	FC Diversified Holdings Europe LLC			100	%
	Name:	HMCS Gesellschaft für Forderungsmanagement GmbH
	Jurisdiction:	Germany; formed May 17, 2004
	Ownership:	HMCS Investment GmbH			100	%
	Name:	VR Inkasso GmbH
	Jurisdiction:	Germany; formed August 25, 2004
	Ownership:	HMCS Forderungsmanagement GmbH			26	%
	Name:	HMCS Real Estate GmbH
	Jurisdiction:	Germany; formed December 19, 2005
	Ownership:	HMCS Investment GmbH			100	%
	Name:	HMCS Consulting GmbH
	Jurisdiction:	Germany; formed December 19, 2005
	Ownership:	HMCS Investment GmbH			100	%
6.	FirstCity Mexico, Inc. The following corporations, limited partnerships, limited liability companies and other entities are entities in which FirstCity Mexico, Inc. or certain of its subsidiaries own an equity interest.
	Name:	Strategic Mexican Investment Partners, L.P.
	Jurisdiction:	Texas, certificate filed on May 8, 2001
	Partners:	FirstCity Mexico, Inc.	General	.4251287		%
		FirstCity Commercial Corporation	Limited	99.5748713		%
	Name:	Bidmex Holding, LLC
	Jurisdiction:	Delaware, formed June 6, 2006
	Manager:	FirstCity Mexico, Inc.
	Member:	Strategic Mexican Investment Partners, L.P.
		(Tranche B)			9.0	%
		Strategic Mexican Investment Partners, L.P.
		(Tranche C)			6.0	%
	Name:	Bidmex Holding II, LLC
	Jurisdiction:	Delaware, formed on January 16, 2008
	Manager:	FirstCity Mexico, Inc.
	Member:	Strategic Mexican Investment Partners, L.P. —
		Tranche B			15.0	%
	Name:	Bidmex Acquisition, LLC
	Jurisdiction:	Delaware, formed June 6, 2006
	Manager & Member:	Bidmex Holding LLC			100	%
	Name:	Resmex, LLC

15

Jurisdiction:	Delaware, incorporated December 11, 1998
Manager:	FirstCity Mexico, Inc.
Member:	Strategic Mexican Investment Partners, L.P.	19.45	%
Name:	Residencial Oeste, S.A. de C.V.
Jurisdiction:	Mexico, incorporated December 16, 1998
Shareholder:	Resmex, LLC	(100	)%
Name:	Residencial Oeste 2, S. de R.L. de C.V.
Jurisdiction:	Mexico, incorporated July 25, 2006
Shareholder:	Bidmex Acquisition, LLC	(100	)%
Name:	Namex, LLC
Jurisdiction:	Delaware, formed December 10, 1999
Manager:	FirstCity Mexico, Inc.
Member:	Bidmex Holding, LLC	(100	)%
Name:	Cartera en Administracion y Cobranza, S.de R.L. de C.V.
Jurisdiction:	Mexico, incorporated December 13, 1999
Shareholder:	Namex, LLC	(100	)%
Name:	BIDMEX, LLC
Jurisdiction:	Delaware, formed January 28, 2000
Manager:	FirstCity Mexico, Inc.
Member:	Bidmex Holding, LLC	(100	)%
Name:	Administracion de Carteras Nacionales, S. de R.L. de C.V.
Jurisdiction:	Mexico, incorporated January, 2000
Shareholder:	BIDMEX, LLC	(100	)%
Name:	BIDMEX II, LLC
Jurisdiction:	Delaware, formed on May 9, 2000
Manager:	FirstCity Mexico, Inc.
Member:	Bidmex Holding, LLC	(100	)%
Name:	Administracion de Carteras Nacionales II, S. de R.L. de C.V.
	(formerly Ome Calpulli, Resolución de Cartera, S. de R.L. de C.V.)
Jurisdiction:	Mexico, incorporated on November 17, 1999
Shareholder:	BIDMEX II, LLC	(100	)%
Name:	BIDMEX 3, LLC
Jurisdiction:	Delaware, formed on October 20, 2000
Manager:	FirstCity Mexico, Inc.
Member:	Bidmex Holding, LLC	(100	)%
Name:	Administracion de Carteras Empresariales, S. de R.L. de C.V.
Jurisdiction:	Mexico, formed on November 13, 2000
Shareholder:	BIDMEX 3, LLC	(100	)%
Name:	BIDMEX 4, LLC
Jurisdiction:	Delaware, formed on March 12, 2001
Manager:	FirstCity Mexico, Inc.
Member:	Bidmex Holding, LLC	(100	)%
Name:	Cobranza Nacional de Carteras, S. de R.L. de C.V.
Jurisdiction:	Mexico, formed on March 16, 2001
Shareholder:	BIDMEX 4, LLC	(100	)%
Name:	BIDMEX 5, LLC
Jurisdiction:	Delaware, formed on April 30, 2001
Manager:	FirstCity Mexico, Inc.
Member:	Bidmex Holding, LLC	(100	)%
Name:	Cobranza Internacional de Carteras, S. de R.L. de C.V.
Jurisdiction:	Mexico, formed on May 15, 2001
Shareholder:	BIDMEX 5, LLC	(100	)%

16

Name:	BIDMEX 6, LLC
Jurisdiction:	Delaware, formed on May 31, 2001
Manager and Member:	FirstCity Mexico, Inc.	12.564	%
Member:	Strategic Mexican Investment Partners 2, L.P.	10.000	%
Name:	Recuperacion de Carteras Mexicanas, S. de R.L. de C.V.
Jurisdiction:	Mexico, formed on June 21, 2001
Shareholder:	BIDMEX 6, LLC	100	%
Name:	BIDMEX 7, LLC
Jurisdiction:	Delaware, formed on May 31, 2001
Manager:	FirstCity Mexico, Inc.
Member:	Bidmex Holding, LLC	100	%
Name:	Integracion de Activos Mexicanos, S. de R.L. de C.V.
Jurisdiction:	Mexico, formed on March 11, 2002
Shareholder:	BIDMEX 7, LLC	100	%
Name:	BIDMEX 8, LLC
Jurisdiction:	Delaware, formed on May 31, 2001
Manager:	FirstCity Mexico, Inc.
Member:	Bidmex Holding, LLC	100	%
Name:	Recuperacion de Activos Mexicanos, S. de R.L. de C.V.
Jurisdiction:	Mexico, formed on March 11, 2002
Shareholder:	BIDMEX 8, LLC	100	%
Name:	BIDMEX 9, LLC
Jurisdiction:	Delaware, formed on January 7, 2003
Manager:	FirstCity Mexico, Inc.
Member:	Bidmex Holding, LLC	100	%
Name:	Solucion de Activos Residenciales, S. de R.L. de C.V.
Jurisdiction:	Mexico, formed on April 16 , 2004
Shareholder:	BIDMEX 9, LLC	100	%
Name:	BIDMEX 10, LLC
Jurisdiction:	Delaware, formed on July 8, 2004
Manager:	FirstCity Mexico, Inc.
Member:	Bidmex Holding, LLC	100	%
Name:	Solucion de Activos Comerciales, S. de R.L. de C.V.
Jurisdiction:	Mexico, formed on July 15, 2004
Shareholder:	BIDMEX 10, LLC	100	%
Name:	BIDMEX XI, LLC
Jurisdiction:	Delaware, formed on July 7, 2004
Manager:	FirstCity Mexico, Inc.
Member:	Bidmex Holding, LLC	100	%
Name:	Solucion de Creditos Comerciales, S. de R.L. de C.V.
Jurisdiction:	Mexico, formed on March 28, 2005
Shareholder:	BIDMEX XI, LLC	100	%
Name:	BMX Holding II, LLC
Jurisdiction:	Delaware; formed on March 23, 2007
Manager:	FirstCity Mexico, Inc.
Member:	FirstCity Mexico, Inc.	8.0	%
Name:	Recuperacion de Comercio Interior, S. de R.L. de C.V.
Jurisdiction:	Mexico
Shareholders:	BMX Holding II, LLC	98.7	%
	FirstCity Mexico, Inc.	1.0	%
	FirstCity Mexico S.A. de C.V.	0.3	%
Name:	Recuperacion de Comercio Interior I, S. de R.L. de C.V.
Jurisdiction:	Mexico; formed on April 24, 2008

17

	Shareholder:	FirstCity Mexico, Inc.	100	%
	Name:	Soluciones de Adeudos de Consumo, S. de R.L. de C.V.
	Jurisdiction:	Mexico, formed on June 15, 2007
	Shareholder:	FirstCity Mexico, Inc.	100	%
	Name:	FC Acquisitions I, S. de R.L. de C.V.
	Jurisdiction:	Mexico, formed October 23, 2007
	Shareholder:	FirstCity Mexico, Inc.	100	%
	Name:	FC Portafolio de Recuperacion, S. de R.L. de C.V.
	Jurisdiction:	Mexico, formed October 29, 2007
	Shareholder:	FirstCity Mexico, Inc.	100	%
	Name:	FC Portafolio de Recuperacion I, S. de R.L. de C.V.
	Jurisdiction:	Mexico, formed October 29, 2007
	Shareholder:	FirstCity Mexico, Inc.	100	%
	Name:	FC Portafolio de Recuperacion II, S. de R.L. de C.V.
	Jurisdiction:	Mexico; formed on February 13, 2008
	Shareholder:	FirstCity Mexico, Inc.	100	%
	Name:	FC Portafolio de Recuperacion III, S. de R.L. de C.V.
	Jurisdiction:	Mexico; formed on February 13, 2008
	Shareholder:	FirstCity Mexico, Inc.	100	%
	Name:	Solucion de Activos Residenciales I, S. de R.L. de C.V.
	Jurisdiction:	Mexico; formed April, 2008
	Shareholder:	FirstCity Mexico, Inc.	100	%
7.	FirstCity Chile II Limitada. The following corporations, limited partnerships, limited liability companies and other entities are entities in which FirstCity Chile II Limitada or certain or its subsidiaries own an equity interest.
	Name:	FirstCity NPL S.A.
	Jurisdiction:	Chile, formed on February 9, 2006
	Shareholder:	FirstCity Chile II, Limitada	60	%
	Name:	NPL Fund One, Private Investment Fund
	Jurisdiction:	Chile
	Manager:	FirstCity NPL, S.A.
	Quotaholders:	FirstCity Chile II, Limitada	0.2333	%
		NPL Investments, S.A.	99.5333	%
	Name:	Servicios Integrales de Cobranza, S.A.
	Jurisdiction:	Chile
	Shareholder:	FirstCity Chile II, Limitada	50	%
	Name:	NPL Investments, S.A. (formerly Inversiones Hipotecarias S.A.)
	Jurisdiction:	Chile, formed on February 17, 2006
	Shareholder:	Inversiones NPL S.A.	98.811	%
	Name:	NPL Fund Two, Private Investment Fund
	Jurisdiction:	Chile
	Shareholders:	FirstCity Chile II Limitada	13	%
		NPL Investments, S.A.	17	%
	Name:	Inversiones NPL S.A.
	Jurisdiction:	Chile
	Shareholder:	FirstCity Chile II, Limitada	50.0	%

18

8.	FirstCity International Corporation. The following corporations, limited partnerships, limited liability companies and other entities are entities in which FirstCity International Corporation or certain or its subsidiaries own an equity interest.
A.	Corporations and other Entities:
	Name:	HMCS-ECK Limited		100	%
	Jurisdiction:	England and Wales; October 27, 2005
	Shareholders:	FirstCity International Corporation	320 A Shares
		FirstCity International Corporation	320 C Shares
		FirstCity International Corporation	320 B Shares
		FirstCity International Corporation	40 D Shares
	Name:	HMCS-SIG Limited		100	%
	Jurisdiction:	England and Wales; December 14, 2005
	Shareholders:	FirstCity International Corporation	490 A Shares
		FirstCity International Corporation	300 C Shares
		FirstCity International Corporation	200 B Shares
		FirstCity International Corporation	10 D Shares
	Name:	EHCTY Limited		100	%
	Jurisdiction:	England and Wales; September 20, 2006
	Shareholders:	FirstCity International Corporation	329 A Shares
		FirstCity International Corporation	330 B Shares
		FirstCity International Corporation	330 C Shares
		FirstCity International Corporation	10 D Shares
	Name:	HMCS-GEN Limited		100	%
	Jurisdiction:	England and Wales; October 16, 2006
	Shareholders:	FirstCity International Corporation	500 A Shares
		FirstCity International Corporation	300 B Shares
		FirstCity International Corporation	200 C Shares
	Name:	WHFC Holding S.a.r.l.
	Jurisdiction:	Luxembourg
	Shareholders:	FirstCity International Corporation		13.76	%
	Name:	CVI GVF Luxembourg Thirteen S.a.r.l.
	Jurisdiction:	Luxembourg
	Ownership:	FirstCity International Corporation	638 Shares	5.104	%
		WHFC Holding S.a.r.l.	11,861 Shares	94.888	%
	Name:	CVI GVF (Lux) Securitisation S.à.r.l.
	Jurisdiction:	Luxembourg
	Shareholder:	FirstCity International Corporation		100	%
	Name:	CVI GVF (Lux) Securitisation S.a.r.l.; Compartment “Sprockhovel”
	Jurisdiction:	Luxembourg; formed on September 6, 2006
	Owner:	FirstCity International Corporation	2,052,400 PECs	(100	)%
	Name:	CVI GVF (Lux) Securitisation S.à.r.l.; Compartment “Marktheidenfeld”
	Jurisdiction:	Luxembourg; formed on 9-06-06; Compartment June 15, 2007
	Owner:	FirstCity International Corporation	1,274,700 PECs	(100	)%
	Name:	CVI GVF (Lux) Securitisation, S.à.r.l.; Compartment “Voreifel”
	Jurisdiction:	Luxembourg; formed on September 6, 2006; Compartment November 6, 2007
	Owner:	FirstCity International Corporation	4,461,030 PECs	(100	)%
	Name:	HMCS-Rhon Limited
	Jurisdiction:	England and Wales: December 17, 2007
	Shareholders:	FirstCity International Corporation	450 A Shares	45	%
		FirstCity International Corporation	450 B Shares	45	%
		FirstCity International Corporation	100 C Shares	10	%

19

9.	FirstCity Servicing Corporation. The following corporations, limited partnerships, limited liability companies and other entities are entities in which FirstCity Servicing Corporation or certain of its subsidiaries own an equity interest.
A.	Corporations:
	Name:	FirstCity Mexico, S.A. de C.V. (formerly Asset Servicing de Mexico S.A. de C.V.)
	Jurisdiction:	Mexico, incorporated December 2, 1998
	Shareholders:	FirstCity Servicing Corporation	252,536 Shares	(100	)%
		FirstCity Financial Corporation	1 Share
	Name:	Servicios Efectivos de Recuperacion, S. de R.L. de C.V.
	Jurisdiction:	Mexico; November 16, 2001
	Shareholders:	FirstCity Mexico S.A. de C.V.		( 0.62	)%
		FirstCity Servicing Corporation		(99.38	)%
	Name:	FirstCity Servicing Corporation of California
		(formerly and d/b/a Milco Loan Servicing Corporation)
	Jurisdiction:	California, incorporated on January 3, 1991
	Shareholder:	FirstCity Servicing Corporation	199 Shares	(100	)%
	Name:	FirstCity Consumer Servicing Corporation
	Jurisdiction:	Texas, incorporated on August 2, 2003
	Shareholder:	FirstCity Servicing Corporation	400 Shares	(100	)%
	Name:	FirstCity Servicing (Brazil), LLC
	Jurisdiction:	Delaware; formed on November 29, 2007
	Member:	FirstCity Servicing Corporation		100	%
10.	FC Capital Corp. (dba FirstCity Capital Corporation). The following corporations, limited partnerships, limited liability companies and other entities are entities in which FC Capital Corp. and certain of its affiliates own an equity interest.
	Name:	FirstCity Capital Home Equity Funding Corp.
	Jurisdiction:	Delaware, incorporated on June 25, 1998
	Shareholder:	FC Capital Corp.	1,000 Shares	(100	)%
	Name:	Valhalla Holdings Corp.
	Jurisdiction:	Delaware, incorporated on June 25, 1998
	Shareholder:	FC Capital Corp.	1,000 Shares	(100	)%

20

EX-23.1

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
FirstCity Financial Corporation:

        We consent to the incorporation by reference in the registration statement (Nos. 333-10345, 333-48671, 333-59333, 333-00623, 333-09485, 333-124861, 333-171949 and 333-174911) on Forms S-3 and S-8 of FirstCity Financial Corporation and subsidiaries of our report dated March 21, 2013, with respect to the consolidated balance sheets of FirstCity Financial Corporation and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of earnings, comprehensive income, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2012, which report appears in the December 31, 2012 Annual Report on Form 10-K of FirstCity Financial Corporation and subsidiaries.

        KPMG LLP

Dallas, Texas
March 21, 2013

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Consent of Independent Registered Public Accounting Firm

EX-31.1

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Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
FOR THE CHIEF EXECUTIVE OFFICER

I, James T. Sartain, certify that:

(1)

I have reviewed this Annual Report on Form 10-K of FirstCity Financial Corporation ("registrant");

(2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

(5)

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

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 21, 2013

/s/ JAMES T. SARTAIN
James T. Sartain
President and Chief Executive Officer
(Principal Executive Officer)

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Exhibit 31.1

EX-31.2

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Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
FOR THE CHIEF FINANCIAL OFFICER

I, J. Bryan Baker, certify that:

(1)

I have reviewed this Annual Report on Form 10-K of FirstCity Financial Corporation ("registrant");

(2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

(5)

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

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 21, 2013

/s/ J. BRYAN BAKER
J. Bryan Baker
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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Exhibit 31.2

EX-32.1

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Exhibit 32.1

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

        I, James T. Sartain, President and Chief Executive Officer of FirstCity Financial Corporation (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, to the best of my knowledge:

(1)

the Annual Report on Form 10-K of the Company for the period ended December 31, 2012 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and



(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 21, 2013

/s/ JAMES T. SARTAIN

James T. Sartain
President and Chief Executive Officer
(Principal Executive Officer)

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

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Exhibit 32.1

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

EX-32.2

Exhibit 32.2

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

        I, J. Bryan Baker, Senior Vice President and Chief Financial Officer of FirstCity Financial Corporation (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, to the best of my knowledge:

(1)

the Annual Report on Form 10-K of the Company for the period ended December 31, 2012 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and



(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 21, 2013

/s/ J. BRYAN BAKER
J. Bryan Baker
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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

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Accumulated Other Comprehensive Loss (Tables)

12 Months Ended

Dec. 31, 2012

Accumulated Other Comprehensive Loss

Schedule of composition of accumulated other comprehensive loss

	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Cumulative foreign currency translation adjustments	$	(534	)	$	(1,853	)
Net unrealized gain (loss) on securities available for sale, net of tax		(43	)		(88	)
Total accumulated other comprehensive loss	$	(577	)	$	(1,941	)

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Liquidity and Capital Resources (Details 4) (USD $) In Millions, unless otherwise specified		12 Months Ended		12 Months Ended		1 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended		1 Months Ended	12 Months Ended						12 Months Ended
	Jun. 30, 2010 Reducing Note Facility - Bank of Scotland	Dec. 31, 2012 BoS Facility A	Dec. 31, 2011 BoS Facility A	Dec. 31, 2012 BoS Facility A FH Partners LLC	Dec. 31, 2011 BoS Facility A FC Commercial	Dec. 31, 2011 BoS Facility B	Dec. 31, 2012 BoS Facility B FLBG2	Mar. 31, 2012 BoA Loan	Dec. 31, 2012 BoA Loan	Nov. 20, 2011 BoA Loan	Dec. 31, 2011 BoA Loan FH Partners LLC	Dec. 31, 2012 BoA Loan FH Partners LLC	Dec. 31, 2012 BoA Loan FH Partners LLC June 30, 2012	Dec. 31, 2012 BoA Loan FH Partners LLC December 31, 2012	Dec. 31, 2012 BoA Loan FH Partners LLC June 30, 2013	Dec. 31, 2012 BoA Loan FH Partners LLC December 31, 2013	Dec. 31, 2012 BoA Loan FH Partners LLC June 30, 2014	Dec. 31, 2012 BoA Loan FH Partners LLC December 31, 2014	Dec. 31, 2012 BoA Loan FC Servicing
2011 Debt Refinancing - Bank of Scotland
Unpaid principal balance		$ 31.1	$ 173.2		$ 94.8		$ 25.0					$ 16.2
Debt assumed						25.0
Reductions in debt, net proceeds obtained under new credit facility											53.4
Primary terms and conditions
Unamortized fair value discount		1.1
Stated interest rate (as a percent)		0.25%
Amount of an outstanding letter of credit		5.4
Management fee as a percentage of the monthly collections from the underlying pledged assets other than subsidiary assets		10.00%
Management fee as a percentage of the monthly collections from subsidiary assets				5.00%			10.00%
Servicing fee as a percentage of the monthly collections from the pledged assets				5.00%
Servicing fee as a percentage of the monthly collections from subsidiary assets after payment of the BoA Loan				10.00%					5.00%
Tangible net worth required to be maintained		90.0
Prior period over which no value allocated to assets of subsidiary							3 years
Maximum borrowing capacity	268.6									50.0
Maximum principal balance outstanding													45.0	30.0	25.0	20.0	15.0	10.0
Initial maturity extended period																		1 year
Annual interest rate base												LIBOR
Interest rate added to annual interest base rates (as a percent)												2.75%
Debt service coverage ratio required to be maintained								1.4
Net worth required to be maintained																			$ 1.0

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Summary of Significant Accounting Policies (Details 2)	12 Months Ended
	Dec. 31, 2012
Building and Building Improvements | Minimum
Property and equipment
Estimated useful life	25 years
Building and Building Improvements | Maximum
Property and equipment
Estimated useful life	30 years
Office Equipment | Minimum
Property and equipment
Estimated useful life	3 years
Office Equipment | Maximum
Property and equipment
Estimated useful life	10 years
Railroad Transportation Equipment
Property and equipment
Estimated useful life	25 years
Machinery and Equipment | Minimum
Property and equipment
Estimated useful life	5 years
Machinery and Equipment | Maximum
Property and equipment
Estimated useful life	15 years
Leasehold Improvements | Minimum
Property and equipment
Estimated useful life	2 years
Leasehold Improvements | Maximum
Property and equipment
Estimated useful life	10 years

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Accumulated Other Comprehensive Loss (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Accumulated Other Comprehensive Loss
Cumulative foreign currency translation adjustments	$ (534)	$ (1,853)	$ (740)
Net unrealized gain (loss) on securities available for sale, net of tax (1)	(43)	(88)
Total accumulated other comprehensive loss	$ (577)	$ (1,941)

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Liquidity and Capital Resources (Details 5) (USD $)								12 Months Ended
	Jan. 31, 2012 WFCFPrevious Loan Facility	Dec. 31, 2012 ABL WFCF Credit Facility	Jan. 31, 2012 ABL WFCF Credit Facility	Dec. 31, 2012 ABL WFCF Credit Facility Minimum	Dec. 31, 2012 ABL WFCF Credit Facility Maximum	Dec. 31, 2012 ABL WFCF Credit Facility On or before January 31, 2013	Dec. 31, 2012 ABL WFCF Credit Facility Between January 31, 2013 and January 30, 2015	Dec. 31, 2012 ABL WFCF Credit Facility Base rate	Dec. 31, 2012 ABL LIBOR rate loans Base rate	Dec. 31, 2012 ABL Base rate loans Base rate	Dec. 31, 2012 FC Investment FNBCT Loan Facility	Dec. 31, 2012 FC Investment FNBCT Loan Facility Maximum	Dec. 31, 2012 FC Investment FNBCT Loan Facility Prime rate
Liquidity and capital resources
Maximum credit line	$ 25,000,000		$ 25,000,000								$ 15,000,000
Unpaid principal balance		15,200,000									2,000,000
Unpaid principal balance												15,000,000
Unconditional limited guaranty obligation to WFCF for all of ABL's obligations		5,000,000
SBA guaranteed loans, considered for borrowing base (as a percent)					100.00%
SBA non-guaranteed loans, considered for borrowing base (as a percent)				60.00%	80.00%
Previously-purchased performing loans, considered for borrowing base (as a percent)					80.00%
Alternate annual rate base								Base rate	LIBOR	higher of LIBOR rate or Wells Fargo prime rate			Prime Rate of commercial banks
Interest rate added to alternate annual base rates (as a percent)								0.75%	3.50%	0.75%
Prepayment fee as a percentage of maximum credit line						3.00%	2.00%
Threshold outstanding balance as a percentage of the net present value of the equity interests and loans and other assets pledged												25.00%
Stated interest rate (as a percent)											4.00%
Maximum funding commitment											7,500,000
Administration fee											25,000
Facility fee											93,750
Non-utilization fee (as a percent)											0.50%
Interest coverage ratio required to be maintained											2.0
Tangible net worth required to be maintained											$ 75,000,000

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Fair Value (Details 2) (Asset-backed securities, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Asset-backed securities
Changes to Level 3 assets
Balance, beginning of period	$ 2,798	$ 2,605
Total realized and unrealized gains for the period included in net income (loss)	100	354
Total realized and unrealized gains for the period included in other comprehensive income	(58)	(396)
Purchases		3,843
Sales		(1,980)
Settlements	(1,170)	(1,789)
Foreign currency translation adjustments		161
Balance, end of period	$ 1,670	$ 2,798

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Selected Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2012

Selected Quarterly Financial Data (Unaudited)

Summary of quarterly financial data

The following are summarized quarterly financial data for the years ended December 31, 2012 and 2011:

	2012										2011
	First Quarter		Second Quarter		Third Quarter			Fourth Quarter			First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(Dollars in thousands, except per share data)
Revenues	$	19,787	$	14,294	$	18,814		$	17,686		$	20,777	$	16,918	$	20,252	$	16,370
Costs and expenses		13,948		14,253		16,971			23,017			14,211		14,785		17,379		22,224
Equity income (loss) from unconsolidated subsidiaries		4,467		2,081		4,249			4,447			1,871		3,283		2,777		(5,700	)
Gain on business combinations		—		935		—			—			—		278		155		—
Gain on debt extinguishment		—		—		—			—			—		—		—		26,543
Gain on sale of subsidiaries		—		—		746			705			5		—		—		1,813
Income tax expense (benefit)		833		5		(59	)		195			602		1,024		421		1,655
Net earnings		9,473		3,052		6,897			(374	)		7,840		4,670		5,384		15,147
Less: Net income attributable to noncontrolling interests		1,108		1,565		2,130			(93	)		4,115		2,242		2,654		(187	)
Net earnings attributable to FirstCity		8,365		1,487		4,767			(281	)		3,725		2,428		2,730		15,334
Less: Net earnings attributable to participating securities		82		29		96			(6	)		—		—		25		142
Net earnings to common stockholders		8,283		1,458		4,671			(275	)		3,725		2,428		2,705		15,192
Basic earnings per share of common stock:
Net earnings	$	0.80	$	0.14	$	0.45		$	(0.03	)	$	0.36	$	0.24	$	0.26	$	1.48
Diluted earnings per share of common stock:
Net earnings	$	0.80	$	0.14	$	0.45		$	(0.03	)	$	0.36	$	0.24	$	0.26	$	1.47

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies

Schedule of combined ownership interests in unconsolidated equity-method subsidiaries

The following is a summary of the Company's combined ownership interests in unconsolidated equity-method subsidiaries at December 31, 2012 and 2011:

	Ownership Interests
	2012	2011
Acquisition Partnerships:
Domestic	10% - 50%	10% - 50%
Latin America	8% - 50%	8% - 50%
Europe	N/A	22% - 50%
Operating and Servicing Entities:
Domestic	39% - 49%	39% - 49%
Latin America	50%	50%
Europe	25%	16% - 37%

Summary of analysis of the changes in the cumulative adjustments

An analysis of the changes in the cumulative adjustments for 2012 and 2011 follows (dollars in thousands):

Balance, December 31, 2010	$	(740	)
Aggregate adjustment for the year resulting from translation adjustments and gains and losses on certain hedge transactions		(1,113	)
Balance, December 31, 2011		(1,853	)
Aggregate adjustment for the year resulting from translation adjustments and gains and losses on certain hedge transactions		1,319
Balance, December 31, 2012	$	(534	)

Schedule of basic and diluted earnings per common share

	Year Ended December 31,
(In thousands, except per share data)	2012		2011
Net earnings	$	19,048	$	33,041
Less: Net income attributable to noncontrolling interests		4,710		8,824
Net earnings attributable to FirstCity	$	14,338	$	24,217
Less: Net earnings allocable to participating securities		251		180
Net earnings allocable to common shares	$	14,087	$	24,037
Weighted-average common shares outstanding—basic		10,333		10,283
Dilutive effect of restricted stock shares		31		8
Dilutive effect of stock options		44		13
Weighted-average common shares outstanding—diluted		10,408		10,304
Net earnings per share:
Basic	$	1.36	$	2.34
Diluted	$	1.35	$	2.33

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Fair Value (Details 3) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets measured at fair value
Portfolio Assets - loans (1)	$ 44,904	$ 97,090
Loans receivable - SBA held for investment (1)	19,372	19,151
Real estate held for sale (2)	10,171	26,856
Investments in unconsolidated subsidiaries	77,466	109,393
Total
Assets measured at fair value
Assets held for sale, net of related liabilities		6,634
Non-recurring basis | Decrease in value
Assets measured at fair value
Portfolio Assets - loans (1)	(1,419)	(921)
Loans receivable - SBA held for investment (1)	(421)	(385)
Real estate held for sale (2)	(409)	(2,067)
Investments in unconsolidated subsidiaries		(7,435)
Assets held for sale, net of related liabilities		(3,093)
Total	(2,249)	(13,901)
Non-recurring basis | Level 2
Assets measured at fair value
Portfolio Assets - loans (1)	4,074
Loans receivable - SBA held for investment (1)	238
Real estate held for sale (2)	1,452	6,297
Assets held for sale, net of related liabilities		2,011
Non-recurring basis | Level 3
Assets measured at fair value
Portfolio Assets - loans (1)	1,757	1,923
Loans receivable - SBA held for investment (1)	40	559
Investments in unconsolidated subsidiaries		4,567
Non-recurring basis | Total
Assets measured at fair value
Portfolio Assets - loans (1)	5,831	1,923
Loans receivable - SBA held for investment (1)	278	559
Real estate held for sale (2)	1,452	6,297
Investments in unconsolidated subsidiaries		4,567
Assets held for sale, net of related liabilities		$ 2,011

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Stock-Based Compensation (Details) (USD $)	12 Months Ended				1 Months Ended		12 Months Ended	1 Months Ended
	Dec. 31, 2012 item	Dec. 31, 2011	Dec. 31, 2012 Stock options	Dec. 31, 2011 Stock options	Mar. 31, 2012 Restricted stock awards	Mar. 31, 2011 Restricted stock awards	Dec. 31, 2012 Restricted stock awards	Mar. 31, 2012 Restricted stock awards Non-employee directors	Mar. 31, 2011 Restricted stock awards Non-employee directors	Mar. 31, 2012 Restricted stock awards Executive management	Mar. 31, 2011 Restricted stock awards Executive management
Stock-Based Compensation
Number of stock option and award plans	3
Maximum number of common shares, which can be awarded (net of shares cancelled and forfeited)	1,100,000
Shares available to grant	153,000
Stock-based compensation expense recorded	$ 1,100,000	$ 700,000
Stock-based compensation
Continuous service period required from the grant date based on which awards generally vest			4 years
Contractual term			10 years
Shares
Options outstanding at the beginning of the period (in shares)			722,400	747,400
Exercised (in shares)				(15,000)
Forfeited (in shares)			(7,500)	(10,000)
Options outstanding at the end of the period (in shares)			714,900	722,400
Options exercisable at the end of the period (in shares)			649,900	589,900
Weighted Average Exercise Price
Options outstanding at the beginning of the period (in dollars per share)			$ 8.06	$ 7.99
Exercised (in dollars per share)				$ 4.69
Forfeited (in dollars per share)			$ 7.90	$ 8.39
Options outstanding at the end of the period (in dollars per share)			$ 8.06	$ 8.06
Options exercisable at the end of the period (in dollars per share)			$ 8.17	$ 8.31
Weighted Average Remaining Contractual Term (Years)
Options outstanding at the end of the period			4 years 5 months 5 days
Options exercisable at the end of the period			4 years 2 months 19 days
Aggregate Intrinsic Value
Options outstanding at the end of the period			1,382,000
Options exercisable at the end of the period			1,199,000
Total intrinsic value of stock options exercised			0	30,000
Unrecognized compensation
Total unrecognized compensation cost			200,000
Weighted average period for recognition of total unrecognized compensation cost			7 months 6 days				2 years
Shares
Non-vested at the beginning of the period (in shares)			132,500
Vested (in shares)			(66,250)
Forfeited (in shares)			(1,250)
Non-vested at the end of the period (in shares)			65,000	132,500
Weighted Average Grant-Date Fair Value
Non-vested at the beginning of the period (in dollars per share)			$ 6.93
Vested (in dollars per share)			$ 6.93
Forfeited (in dollars per share)			$ 6.93
Non-vested at the end of the period (in dollars per share)			$ 6.93	$ 6.93
Restricted Stock Awards
Period over which stock awards vest								1 year	1 year	3 years	3 years
Weighted-average grant-date fair value of awards (in dollars per share)					$ 8.78	$ 6.58
Total unrecognized compensation cost							$ 1,100,000
Summary of restricted stock awards and related activity
Shares outstanding at the beginning of the period							96,126
Shares granted							165,607	26,250	27,258	139,357	68,868
Shares vested							(50,212)
Shares outstanding at the end of the period							211,521

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Business Combinations, Sale and Deconsolidation of Subsidiaries, and Noncontrolling Interest (Details 2)) (USD $)	12 Months Ended				1 Months Ended
	Dec. 31, 2012	Nov. 30, 2011 Foreign equity-method investee, purchaser of subsidiary interest	Feb. 28, 2011 European Acquisition Partnership, purchaser of subsidiary interest and portfolio assets	Feb. 28, 2011 Affiliate of Varde European Acquisition Partnership, purchaser of subsidiary interest and portfolio assets	Nov. 30, 2011 French Acquisition Partnerships	Nov. 30, 2011 French Acquisition Partnerships Foreign equity-method investee, purchaser of subsidiary interest item	Feb. 28, 2011 German Acquisition Partnerships	Nov. 30, 2012 Brazilian Acquisition Partnership
Subsidiary or Equity Method Investee [Line Items]
Consideration received on divestiture						$ 3,400,000	$ 22,500,000	$ 400,000
Beneficial ownership interest (as a percent)			13.00%	87.00%
Number of partnerships sold						16
Amount of cash, removed from balance sheet	2,855,000				800,000
Amount of Portfolio Assets, removed from balance sheet					500,000
Non-cash decrease in noncontrolling interest	9,334,000				600,000
Gain realized on transaction					2,800,000			400,000
Deferred gain on sale recognized					$ 1,000,000
Ownership interests in the foreign equity-method investee (as a percent)		36.80%
Sale of ownership interest (as a percent)								20.00%

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Leases (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Future minimum lease payments under all non-cancellable operating leases
2013	$ 572,000
2014	456,000
2015	398,000
2016	359,000
2017	281,000
Thereafter	2,600,000
Corporate headquarters
Non-cancellable operating lease
Monthly lease payments required through October 31, 2015	16,000
Monthly lease payments required from November 1, 2015 through expiration in October 2020	17,250
Rental expense	192,000	196,000
Office space and equipment
Non-cancellable operating lease
Rental expense	$ 746,000	$ 681,000

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Commitments and Contingencies (Details 2) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
WFCF Credit Facility
Commitments and contingencies
Revolving loan facility	$ 25.0	$ 25.0
Unconditional guaranty obligation	5.0	5.0
Credit facility with Banco Santander Chile, S.A | Fondo de Inversion Privado NPL Fund One
Commitments and contingencies
Unpaid principal balance of loan	5.3
FNBCT Loan Facility
Commitments and contingencies
Revolving loan facility	15.0
FC Commercial | BoS Facility A
Commitments and contingencies
Unpaid principal balance of loan	31.1
ABL | WFCF Credit Facility
Commitments and contingencies
Unpaid principal balance of loan	15.2
FC Investment | FNBCT Loan Facility
Commitments and contingencies
Revolving loan facility	15.0
Unpaid principal balance of guaranteed debt	2.0
Guaranty for repayment of the indebtedness under term loan | Acquisition Partnerships
Commitments and contingencies
Unpaid principal balance of loan	1.4
Letters of credit | BoS Facility A
Commitments and contingencies
Letter of credit	$ 5.4

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Segment Reporting (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012 item	Dec. 31, 2011 item
Segment Reporting
Number of major business segments									2	2
Summarized information by segment
Revenues	$ 17,686	$ 18,814	$ 14,294	$ 19,787	$ 16,370	$ 20,252	$ 16,918	$ 20,777	$ 70,581	$ 74,317
Costs and expenses	(23,017)	(16,971)	(14,253)	(13,948)	(22,224)	(17,379)	(14,785)	(14,211)	(68,189)	(68,599)
Equity income (loss) from unconsolidated subsidiaries	4,447	4,249	2,081	4,467	(5,700)	2,777	3,283	1,871	15,244	2,231
Gain on business combinations			935			155	278		935	433
Gain on debt extinguishment					26,543					26,543
Gain on sale of subsidiaries	705	746			1,813			5	1,451	1,818
Income tax (expense) benefit	(195)	59	(5)	(833)	(1,655)	(421)	(1,024)	(602)	(974)	(3,702)
Net income attributable to noncontrolling interests	93	(2,130)	(1,565)	(1,108)	187	(2,654)	(2,242)	(4,115)	(4,710)	(8,824)
Net earnings attributable to FirstCity	(281)	4,767	1,487	8,365	15,334	2,730	2,428	3,725	14,338	24,217
Portfolio Asset Acquisition and Resolution
Summarized information by segment
Revenues									55,577	63,877
Costs and expenses									(37,880)	(52,481)
Equity income (loss) from unconsolidated subsidiaries									8,958	(624)
Gain on business combinations										278
Gain on debt extinguishment										26,543
Gain on sale of subsidiaries									1,451	1,818
Income tax (expense) benefit									(490)	(3,807)
Net income attributable to noncontrolling interests									(3,531)	(7,654)
Net earnings attributable to FirstCity									24,085	27,950
Special Situations Platform
Summarized information by segment
Revenues									14,117	10,190
Costs and expenses									(17,926)	(7,796)
Equity income (loss) from unconsolidated subsidiaries									6,286	2,855
Gain on business combinations									935	155
Income tax (expense) benefit									(326)	(166)
Net income attributable to noncontrolling interests									(1,179)	(1,170)
Net earnings attributable to FirstCity									1,907	4,068
Special Situations Platform | Minimum
Segment reporting
Investments repayment or exit period									12 months
Special Situations Platform | Maximum
Segment reporting
Investments repayment or exit period									60 months
Corporate and Other
Summarized information by segment
Revenues									887	250
Costs and expenses									(12,383)	(8,322)
Income tax (expense) benefit									(158)	271
Net earnings attributable to FirstCity									$ (11,654)	$ (7,801)

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Subsequent Events (Details) (FirstCity Business Lending, USD $) In Millions, unless otherwise specified	Jan. 22, 2013 Subsequent event Stock purchase agreement	Dec. 31, 2012 Pro Forma
Subsequent Events
Estimated purchase price	$ 11.1
Carrying value of investment		$ 7.5

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Fair Value (Details) (USD $)											12 Months Ended
	Dec. 31, 2012 Marketable equity security	Dec. 31, 2011 Marketable equity security	Dec. 31, 2012 Asset-backed securities	Dec. 31, 2011 Asset-backed securities	Dec. 31, 2011 Recurring basis Level 1	Dec. 31, 2011 Recurring basis Level 1 Marketable equity security	Dec. 31, 2012 Recurring basis Level 3	Dec. 31, 2011 Recurring basis Level 3	Dec. 31, 2012 Recurring basis Level 3 Asset-backed securities	Dec. 31, 2011 Recurring basis Level 3 Asset-backed securities	Dec. 31, 2012 Recurring basis Level 3 Asset-backed securities Discounted cash flow model	Dec. 31, 2012 Recurring basis Fair Value	Dec. 31, 2011 Recurring basis Fair Value	Dec. 31, 2011 Recurring basis Fair Value Marketable equity security	Dec. 31, 2012 Recurring basis Fair Value Asset-backed securities	Dec. 31, 2011 Recurring basis Fair Value Asset-backed securities
Fair value measurements
Investment securities available for sale					$ 1,000,000	$ 1,000,000	$ 1,670,000	$ 2,798,000	$ 1,670,000	$ 2,798,000		$ 1,670,000	$ 3,798,000	$ 1,000,000	$ 1,670,000	$ 2,798,000
Investment securities available for sale at amortized cost	$ 0	$ 1,100,000	$ 1,700,000	$ 2,800,000
Discount rate (as a percent)											20.00%

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Foreign Currency Exchange Risk Management (Details) (Net Investment Hedging Relationship, USD $) In Thousands, unless otherwise specified	Dec. 31, 2011
Net Investment Hedging Relationship
Non-derivative instrument in net investment hedging relationship
Euro-denominated debt	$ 13,240

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Fair Value

12 Months Ended

Dec. 31, 2012

Fair Value

Fair Value

17. Fair Value

        We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value for applicable fair value disclosures. Investment securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value certain other assets and liabilities on a non-recurring basis, Portfolio Assets, loans receivable, real estate investments, servicing assets, investments in unconsolidated subsidiaries, and various other assets held for sale (including liabilities related to the assets held for sale). These non-recurring fair value adjustments typically involve lower-of-cost-or-market accounting or write-downs of individual assets.

• Fair Value Hierarchy

        The accounting guidance on fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). We group our assets and liabilities measured at fair value in three levels of the fair value hierarchy, based on the fair value measurement technique, as described below:

• •

  Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets and liabilities in active exchange markets that the Company has the ability to access at the measurement date.

  •

  Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques with significant assumptions and inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

  •

  Level 3—Valuation is derived from model-based techniques that use inputs and significant assumptions that are supported by little or no observable market data. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of pricing models, discounted cash flow models and similar techniques.

        The level of fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is most significant to the fair value measurement in its entirety. In the determination of the classification of assets and liabilities in Level 2 or Level 3 of the fair value hierarchy, we consider all available information, including observable market data, indications of market conditions, and our understanding of the valuation techniques and significant inputs used. Based upon the specific facts and circumstances, judgments are made regarding the significance of the Level 3 inputs to the fair value measurements of the respective assets and liabilities in their entirety. If the valuation techniques that are most-significant to the fair value measurements are principally derived from assumptions and inputs that are corroborated by little or no observable market data, the asset or liability is classified as Level 3.

• Determination of Fair Value

        We attempt to base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs, when reasonably available, and minimize the use of unobservable inputs when developing fair value measurements. However, active market pricing information and other observable market data are not available for a significant portion of the Company's financial instruments (primarily distressed assets and non-public debt instruments). In instances where there is limited or no observable market data, fair value measurements are based principally upon our own valuation models and estimates, or combination of our own valuation models and estimates plus independent vendor or broker pricing, and the measurements are often calculated, as applicable, based on current pricing adjusted for the economic and competitive environment, the characteristics of the asset or liability, and other such factors. As with any valuation technique used to estimate fair value, changes in underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. Accordingly, these fair value estimates may not be realized in an actual sale or immediate settlement of the asset or liability. The Company believes the imprecision of an estimate could significantly impact the fair value measurement.

        Following are descriptions of the valuation methodologies used for assets and liabilities recorded at fair value on a recurring or non-recurring basis, and for estimating fair value for financial instruments not reported at fair value on our consolidated balance sheet for disclosure purposes.

        Cash and Cash Equivalents and Restricted Cash:    Cash and cash equivalents and restricted cash are carried at historical cost. The carrying amount approximates fair value due to the short-term nature of these instruments.

        Portfolio Assets—Loans:    See Note 1 for information on the carrying value of loan Portfolio Assets. The Company does not carry its loan Portfolio Assets at fair value on a recurring basis. However, periodically, we may record non-recurring adjustments to the carrying value of impaired loans to reflect partial write-downs, which are reported as non-recurring fair value measurements when the adjustment is based on the observable market price of the loan or the fair value of collateral. The fair values of impaired loans are generally based on appraised value of collateral. Non-recurring fair value adjustments to loans that are based on observable market prices and collateral valuations using observable inputs are classified as Level 2 measurements. When management determines that the fair value of the collateral requires additional adjustments, such as a result of non-current appraisal value or when there is no observable market price, the Company generally employs internal valuation processes consisting primarily of market comparable pricing and discounted cash flow techniques. These internal valuation techniques include various significant unobservable inputs, such as market discount rates, liquidity discounts, comparability adjustments, loss severity, and market/collateral condition adjustments. The Company classifies its fair value measurements using internal valuation techniques for these assets as Level 3 for non-recurring fair value adjustments, because these valuation techniques are principally derived from assumptions, inputs and qualitative considerations that are corroborated by little or no observable market data.

        Additionally, for disclosure purposes, the Company is required to provide fair value estimates for its loan Portfolio Assets that are not recorded at fair value on a recurring or non-recurring basis. The Company estimates fair value for this disclosure using a discounted cash flow model that employs market discount rates that reflect the Company's current pricing for loans with similar characteristics, adjusted for various considerations such as market conditions and credit risk. This fair value measurement technique is a Level 3 measurement, because it is principally derived from assumptions, inputs and qualitative considerations that are corroborated by little or no observable market data.

        Portfolio Assets—Real Estate:    See Note 1 for information on the carrying value of our real estate investments held for sale and held for investment. Fair value measurements for our real estate investments are generally based on collateral valuations using observable inputs and, accordingly, we classify these assets as Level 2 for non-recurring fair value adjustments.

        Loans Receivable Held for Investment:    See Note 1 for information on the carrying value of loans receivable held for investment. The Company does not carry its loans receivable held for investment at fair value on a recurring basis. However, periodically, we may record non-recurring adjustments to the carrying value of impaired loans to reflect partial write-downs, which are reported as non-recurring fair value measurements when the adjustment is based on the observable market price of the loan or the fair value of collateral. The fair values of impaired loans are generally based on appraised value of collateral. Non-recurring fair value adjustments to loans that are based on observable market prices and collateral valuations using observable inputs are classified as Level 2 measurements. When management determines that the fair value of the collateral requires additional adjustments, such as a result of non-current appraisal value or when there is no observable market price, the Company generally employs internal valuation processes consisting primarily of market comparable pricing and discounted cash flow techniques. These internal valuation techniques include various significant unobservable inputs, such as market discount rates, liquidity discounts, comparability adjustments, loss severity, and market/collateral condition adjustments. The Company classifies its fair value measurements using internal valuation techniques for these assets as Level 3 for non-recurring fair value adjustments, because these valuation techniques are principally derived from assumptions, inputs and qualitative considerations that are corroborated by little or no observable market data.

        Additionally, for disclosure purposes, the Company is required to provide fair value estimates for its loans receivable held for investment that are not recorded at fair value on a recurring basis. For this disclosure, estimated fair values of fixed-rate loans receivable, including affiliated loans, are generally determined using a discounted cash flow model, adjusted by an amount for estimated losses that employs market discount rates and other adjustments that would be expected to be made by a market participant. Estimated fair values of variable-rate loans that re-price frequently at market interest rates are based on carrying values adjusted for estimated credit losses and other adjustments that would be expected to be made by a market participant. The estimated fair value for impaired loans is generally based on collateral valuations using observable inputs, adjusted for various considerations that would be expected to be made by a market participant; or discounted cash flow models that employ market discount rates and other adjustments that would be expected to be made by a market participant. These fair value measurement techniques are classified as Level 3 measurements, because they are principally derived from assumptions, inputs and qualitative considerations that are corroborated by little or no observable market data.

        SBA Loans Held for Sale:    SBA loans receivable held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is generally based on prices that secondary markets are currently offering for loans with similar characteristics. As such, we classify those loans subject to non-recurring fair value adjustments as Level 2.

        Investment Securities Available for Sale:    Investment securities available for sale are carried at fair value on our consolidated balance sheet. The Company measures fair value for its marketable equity investment using quoted market prices in an active exchange market for identical assets (Level 1). The Company measures fair value for its asset-backed securities using discounted cash flow models based on assumptions and inputs that are corroborated by little or no observable market data (Level 3). The Company uses this measurement technique for these assets because pricing information and market-participant assumptions for its asset-backed securities are not readily accessible and frequently released to the public.

        Investments in Unconsolidated Subsidiaries:    Investments in unconsolidated subsidiaries are generally recorded under the equity method of accounting (see Note 1). Estimated fair values of these investments are based on a discounted cash flow approach using a price quotation for similar investments, adjusted for various considerations that, in management's opinion, reflect elements a market participant would consider. The Company classifies its fair value measurement techniques for these non-marketable equity investments as Level 3 for non-recurring fair value adjustments because pricing information for similar assets is generally not released to the public, and the Company's valuation techniques that are most-significant to the fair value measurements are principally derived from assumptions and inputs that are corroborated by little or no observable market data.

        Assets Held for Sale, Net of Related Liabilities:    Assets held for sale, net of related liabilities, represented the net assets of certain Company subsidiaries that management expects to sell or otherwise dispose, and were carried at the lower-of-cost or market at December 31, 2011 (see Note 4). The composition of these assets and liabilities comprised primarily Portfolio Assets, an affiliated loan receivable, and an affiliated note payable. The estimated fair values of the net assets related to these subsidiaries were based primarily on a contractual sales price (adjusted for costs to sell) and a price quotation from a prospective buyer and, accordingly, we classified these assets and liabilities as Level 2 for non-recurring fair value adjustments.

        Notes Payable and Other Debt Obligations:    Notes payable and other debt obligations are carried at amortized cost, net of unamortized discounts. For disclosure purposes, we are required to estimate the fair value of our notes payable and debt obligations. For our debt instruments, quoted market prices or interest rates for similar debt with comparable terms (or when traded by market participants as an asset) are not readily observable in active trading markets. As such, we estimated the fair value of our debt obligations with Bank of Scotland by discounting the future cash flows of each debt instrument at rates currently offered to us for loan facilities with other creditors that include similar terms and maturities (these discount rates include our current spread levels). For the remainder of our non-affiliated notes payable and debt obligations, management believes that carrying value approximates fair value since the interest rates and terms on these debt instruments approximate the rates, market spreads and terms currently offered by other lenders for similar debt instruments of comparable terms. Fair values of the Company's affiliated notes payable (including related interest payable) were based on discounted cash flow models that employ market discount rates and other adjustments that would be expected to be made by a market participant.

• Assets Measured at Fair Value on a Recurring Basis

        The table below presents the Company's balances of assets measured at fair value on a recurring basis at December 31, 2012 and 2011. The Company did not have any liabilities that were measured at fair value on a recurring basis at December 31, 2012 and 2011. There were no transfers of assets recorded at fair value on a recurring basis into or out of Level 1 and Level 2 fair value measurements during the years ended December 31, 2012 and 2011.

	At December 31, 2012
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Investment securities available for sale:
Asset-backed securities	$	—	$	—	$	1,670	$	1,670
	$	—	$	—	$	1,670	$	1,670

	At December 31, 2011
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Investment securities available for sale:
Marketable equity security	$	1,000	$	—	$	—	$	1,000
Asset-backed security		—		—		2,798		2,798
	$	1,000	$	—	$	2,798	$	3,798

        At December 31, 2012 and 2011, the amortized cost of the Company's marketable equity security was zero and $1.1 million, respectively. At December 31, 2012 and 2011, the amortized cost of the Company's asset-backed securities approximated $1.7 million and $2.8 million, respectively. The Company used a discounted cash flow model (valuation technique), with a 20% discount rate (significant unobservable input), to measure the estimated fair value of its asset-backed security (Level 3 asset) at December 31, 2012.

        The table below summarizes the changes to the Company's Level 3 assets measured at fair value on a recurring basis for the years ended December 31, 2012 and 2011:

	Year Ended December 31,
(Dollars in thousands)	2012			2011
Balance, beginning of period	$	2,798		$	2,605
Total realized and unrealized gains for the period included in:
Net income (loss)		100			354
Other comprehensive income		(58	)		(396	)
Purchases		—			3,843
Sales		—			(1,980	)
Issuances		—			—
Settlements		(1,170	)		(1,789	)
Foreign currency translation adjustments		—			161
Net transfers into Level 3		—			—
Balance, end of period	$	1,670		$	2,798

• Assets Measured at Fair Value on a Non-Recurring Basis

        The Company may be required, from time to time, to measure certain financial and non-financial assets and liabilities at fair value on a non-recurring basis. These adjustments to fair value generally result from write-downs of financial and non-financial assets as a result of impairment or application of lower-of-cost or fair value accounting. The following table provides the fair value hierarchy and the carrying value of assets on the Company's consolidated balance sheet at December 31, 2012 and 2011 that were measured at fair value on a non-recurring basis during the respective years then ended:

	Carrying Value at December 31, 2012
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Portfolio Assets—loans(1)	$	—	$	4,074	$	1,757	$	5,831
Loans receivable—SBA held for investment(1)		—		238		40		278
Real estate held for sale(2)		—		1,452		—		1,452

	Carrying Value at December 31, 2011
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Portfolio Assets—loans(1)	$	—	$	—	$	1,923	$	1,923
Loans receivable—SBA held for investment(1)		—		—		559		559
Real estate held for sale(2)		—		6,297		—		6,297
Investments in unconsolidated subsidiaries		—		—		4,567		4,567
Assets held for sale, net of related liabilities		—		2,011		—		2,011

(1)

Represents the carrying value of impaired loans for which adjustments were based on the collateral value.

(2)

Represents the carrying value of foreclosed real estate properties that were impaired and measured at fair value subsequent to their initial classification as foreclosed assets.

        The following table presents the decrease in value of certain assets held at the respective period end that were measured at fair value on a non-recurring basis for which a fair value adjustment was included in the Company's results of operations during the respective period:

	Year Ended December 31,
(Dollars in thousands)	2012			2011
Portfolio Assets—loans(1)	$	(1,419	)	$	(921	)
Loans receivable—SBA held for investment(1)		(421	)		(385	)
Real estate held for sale(2)		(409	)		(2,067	)
Investments in unconsolidated subsidiaries(3)		—			(7,435	)
Assets held for sale, net of related liabilities(4)		—			(3,093	)
Total	$	(2,249	)	$	(13,901	)

(1)

Represents write-downs of loans based on the estimated fair value of the collateral for collateral-dependent loans.

(2)

Represents losses on foreclosed real estate properties that were measured at fair value subsequent to their initial classification as foreclosed assets.

(3)

Represents a loss in value on investments in unconsolidated subsidiaries that was deemed to be other-than-temporary (see Note 7).

(4)

Represents the net write-down of a disposal group upon its classification as held for sale (see Note 4).

        The fair value adjustment reductions in the table for 2012 and 2011 involved assets held in our Portfolio Asset Acquisition and Resolution business segment.

• Estimated Fair Values of Financial Instruments Not Recorded at Fair Value in their Entirety on a Recurring Basis

        The table below presents the carrying amount and estimated fair value of the Company's financial instruments, including accrued interest (where applicable), that are not recorded at fair value in their entirety on a recurring basis on the Company's consolidated balance sheets at December 31, 2012 and December 31, 2011. These fair value estimates are generally based on pertinent information that was available to management as of the respective measurement dates. The fair value estimates have not been revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented. We have not included assets that are not financial instruments in our disclosure, such as the value of our servicing assets and investments in unconsolidated subsidiaries.

	December 31, 2012										December 31, 2011
			Estimated Fair Value
	Carrying Amount										Carrying Amount		Estimated Fair Value
(Dollars in thousands)			Level 1		Level 2		Level 3		Total
Cash, cash equivalents and restricted cash	$	41,095	$	41,095	$	—	$	—	$	41,095	$	36,031	$	36,031
Loan Portfolio Assets and loans receivable held for investment		78,741		—		—		103,345		103,345		135,423		173,616
SBA loans held for sale		1,087		—		1,232		—		1,232		7,614		8,353
Assets held for sale, net of related liabilities(1)		—		—		—		—		—		4,569		6,634
Notes payable and other debt obligations		76,945		—		—		76,945		76,945		189,936		189,936

(1)

Comprised of Portfolio Assets, an affiliated loan receivable and an affiliated note payable (see Note 4).

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Summary of Significant Accounting Policies (Details 4) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Earnings per common share
Net earnings	$ (374)	$ 6,897	$ 3,052	$ 9,473	$ 15,147	$ 5,384	$ 4,670	$ 7,840	$ 19,048	$ 33,041
Less: Net income attributable to noncontrolling interests	(93)	2,130	1,565	1,108	(187)	2,654	2,242	4,115	4,710	8,824
Net earnings attributable to FirstCity	(281)	4,767	1,487	8,365	15,334	2,730	2,428	3,725	14,338	24,217
Less: Net earnings allocable to participating securities									251	180
Net earnings to common stockholders	$ (275)	$ 4,671	$ 1,458	$ 8,283	$ 15,192	$ 2,705	$ 2,428	$ 3,725	$ 14,087	$ 24,037
Weighted-average common shares outstanding - basic									10,333,000	10,283,000
Weighted-average common shares outstanding - diluted									10,408,000	10,304,000
Net earnings per share:
Basic (in dollars per share)	$ (0.03)	$ 0.45	$ 0.14	$ 0.80	$ 1.48	$ 0.26	$ 0.24	$ 0.36	$ 1.36	$ 2.34
Diluted (in dollars per share)	$ (0.03)	$ 0.45	$ 0.14	$ 0.80	$ 1.47	$ 0.26	$ 0.24	$ 0.36	$ 1.35	$ 2.33
Additional disclosures
Potentially dilutive securities representing common stock excluded from the computation of diluted earnings per common share (in shares)									555,000	769,000
Restricted stock awards
Earnings per common share
Dilutive effect of share-based payment arrangements (in shares)									31,000	8,000
Stock options
Earnings per common share
Dilutive effect of share-based payment arrangements (in shares)									44,000	13,000

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Taxes

Schedule of the Company's provision for income taxes from continuing operations

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
U.S. state current income tax expense	$	593	$	158
Foreign current income tax expense		317		3,164
Foreign deferred income tax expense		64		380
Total	$	974	$	3,702

Summary of reconciliation of the Company's provision for income taxes to the expected income tax expense at the U.S. federal statutory income tax rate

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Computed expected tax based on federal statutory rate	$	5,112		$	9,936
Increase (decrease) in taxes resulting from:
Expired capital loss carryforward		—			17,701
Change in valuation allowance		(4,611	)		(22,316	)
Inclusion of income attributable to noncontrolling
interest in an 80%-owned subsidiary		94			220
Change in tax credit carryforwards		(501	)		(4,955	)
Other		(94	)		(586	)
U.S. state and foreign income tax		974			3,702
	$	974		$	3,702

Schedule of the significant components of U.S. deferred tax assets, deferred tax liabilities, and valuation allowance

	December 31,
	2012			2011
	(Dollars in thousands)
Deferred tax assets (liabilities):
Basis difference in Acquisition Partnership investments	$	17,509		$	19,533
Intangibles, principally due to differences in amortization		264			283
Basis difference in property and equipment		143			128
Foreign non-repatriated earnings		1,215			(4,151	)
Federal net operating loss carryforwards		2,725			11,749
Tax credit carryforwards		5,456			4,955
Other		640			67
Total deferred tax assets, net		27,952			32,564
Valuation allowance		(27,952	)		(32,564	)
Net deferred tax assets	$	—		$	—

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Employee Benefit Plan (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Employee Benefit Plan
Company's contributions to the 401(k) plan	$ 0.2	$ 0.3

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Servicing Assets - SBA Loans (Tables)

12 Months Ended

Dec. 31, 2012

Servicing Assets - SBA Loans

Schedule of changes in the amortized servicing assets

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	1,193		$	954
Servicing Assets capitalized		334			453
Servicing Assets amortized		(242	)		(214	)
Ending Balance	$	1,285		$	1,193
Reserve for impairment of servicing assets:
Beginning Balance	$	(103	)	$	(118	)
Impairments		(63	)		(75	)
Recoveries		12			90
Ending Balance	$	(154	)	$	(103	)
Ending Balance (net of reserve)	$	1,131		$	1,090
Fair value of amortized servicing assets:
Beginning balance	$	1,326		$	921
Ending balance	$	1,402		$	1,326

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Liquidity and Capital Resources (Details 2) (Investment Agreement, Varde, USD $)	0 Months Ended
	Apr. 02, 2010
Liquidity and capital resources
Amount of monthly retainer in exchange for services and commitments	$ 200,000
Consecutive automatic extension period for the investment agreement	1 year
Minimum
Liquidity and capital resources
Amount of distressed asset investment triggering right of first refusal	$ 3,000,000
Co-investment percentage in each investment	5.00%
Maximum
Liquidity and capital resources
Co-investment percentage in each investment	25.00%

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Investments in Unconsolidated Subsidiaries (Details) (USD $)	3 Months Ended								12 Months Ended						12 Months Ended											1 Months Ended					12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Acquisition Partnerships	Dec. 31, 2011 Acquisition Partnerships	Dec. 31, 2012 Acquisition Partnerships Domestic	Dec. 31, 2011 Acquisition Partnerships Domestic	Dec. 31, 2012 Acquisition Partnerships Latin America	Dec. 31, 2011 Acquisition Partnerships Latin America	Dec. 31, 2011 Acquisition Partnerships Europe	Dec. 31, 2012 Combined Varde Acquisition Partnerships Domestic	Dec. 31, 2011 Combined Varde Acquisition Partnerships Domestic	Dec. 31, 2012 Other Acquisition Partnerships Domestic	Dec. 31, 2011 Other Acquisition Partnerships Domestic	Dec. 31, 2012 Servicing and operating entities	Dec. 31, 2011 Servicing and operating entities	Dec. 31, 2012 Servicing entities Latin America	Dec. 31, 2011 Servicing entities Latin America	Jun. 30, 2012 Servicing entities Europe	Dec. 31, 2012 Servicing entities Europe	Dec. 31, 2011 Servicing entities Europe	Dec. 31, 2012 Operating entities Domestic	Dec. 31, 2011 Operating entities Domestic	Dec. 31, 2012 Other operating entities Domestic	Dec. 31, 2011 Other operating entities Domestic	Dec. 31, 2012 MCS et Associes (servicing entity) Europe	Dec. 31, 2011 MCS et Associes (servicing entity) Europe	Dec. 31, 2012 Other servicing entities Europe	Dec. 31, 2011 Other servicing entities Europe	Dec. 31, 2012 FC Crestone Oak LLC (operating entity) Domestic	Dec. 31, 2011 FC Crestone Oak LLC (operating entity) Domestic
Condensed Combined Balance Sheets
Assets	$ 482,852,000				$ 613,836,000				$ 482,852,000	$ 613,836,000	$ 437,176,000	$ 450,189,000	$ 352,123,000	$ 349,529,000	$ 85,053,000	$ 100,660,000						$ 45,676,000	$ 163,647,000	$ 2,057,000	$ 1,857,000		$ 3,088,000	$ 108,534,000	$ 40,531,000	$ 53,256,000
Liabilities	37,601,000				125,670,000				37,601,000	125,670,000	14,783,000	39,401,000										22,818,000	86,269,000
Net equity	445,251,000				488,166,000				445,251,000	488,166,000	422,393,000	410,788,000	344,045,000	325,557,000	78,348,000	85,231,000						22,858,000	77,378,000	828,000	763,000		2,519,000	56,100,000	19,511,000	20,515,000
Total liabilities and equity	482,852,000				613,836,000				482,852,000	613,836,000	437,176,000	450,189,000										45,676,000	163,647,000
Equity investments	77,466,000				109,393,000				77,466,000	109,393,000	60,581,000	59,952,000	57,802,000	55,612,000	2,779,000	4,340,000						16,885,000	49,441,000	3,008,000	2,758,000		678,000	34,175,000	13,199,000	12,508,000
Non-cash decrease to investments in unconsolidated subsidiaries																										6,100,000
Condensed Combined Summary of Operations
Revenues									188,007,000	162,846,000	90,716,000	58,722,000			15,134,000	18,907,000	291,000	74,955,000	39,150,000	627,000	374,000	97,291,000	104,124,000	9,887,000	10,533,000						26,934,000	28,529,000	39,466,000	49,225,000	4,380,000	4,810,000	16,624,000	11,027,000
Costs and expenses											52,179,000	61,539,000										75,338,000	86,257,000
Net earnings (loss)									60,490,000	15,050,000	38,537,000	(2,817,000)			(861,000)	(22,240,000)	36,000	40,502,000	20,152,000	(1,104,000)	(765,000)	21,953,000	17,867,000	1,122,000	1,373,000						1,283,000	(870,000)	7,565,000	10,008,000	202,000	499,000	11,781,000	6,857,000
Equity income from unconsolidated subsidiaries	4,447,000	4,249,000	2,081,000	4,467,000	(5,700,000)	2,777,000	3,283,000	1,871,000	15,244,000	2,231,000	4,788,000	(6,460,000)			(829,000)	(10,153,000)	29,000	6,132,000	4,004,000	(515,000)	(340,000)	10,456,000	8,691,000	561,000	686,000						513,000	(505,000)	3,559,000	5,028,000	50,000	122,000	5,773,000	3,360,000
Impairment charge																7,400,000
Carrying value of loans accounted for under non-accrual methods of accounting											$ 350,300,000	$ 377,700,000

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Portfolio Assets (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Changes in the allowance for loan losses related to portfolio assets
Ending balance	$ 394	$ 781
Loan Portfolios
Changes in the allowance for loan losses related to portfolio assets
Beginning balance	781	45,162
Provisions	2,570	2,611
Recoveries	(108)	(931)
Charge offs	(3,076)	(3,753)
Removal upon sale of loans (1)		(45,002)
Transfer from "held for sale" classification (see Note 4)	210	(379)
Translation adjustments	17	3,073
Ending balance	394	781
Loan Portfolios | UBN
Changes in the allowance for loan losses related to portfolio assets
Beginning balance		43,291
Recoveries		(719)
Charge offs		(701)
Removal upon sale of loans (1)		(45,002)
Translation adjustments		3,131
Loan Portfolios | Other commercial | Other
Changes in the allowance for loan losses related to portfolio assets
Beginning balance	5	49
Provisions	130	199
Recoveries		(28)
Charge offs	(94)	(215)
Ending balance	41	5
Loan Portfolios | Domestic | Commercial real estate | Purchased Credit-Impaired Loans
Changes in the allowance for loan losses related to portfolio assets
Beginning balance	553	354
Provisions	1,996	1,702
Recoveries	(21)	(164)
Charge offs	(2,528)	(1,339)
Ending balance		553
Loan Portfolios | Domestic | Business assets | Purchased Credit-Impaired Loans
Changes in the allowance for loan losses related to portfolio assets
Beginning balance	185	252
Provisions	329	519
Recoveries	(87)	(13)
Charge offs	(401)	(573)
Ending balance	26	185
Loan Portfolios | Domestic | Other commercial | Purchased Credit-Impaired Loans
Changes in the allowance for loan losses related to portfolio assets
Beginning balance	38	90
Provisions	15	24
Recoveries		(7)
Charge offs	(53)	(69)
Ending balance		38
Loan Portfolios | Latin America | Commercial real estate | Purchased Credit-Impaired Loans
Changes in the allowance for loan losses related to portfolio assets
Beginning balance		260
Provisions	100	103
Transfer from "held for sale" classification (see Note 4)	210	(317)
Translation adjustments	17	(46)
Ending balance	327
Loan Portfolios | Latin America | Residential real estate | Purchased Credit-Impaired Loans
Changes in the allowance for loan losses related to portfolio assets
Provisions		64
Transfer from "held for sale" classification (see Note 4)		(62)
Translation adjustments		(2)
Loan Portfolios | Europe | Commercial real estate | Purchased Credit-Impaired Loans
Changes in the allowance for loan losses related to portfolio assets
Beginning balance		866
Charge offs		(856)
Translation adjustments		$ (10)

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Summary of Significant Accounting Policies (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	12 Months Ended				12 Months Ended
	Dec. 31, 2012 item	Dec. 31, 2011 item	Jun. 30, 2010 Minimum	Jun. 30, 2010 Maximum	Dec. 31, 2012 Europe	Dec. 31, 2012 Acquisition Partnerships Domestic Minimum	Dec. 31, 2011 Acquisition Partnerships Domestic Minimum	Dec. 31, 2012 Acquisition Partnerships Domestic Maximum	Dec. 31, 2011 Acquisition Partnerships Domestic Maximum	Dec. 31, 2012 Acquisition Partnerships Latin America Minimum	Dec. 31, 2011 Acquisition Partnerships Latin America Minimum	Dec. 31, 2012 Acquisition Partnerships Latin America Maximum	Dec. 31, 2011 Acquisition Partnerships Latin America Maximum	Dec. 31, 2011 Acquisition Partnerships Europe Minimum	Dec. 31, 2011 Acquisition Partnerships Europe Maximum	Dec. 31, 2012 Operating and Servicing Entities Domestic Minimum	Dec. 31, 2011 Operating and Servicing Entities Domestic Minimum	Dec. 31, 2012 Operating and Servicing Entities Domestic Maximum	Dec. 31, 2011 Operating and Servicing Entities Domestic Maximum	Dec. 31, 2012 Operating and Servicing Entities Latin America	Dec. 31, 2011 Operating and Servicing Entities Latin America	Dec. 31, 2012 Operating and Servicing Entities Europe	Dec. 31, 2011 Operating and Servicing Entities Europe Minimum	Dec. 31, 2011 Operating and Servicing Entities Europe Maximum
Nature of Operations
Number of major business segments	2	2
Number of minimum co-investors forming investment entities	1
Merger transaction share price expected to receive	$ 10.00
Unconsolidated Subsidiaries
Financial Policies of subsidiaries including certain entities ownership (as a percent)	20.00%
Ownership interests in the equity-method investee (as a percent)			10.00%	20.00%		10.00%	10.00%	50.00%	50.00%	8.00%	8.00%	50.00%	50.00%	22.00%	50.00%	39.00%	39.00%	49.00%	49.00%	50.00%	50.00%	25.00%	16.00%	37.00%
Delay period in recognizing income and losses from unconsolidated foreign equity investments					1 month
Portfolio Assets
Carrying value of purchased credit-impaired loans accounted for under the cost-recovery method	$ 22.1	$ 27.9
Carrying value of purchased credit-impaired loans accounted for under the cash basis method	$ 17.6	$ 53.8

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

• (a) Description of Business

        FirstCity Financial Corporation, a Delaware corporation, is a multi-national specialty financial services company headquartered in Waco, Texas with offices throughout the United States and Mexico and a presence in Europe and South America. When we refer to "FirstCity," "the Company," "we," "our" or "us" in this Form 10-K, we mean FirstCity Financial Corporation and subsidiaries (consolidated).

        The Company engages in two major business segments—Portfolio Asset Acquisition and Resolution and Special Situations Platform. The Portfolio Asset Acquisition and Resolution business has been the Company's core business segment since it commenced operations in 1986. In the Portfolio Asset Acquisition and Resolution business, the Company acquires portfolios of under-performing and non-performing loans, and to a lesser extent, performing loans and other assets (collectively, "Portfolio Assets" or "Portfolios"), generally at a discount to their legal principal balances or appraised values, and services and resolves such Portfolio Assets in an effort to maximize the present value of the ultimate cash recoveries. FirstCity acquires the Portfolio Assets for its own account or through investment entities formed with one or more other co-investors (each such entity, an "Acquisition Partnership"). The Company engages in its Special Situations Platform business through its majority ownership in a subsidiary that was formed in April 2007. Through its Special Situations Platform, the Company provides investment capital to privately-held lower middle-market companies through flexible capital structuring arrangements to generate an attractive risk-adjusted return. These capital investments primarily take the form of senior and junior financing arrangements, but also include direct equity investments and common equity warrants. In addition, our Special Situations Platform business engages in distressed debt transactions and leveraged buyouts. Refer to Note 18 for additional information on the Company's major business segments.

        In December 2012, the Company entered into a definitive merger agreement with Hotspurs Holdings LLC ("Parent") and Hotspurs Acquisition Corporation ("Merger Subsidiary") pursuant to which the Company will become a private company that is wholly owned by Parent. Parent and Merger Subsidiary are affiliates of certain private investment funds governed by Värde Partners, Inc. ("Värde"). Under the terms of the merger agreement, FirstCity stockholders will receive $10.00 per share in cash for each share of FirstCity stock they own. The transaction is expected to close in the second quarter of 2013. Consummation of the merger is subject to various customary conditions, including the adoption of the merger agreement by the holders of at least a majority of the outstanding shares of the Company's common stock. The Company has filed a preliminary proxy statement with the Securities and Exchange Commission recommending that the Company's stockholders adopt the merger agreement.

• (b) Basis of Presentation and Principles of Consolidation

        The accompanying consolidated financial statements include the accounts of FirstCity, its wholly-owned and majority-owned subsidiaries, and certain variable interest entities where we are the primary beneficiary as prescribed by the Financial Accounting Standards Board's (the "FASB") accounting guidance on variable interest entities (see below). All significant intercompany transactions and balances have been eliminated in consolidation. Certain amounts in the consolidated financial statements and disclosures for the prior year were reclassified to conform to the current year presentation. These reclassifications were not significant and have no impact on FirstCity's net earnings, total assets or stockholders' equity.

• Consolidated Subsidiaries

        If we determine that we have a controlling financial interest in an entity, then we must consolidate the assets, liabilities and noncontrolling interests of the entity in our consolidated financial statements. A controlling financial interest typically arises as a result of ownership of a majority of the voting interests of an entity. However, we may also have a controlling financial interest in an entity through an arrangement that does not involve voting interests, such as a variable interest entity ("VIE"). We consolidate all VIEs where we are the primary beneficiary as prescribed by the FASB's accounting guidance on the consolidation of VIEs. The primary beneficiary of a VIE is the party that has the power to direct the activities that most significantly impact the economic performance of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. Refer to Note 19 for more information regarding the Company's involvement with VIEs.

• Unconsolidated Subsidiaries

        The Company does not consolidate investments in entities that are not VIEs where the Company does not have an effective controlling interest, or investments in entities that are VIEs where the Company is not the primary beneficiary. Rather, such investments, which represent equity investments in non-publicly-traded entities, are accounted for under the equity method of accounting since the Company has the ability to exercise significant influence (but not control) over operating and financial policies of such subsidiaries (including certain entities where we have less than 20% ownership). FirstCity has the ability to exercise significant influence over the operating and financial policies of its less-than-20%-owned entities, despite its comparatively smaller ownership percentage, due primarily to its active participation in the policy-making process as well as its involvement in the daily management activities of the entities.

        Under the equity method of accounting, the Company's investments in these unconsolidated entities are carried at the cost of acquisition, plus the Company's share of equity in undistributed earnings or losses since acquisition. We eliminate transactions with our equity-method subsidiaries to the extent of our ownership in such subsidiaries. Accordingly, our share of the income or losses of these equity-method subsidiaries is included in our consolidated net income.

        The following is a summary of the Company's combined ownership interests in unconsolidated equity-method subsidiaries at December 31, 2012 and 2011:

	Ownership Interests
	2012	2011
Acquisition Partnerships:
Domestic	10% - 50%	10% - 50%
Latin America	8% - 50%	8% - 50%
Europe	N/A	22% - 50%
Operating and Servicing Entities:
Domestic	39% - 49%	39% - 49%
Latin America	50%	50%
Europe	25%	16% - 37%

        The Company's equity income and losses from its unconsolidated foreign equity investments, except for certain of its unconsolidated European equity-method investments, are recorded on a one-month delay due to the timing of FirstCity's receipt of those financial statements.

        The Company has loans receivable from certain Acquisition Partnerships and other unconsolidated subsidiaries—see Note 6. In situations where the Company is not required to advance additional funds to the Acquisition Partnership and previous losses have reduced the equity investment to zero, the Company continues to report its share of equity method losses in its consolidated statements of earnings to the extent of and as an adjustment to the adjusted basis of the related loan receivable.

        The Company follows the accounting guidance for the equity method of accounting to determine if there has been an other-than-temporary decline in value of its investments in unconsolidated entities. The Company reviews its investments in unconsolidated entities for impairment whenever events or changes indicate that the fair value may be less than the carrying value of its investment. A loss in value of an investment which is other-than-temporary is recognized as a component of equity income (loss) of unconsolidated subsidiaries in the consolidated statements of earnings. This determination is based on the extent and/or length of time to which fair value was less than carrying value, our intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment, and other relevant factors and circumstances. When evaluating for impairment on investments that are not actively traded on a public market, we generally use a discounted cash flow approach to estimate the fair value of our unconsolidated investments and/or look to comparable activities in the marketplace (if available). Management judgment is required in developing the assumptions for the discounted cash flow approach. These assumptions include, among others, net asset values, internal rates of return and discount rates.

• (c) Use of Estimates

        The preparation of financial statements in conformity with U.S. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates that are particularly susceptible to significant change in the near-term relate to (1) the estimation of future collections on Portfolio Assets used in the calculation of income from Portfolio Assets; (2) valuation of deferred tax assets and assumptions used in the calculation of income taxes; (3) valuation of servicing assets, investment securities, loans receivable (including loans receivable held in securitization entities) and related allowances for loan losses, real estate, and investments in unconsolidated subsidiaries; (4) guarantee obligations and indemnifications; and (5) legal contingencies. In addition, management has made significant estimates with respect to the valuation of assets, liabilities, non-controlling interests and contingencies attributable to business combinations (see Note 3), and fair value measurements of debt instruments resulting from its debt refinancing arrangement in December 2011 that was accounted for as a debt extinguishment (see Note 2). These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. The continuance of challenging economic conditions and disruptions in the financial, capital, real estate and foreign currency markets, have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

• (d) Cash and Cash Equivalents

        For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. The Company maintains cash balances in various depository institutions that periodically exceed federally insured limits. Management periodically evaluates the creditworthiness of such institutions.

• (e) Restricted Cash

        Restricted cash primarily includes monies due on loan-related remittances received by the Company and due to third parties.

• (f) Portfolio Assets

        The Company invests in Portfolio Assets and services and resolves such Portfolio Assets in an effort to maximize the present value of the ultimate cash recoveries. The Portfolio Assets are generally non-homogeneous assets, including loans of varying qualities that are secured by diverse collateral types and real estate. Some Portfolio Assets are loans for which resolution is tied primarily to the real estate securing the loan, while others may be collateralized business loans, the resolution of which may be based on the cash flows of the business or the underlying collateral.

        The following is a description of the classifications and related accounting policies for the Company's significant classes of Portfolio Assets:

• Purchased Credit-Impaired Loans

        The Company accounts for acquired loans and loan portfolios with evidence of credit deterioration since origination ("Purchased Credit-Impaired Loans") at fair value on the acquisition date. The amounts paid for Purchased Credit-Impaired Loans reflect the Company's determination that the loans have experienced deterioration in credit quality since origination and that it is probable the Company will be unable to collect all amounts due according to the contractual terms of the underlying loans. At acquisition, the Company reviews each individual loan to determine whether there is evidence of deterioration of credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan's contractual terms. If both conditions exist, the Company determines whether each such loan is to be accounted for individually or whether such loans will be assembled into static pools based on common risk characteristics (primarily loan type and collateral). Static pools of individual loan accounts may be established and accounted for as a single economic unit for the recognition of income, principal payments and loss provision. Once a static loan pool is established, individual accounts are generally not added to or removed from the pool (unless the Company sells, forecloses or writes off the loan). At acquisition, the Company determines the excess of the scheduled contractual payments over all cash flows expected to be collected for the loan or loan pool as an amount that should not be accreted ("nonaccretable difference"). The excess of the cash flows from the loan or loan pool expected to be collected at acquisition over the initial investment ("accretable difference") is recognized as interest income over the remaining life of the loan or loan pool on a level-yield basis ("accretable yield"). The discount (i.e. the difference between the cost of each loan or loan pool and the related aggregate contractual receivable balance) is not recorded because the Company does not expect to fully collect each contractual receivable balance. As a result, these loans and loan pools are recorded at cost (which approximates fair value) at the time of acquisition.

        The Company accounts for Purchased Credit-Impaired Loans using either the interest method or a non-accrual method (through application of the cost-recovery or cash basis method of accounting). Application of the interest method is dependent on management's ability to develop a reasonable expectation as to both the timing and amount of cash flows expected to be collected. In the event the Company cannot develop or establish a reasonable expectation as to both the timing and amount of cash flows expected to be collected, the Company uses the cost-recovery or cash basis method of accounting.

        Interest method of accounting.    Under the interest method, an effective interest rate, or IRR, is applied to the cost basis of the loan or loan pool. The excess of the contractual cash flows over expected cash flows cannot be recognized as an adjustment of income or expense or on the balance sheet. The IRR that is calculated when the loan is purchased remains constant as the basis for subsequent impairment testing (performed at least quarterly) and income recognition. Significant increases in actual, or expected future cash flows, are used first to reverse any existing valuation allowance for that loan or loan pool; and any remaining increase may be recognized prospectively through an upward adjustment of the IRR over the remaining life of the loan or loan pool. Any increase to the IRR then becomes the new benchmark for impairment testing and income recognition. Subsequent decreases in projected cash flows do not change the IRR, but are recognized as an impairment of the cost basis of the loan or loan pool (to maintain the then-current IRR), and are reflected in the consolidated statements of earnings through provisions charged to operations, with a corresponding valuation allowance offsetting the loan or loan pool in the consolidated balance sheets. FirstCity establishes valuation allowances for loans and loan pools acquired with credit deterioration to reflect only those losses incurred after acquisition—that is, the cash flows expected at acquisition that are no longer expected to be collected. Income from loans and loan pools accounted for under the interest method is accrued based on the IRR of each loan or loan pool applied to their respective adjusted cost basis. Gross collections in excess of the interest accrual and impairments will reduce the carrying value of the loan or loan pool, while gross collections less than the interest accrual will increase the carrying value. The IRR is calculated based on the timing and amount of anticipated cash flows using the Company's proprietary collection models.

        Cost-recovery method of accounting.    If the amount and timing of future cash collections on a loan are not reasonably estimable, the Company accounts for such asset on the cost-recovery method. Under the cost-recovery method, no income is recognized until the Company has fully collected the cost of the loan, or until such time as the Company considers the timing and amount of collections to be reasonably estimable and begins to recognize income based on the interest method as described above. At least quarterly, the Company performs an evaluation to determine if the remaining amount that is probable of collection is less than the carrying value of the loan or loan pool, and if so, recognizes impairment through provisions charged to operations, with a corresponding valuation allowance offsetting the loan or loan pool in the consolidated balance sheets. The carrying value of Purchased Credit-Impaired Loans accounted for under the cost-recovery method approximated $22.1 million at December 31, 2012 and $27.9 million at December 31, 2011.

        Cash basis method of accounting.    If only the amount of future cash collections on a loan is reasonably estimable, the Company accounts for such asset on an individual loan basis under the cash basis method of accounting. Under the cash basis method, no income is recognized unless collections are received during the period, or until such time as the Company considers the timing of collections to be reasonably estimable and begins to recognize income based on the interest method as described above. Income is recognized for the difference between the collections and a pro-rata portion of cost on a loan. Cost allocation is based on a proration of actual collections divided by total projected collections on the loan. Significant increases in future cash flows may be recognized prospectively as income over the remaining life of the loan through increased amounts allocated to income when collections are subsequently received. Subsequent decreases in projected cash flows are recognized as impairment of the loan's cost basis to maintain a constant cost allocation based on initial projections. The Company evaluates the projected cash flows for these loans and loan pools at least quarterly to determine if impairment exists, and if so, recognizes the impairment through provisions charged to operations, with a corresponding valuation allowance offsetting the loan or loan pool in the consolidated balance sheets. Management uses the cash basis method of accounting for such eligible loans primarily due to the increased uncertainty in the timing of future collections (attributable primarily to the borrowers' inability to obtain financing to refinance the loans). The carrying value of Purchased Credit-Impaired Loans accounted for under the cash basis method approximated $17.6 million and $53.8 million at December 31, 2012 and December 31, 2011, respectively.

        Troubled debt restructurings (TDRs):    Modified Purchased Credit-Impaired Loans are not removed from a loan pool even if those loans would otherwise be deemed TDRs. Modified Purchased Credit-Impaired Loans that are accounted for on an individual basis are considered TDRs if there has been a concession granted to the borrower and the Company does not expect to recover its recorded investment in the loan. Purchased Credit-Impaired Loans that are classified as TDRs are measured for impairment. Refer to Note 1(g) below for accounting guidance on loan modifications that result in classification as TDRs.

• Real Estate

        Real estate Portfolio Assets consist of real estate properties purchased from a variety of sellers or acquired through loan foreclosure. Rental income, net of expenses, is generally recognized when received. The Company accounts for its real estate properties on an individual-asset basis as opposed to a pool basis. The following is a description of the classifications and related accounting policies for the Company's various classes of real estate Portfolio Assets:

• Classification and Impairment Evaluation

        Real estate held for sale primarily includes real estate acquired through loan foreclosure. The Company classifies a property as held for sale if (1) management commits to a plan to sell the property; (2) the Company actively markets the property in its current condition for a price that is reasonable in comparison to its fair value; and (3) management considers the sale of such property within one year of the balance sheet date to be probable. Real estate held for sale is stated at the lower of cost or fair value less estimated disposition costs. Real estate is not depreciated while it is classified as held for sale. Impairment losses are recorded if a property's fair value less estimated disposition costs is less than its carrying amount, and charged to operations in the period the impairment is identified.

• Cost Capitalization and Allocation

        Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at the lower of cost (i.e. the underlying loan's carrying value) or estimated fair value less disposition costs at the date of foreclosure—establishing a new cost basis. The amount, if any, by which the carrying value of the underlying loan exceeds the property's fair value less estimated disposition costs at the foreclosure date is charged as a loss against operations. Expenditures for repairs, maintenance, and other holding costs are charged to operations as incurred.

        Real estate properties acquired through a purchase transaction are initially recorded at the cost of the acquisition. The cost of acquired property includes the purchase price of the property, legal fees, and certain other acquisition costs. Subsequent to acquisition, the Company capitalizes capital improvements and expenditures related to significant betterments and replacements, including costs related to the development and improvement of the property for its intended use. Expenditures for repairs, maintenance, and other holding costs are charged to operations as incurred.

        When acquiring real estate with an existing building through a purchase transaction, the Company generally allocates the purchase price between land, land improvements, building, tenant improvements, and intangible assets related to in-place leases based on their relative fair values. The fair values of acquired land and buildings are generally determined based on an estimated discounted future cash flow model with lease-up assumptions as if the building was vacant upon acquisition, third-party valuations, and other relevant data. The fair value of in-place leases includes the value of net lease intangibles for above- and below-market rents and tenant origination costs, determined on a lease-by-lease basis. Amounts allocated to building and improvements are depreciated over their estimated remaining lives. Amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles are amortized over the remaining life of the underlying leases. At December 31, 2012 and December 31, 2011, accumulated depreciation and amortization was not significant.

• Disposition of Real Estate

        Gains on disposition of real estate are recognized upon the sale of the underlying property if the transaction qualifies for gain recognition under the full accrual method, as prescribed by the FASB's accounting guidance on real estate sales transactions. If the transaction does not meet the criteria for the full accrual method of profit recognition based on our assessment, we account for the sale based on an appropriate deferral method determined by the nature and extent of the buyer's investment and our continuing involvement.

• (g) Loans Receivable

  Loans Held for Sale

        The portions of U.S. Small Business Administration ("SBA") loans that are guaranteed by the SBA are classified by management as loans held for sale. These loans are recorded at the lower of aggregate cost or estimated fair value. The fair value of SBA loans held for sale is based primarily on prices that secondary markets are currently offering for loans with similar characteristics. Net unrealized losses, if any, are recognized through a valuation allowance through a charge to income. The carrying value of SBA loans held for sale is net of premiums as well as deferred origination fees and costs. Premiums and net origination fees and costs are deferred and included in the basis of the loans in calculating gains and losses upon sale. SBA loans are generally secured by the borrowing entities' assets such as accounts receivable, property and equipment, and other business assets. The Company generally sells the guaranteed portion of each loan to a third-party investor and retains the servicing rights. The non-guaranteed portion of SBA loans is classified as held for investment (discussed below). Effective January 1, 2010, the Company adopted accounting guidance that required SBA loan transactions subject to the SBA's premium recourse provision to be accounted for initially as secured borrowings rather than asset sales. After the premium recourse provisions had elapsed, the transaction was recorded as a sale and the resulting net gain on sale was recognized—which was based on the difference between the proceeds received and the allocated carrying value of the loan sold. However, effective January 31, 2011, the SBA removed the recourse provisions contained in its loan sales agreements for guaranteed portions of SBA loans. As a result, SBA loan sales transacted by the Company under these revised agreements were accounted for initially as a sale, with the corresponding gain recognized at the time of sale. The gains recognized on these loan sales were based on the difference between the sales proceeds received and the allocated carrying value of the loans sold (which included deferred premiums and net origination fees and costs).

• Loans Held for Investment

        Loans receivable consisting of loans made to affiliated entities (including Acquisition Partnerships and other equity-method investees) and non-affiliated entities, and the non-guaranteed portions of SBA loans, are classified by management as held for investment. These loans are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and unamortized premiums or discounts on purchased loans. Loan origination fees and costs, as well as purchase premiums and discounts, are amortized as level-yield adjustments over the respective loan terms. Unamortized net fees, costs, premiums or discounts are recognized upon early repayment or sale of the loan. Repayment of the loans is generally dependent upon future cash flows of the borrowers, future cash flows of the underlying collateral, and distributions made from affiliated entities. Interest is accrued when earned in accordance with the contractual terms of the loans, except for loans on non-accrual status. Interest is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding.

        The Company has established an allowance for loan losses to absorb probable, estimable losses inherent in its portfolio of loans receivable held for investment. This allowance for loan losses includes specific allowances, based on individual evaluations of certain loans and loan relationships, and allowances for pools of loans with similar risk characteristics. Management's determination of the adequacy of the allowance is a quarterly process and is based on evaluating the collectibility of the loans in light of various factors, as applicable, such as quality and composition of the loan portfolio segments, estimated future cash receipts of the borrower's operations or underlying collateral, historical experience, estimated value of underlying collateral, prevailing economic conditions, industry concentrations and conditions, and other relevant factors. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Actual losses experienced in the future may vary from management's estimates. Management attributes portions of the allowance to loans that it evaluates and determines to be impaired and to groups of loans that it evaluates collectively.

        In determining the appropriate level of allowance, management uses information to stratify its portfolio of loans receivable held for investment into loan pools with common risk characteristics. Classes in the affiliated and non-affiliated portfolio asset and commercial loan portfolio segments are generally disaggregated by accrual status (which is generally based on management's assessment on the probability of default). Classes in the non-guaranteed SBA commercial loan portfolio segment are disaggregated based upon underlying credit quality. Certain portions of the allowance are attributed to loan pools based on various factors and analyses, including but not limited to, current and historical loss experience trends, collateral, region, current economic conditions, and industry concentrations and conditions. Loans deemed to be impaired, including loans with an increased probability of default as determined by management, are evaluated individually rather than on a pool basis as described above. We consider a loan to be impaired when, based on current information and events, we determine it is probable that we will not be able to collect all amounts due according to the loan's contractual terms (including scheduled interest payments). When management identifies a loan as impaired, we measure the impairment based on discounted future cash flows, except when foreclosure is probable or the source of repayment is the operation or liquidation of the collateral. In these cases, we use the current fair value of the collateral, less estimated selling costs, instead of discounted cash flows. When a loan is determined to be impaired, we cease to accrue interest on the note and interest previously accrued but not collected becomes part of our recorded investment in the loan and is collectively reviewed for impairment. When ultimate collectibility of the impaired note is in doubt, all collections are applied to reduce the principal amount of such notes until the principal has been recovered, and collections thereafter are recognized as interest income. We return a loan to accrual status when we determine that the collectibility of principal and interest is reasonably assured. Impairment losses are charged against an allowance account through provisions charged to operations in the period impairment is identified. Loans are written-off against the allowance when all possible means of collection have been exhausted and the potential for recovery is considered remote.

        Troubled debt restructurings (TDRs):    In situations where, for economic or legal reasons related to a borrower's financial difficulties, the Company grants a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a TDR. Modification of loan terms that may be considered a concession to the borrower may include rate reductions, principal forgiveness, term extensions, payment forbearance and other actions intended to minimize our economic loss and to avoid foreclosure or repossession of the collateral. For modifications where we may forgive loan principal, the entire amount of such principal forgiveness is immediately charged off. Loans classified as TDRs are considered impaired loans.

• (h) Investment Securities Available-for-Sale

        The Company has investment securities that consist of purchased beneficial interests in securitized financial assets. The Company also had an investment in a marketable equity security, which was sold in December 2012. We classify and account for these securities as available-for-sale and, accordingly, we measure the securities at fair value on the consolidated balance sheet, with unrealized gains and losses included in "Accumulated other comprehensive income." Fair value of the purchased beneficial interests are estimated based on the present value of expected collections on the underlying receivables using an internal valuation model, incorporating market-based assumptions when such information is available. Fair value of the equity security was measured using quoted market prices in an active exchange market for the identical asset. Additional information on the fair value measurement is included in Note 17.

        The excess of all cash flows attributable to the beneficial interest estimated at the acquisition date over the initial investment amount (i.e. the accretable yield) is recognized as interest income over the life of the beneficial interest using the interest method. The Company continues to estimate the projected cash flows over the life of the beneficial interest for the purposes of both recognizing interest income and evaluating impairment.

        Other-than-temporary impairment is considered to have occurred when the fair value of the security has declined below its amortized cost basis and if (1) we have the intent to sell the security; (2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or (3) we do not expect to recover the entire amortized cost basis of the security.

• (i) Property and Equipment

        Property, equipment and leasehold improvements (reported in "Other assets" in the consolidated balance sheets) are carried at cost less accumulated depreciation and amortization. Property and equipment are depreciated over their estimated useful lives using the straight-line method of depreciation. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements (or the terms of the underlying leases, if shorter). Generally, buildings and building improvements are depreciated over 25 to 30 years; office equipment is depreciated over 3 to 10 years; depreciable rail property is depreciated over 25 years; machinery and equipment are depreciated over 5 to 15 years; and leasehold improvements are amortized over 2 to 10 years. Maintenance and repairs are charged to expense in the period incurred. Expenditures for improvements and significant betterments that increase productive capacity or extend useful life are capitalized and depreciated over the useful lives of such assets. When property or equipment is sold or retired, the cost and related accumulated depreciation are removed from the consolidated balance sheet and any gain or loss is included in income.

• (j) Accounting for Transfers and Servicing of Financial Assets

        The Company accounts for transfers of financial assets as sales when control over the transferred assets is surrendered. Control is generally considered to have been surrendered when (1) the transferred assets are legally isolated from the Company or its consolidated affiliates; (2) the transferee has the right to pledge or exchange the assets with no conditions that constrain the transferee and provide more than a trivial benefit to the Company; and (3) the Company does not maintain the obligation or unilateral ability to reclaim or repurchase the assets. If these sale criteria are met, the transferred assets are removed from the Company's balance sheet and a gain or loss on sale is recognized. If not met, the transfer is recorded as a secured borrowing, and the assets remain on the Company's balance sheet, the proceeds from the transaction are recognized as a liability, and gain or loss on sale is deferred until the sale criterion are achieved.

        The Company generally services Portfolio Assets acquired through its investments in Acquisition Partnerships. The Company does not recognize capitalized servicing rights related to its Portfolio Assets owned by the Acquisition Partnerships because (1) servicing is not contractually separated from the underlying assets by sale or securitization of the assets with servicing retained or separate purchase or assumption of the servicing; (2) consideration is not exchanged between the Company and the Acquisition Partnerships for the servicing rights of the acquired Portfolio Assets; (3) the Company has ownership interests in the Acquisition Partnerships that own the Portfolio Assets it services; and (4) the Company does not have the risks and rewards of ownership of servicing rights. The Company services, in all material respects, the Portfolio Assets owned for its own account, the Portfolio Assets owned by the Acquisition Partnerships and, to a very limited extent, certain Portfolio Assets owned by third parties. In connection with the Acquisition Partnerships in the United States, the Company generally earns a servicing fee, which is based on a percentage of gross cash collections generated from the Portfolio Assets. The rate of servicing fee charged is generally a function of the average face value of the assets within each pool being serviced (the larger the average face value of the assets in a Portfolio, the lower the fee percentage within the prescribed range), the type of assets and the level of servicing required for each asset. For the Mexican Acquisition Partnerships, the Company earns a servicing fee based on costs of servicing plus a profit margin. The Acquisition Partnerships in Europe and South America are serviced by various entities in which the Company maintains an equity interest. In all cases, service fees are recognized when they are earned in accordance with the servicing agreements.

        The Company has servicing contracts with certain of its Acquisition Partnerships that entitle the Company to receive additional compensation for servicing after a specified return to the investors has been achieved. The Company recognizes revenue related to these contracts when the investors receive the required level of returns specified in the contracts and the Acquisition Partnerships receive cash in an amount greater than the required returns. There is no guarantee that the required level of returns to the investors will be achieved or that any additional compensation to the Company related to the contracts will be realized. The Acquisition Partnerships accrue a liability for these contingent fees provided that payment of the fees is probable and reasonably estimable.

        In connection with the Company's SBA lending activities, the Company recognizes servicing assets through the sale of originated or purchased loans when servicing rights are retained. The Company initially recognizes and measures at fair value servicing rights obtained from SBA loan sales and purchased servicing rights. The Company subsequently measures these servicing assets by using the amortization method, which amortizes servicing assets in proportion to, and over the period of, estimated net servicing income. The amortization of the servicing assets is analyzed periodically and is adjusted to reflect changes in prepayment rates and other estimates. See Note 8 for more information on servicing rights related to SBA loans.

• (k) Revenue Recognition and Contingent Liabilities—Special Situations Platform Subsidiaries

        The Company's consolidated railroad subsidiaries (under its Special Situations Platform) interchange rail cars with connecting carriers, provide rail freight services for on-line customers, operate a transload facility, and operate a rail-served debris transfer station. Freight revenue is recognized at the time the shipment is either delivered to or received from the connecting carrier at the point of interchange. Industrial switching and other service revenues are recognized as such services are provided.

        Certain managers of our Special Situations Platform are party to a management agreement that allows them to participate in the net profits of the underlying investments within the Special Situations Platform. In accordance with this agreement, investments are pooled by year and tracked for performance. Once a pool earns a 20% internal rate of return, the Company is required to pay the managers 37.5% of the remaining net cash flows received from that pool. The Company recognizes a liability for the amount that is deemed estimable and probable to be paid to these employees. The liability is adjusted quarterly as estimates of future net cash flows are revised. At December 31, 2012 and 2011, this liability was $4.9 million and $0.4 million, respectively. In December 2012, the Company's equity-method investment in a manufacturing concern involved in the prefabricated building industry sold substantially all of its net assets for a gain of $8.0 million.

• (l) Translation Adjustments

        The Company has determined that the local currency is the functional currency for its operations outside the United States (primarily Europe and Latin America). We translate the results for our foreign subsidiaries and affiliates from the designated functional currency to the U.S. dollar using average exchange rates during the relevant period, while we translate assets and liabilities at the exchange rate in effect at the reporting date. We report the resulting gains or losses from translating foreign currency financial statements as a separate component of stockholders' equity in accumulated other comprehensive income or loss. An analysis of the changes in the cumulative adjustments for 2012 and 2011 follows (dollars in thousands):

Balance, December 31, 2010	$	(740	)
Aggregate adjustment for the year resulting from translation adjustments and gains and losses on certain hedge transactions		(1,113	)
Balance, December 31, 2011		(1,853	)
Aggregate adjustment for the year resulting from translation adjustments and gains and losses on certain hedge transactions		1,319
Balance, December 31, 2012	$	(534	)

        Increases or decreases in expected functional currency cash flows upon settlement of a foreign currency transaction are recorded as foreign currency transaction gains or losses and included in the Company's operations in the period in which the transaction is settled. Aggregate foreign currency transaction gains and losses included in the consolidated statements of earnings as other expense for 2012 and 2011 were $0.2 million gain and $0.5 million loss, respectively.

        In general, monetary assets and liabilities designated in U.S. dollars give rise to foreign currency realized and unrealized transaction gains and losses, which we record in the consolidated statement of earnings as foreign currency transaction gains, net. However, we report the effects of changes in exchange rates associated with certain U.S. dollar-denominated intercompany loans and advances to certain of our Latin American subsidiaries that are of a long-term investment nature (that is, settlement is not planned or anticipated in the foreseeable future) as other comprehensive income or loss in our consolidated financial statements. We have determined that certain U.S. dollar-denominated intercompany loans and advances to our Latin American subsidiaries are of a long-term investment nature.

        The net foreign currency translation gain (loss) included in accumulated other comprehensive income (loss) relating to the Company's Euro-denominated debt (see Notes 2 and 12) was $0.3 million loss for 2012 and $0.3 million gain for 2011.

• (m) Income Taxes

        The Company files a U.S. consolidated federal income tax return with its 80%-or-greater-owned subsidiaries. The Company records all of the allocated federal income tax provision of the consolidated group in the parent corporation.

        The Company is subject to income taxes in both the United States and the non-U.S. jurisdictions in which we operate. We account for income taxes in both the U.S. and non-U.S. jurisdictions under the asset and liability method. Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates, if any, would be recognized in earnings in the period that includes the enactment date. We reduce the carrying amounts of deferred tax assets through a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically by the Company based on the more-likely-than-not realization threshold criterion. In this assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other factors, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, excess of appreciated asset value over the tax basis of net assets, impact of gains or charges from one-time events, the duration of statutory carryforward periods, the Company's experience with utilizing available operating loss and tax credit carryforwards, and tax planning strategies. In making such assessments, significant weight is given to evidence that can be objectively verified.

        The Company accounts for income tax uncertainty using the "more-likely-than-not" criteria incorporated in the FASB's authoritative guidance on accounting for uncertainty in income taxes. Accordingly, we account for uncertain tax positions using a two-step approach whereby we recognize an income tax benefit if, based on the technical merits of a tax position, it is more likely than not (a probability of greater than 50%) that the tax position would be sustained upon examination by the taxing authority. We then recognize a tax benefit equal to the largest amount of tax benefit that is greater than 50% likely to be realized upon settlement with the taxing authority, considering all information available at the reporting date. Once a financial statement benefit for a tax position is recorded, we adjust it only when there is more information available or when an event occurs necessitating a change. Tax positions that previously failed to meet the more-likely-than-not recognition threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense.

• (n) Earnings per Common Share

        The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company's participating securities consist of unvested restricted stock awards that contain a non-forfeitable right to receive dividends and, therefore, are considered to participate in undistributed earnings with common stockholders.

        Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of stock-based awards. We exclude potentially dilutive securities from the computation of diluted earnings per share when the effect of their inclusion would be anti-dilutive.

        The following table sets forth the computation of basic and diluted earnings per common share for the years ended December 31, 2012 and 2011:

	Year Ended December 31,
(In thousands, except per share data)	2012		2011
Net earnings	$	19,048	$	33,041
Less: Net income attributable to noncontrolling interests		4,710		8,824
Net earnings attributable to FirstCity	$	14,338	$	24,217
Less: Net earnings allocable to participating securities		251		180
Net earnings allocable to common shares	$	14,087	$	24,037
Weighted-average common shares outstanding—basic		10,333		10,283
Dilutive effect of restricted stock shares		31		8
Dilutive effect of stock options		44		13
Weighted-average common shares outstanding—diluted		10,408		10,304
Net earnings per share:
Basic	$	1.36	$	2.34
Diluted	$	1.35	$	2.33

        For the years ended December 31, 2012 and 2011, potentially dilutive securities representing approximately 555,000 and 769,000 shares of common stock, respectively, were excluded from the computation of diluted earnings per common share because their effect would have been anti-dilutive.

• (o) Long-Lived Assets

        The Company assesses the impairment of long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value of the asset exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market prices and third-party independent appraisals, as considered necessary.

• (p) Stock-Based Compensation

        The Company measures the compensation cost of stock-based awards using the estimated fair value of those awards on the grant date. We recognize the compensation cost as expense over the vesting period of the awards. See Note 13 for additional disclosure of the Company's stock-based compensation.

• (q) Fair Value Measurements

        The Company applies the provisions of FASB's accounting guidance for fair value measurements of financial and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or non-recurring basis, as applicable. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price). This guidance also establishes a framework for measuring fair value and expands disclosures about fair value measurements. See Note 17 for additional information.

• (r) Recently Adopted Accounting Standards

  Comprehensive Income Presentation

        In June 2011, the FASB issued guidance on the presentation of other comprehensive income. This guidance requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity was eliminated. In December 2011, the FASB issued updated guidance that defers indefinitely certain requirements from its June 2011 guidance that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. We adopted this guidance for the quarterly period ended March 31, 2012. The adoption of this guidance did not have a material impact on our consolidated financial statements.

• Finance Receivables and Allowance for Credit Losses Disclosure

        In July 2010, the FASB issued accounting guidance related to disclosures about the credit quality of financing receivables and the allowance for credit losses. The objective of the amendment is disclosure of information that enables financial statement users to understand the nature of inherent credit risks, the entity's method of analysis and assessment of credit risk in estimating the allowance for credit losses, and the reasons for changes in both the receivables and allowances when examining a creditor's portfolio of financing receivables and its allowance for losses. We adopted the period-end disclosure requirements of this guidance related to an entity's credit quality of financing receivables and the related allowance for loan losses in the consolidated financial statements for the year ended December 31, 2010. We adopted the activity-related provisions of this guidance for the quarterly period ended March 31, 2011. Since the activity-related provisions of this guidance were disclosure-only in nature, the adoption of this updated guidance did not have a material impact on our financial condition and results of operations. Refer to Notes 1(g), 5 and 6 for additional information.

• Loan Modifications and Loan Pool Accounting

        In April 2011, the FASB issued accounting guidance that clarifies when creditors should classify loan modifications as troubled debt restructurings ("TDRs"). The guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after January 1, 2011. The guidance on measuring the impairment of a receivable restructured in a TDR is effective on a prospective basis. This guidance supersedes the FASB's previous deferral of additional disclosures about TDRs. For a loan restructuring to constitute a TDR, a creditor must conclude that the restructuring constitutes a concession and the debtor is experiencing financial difficulties. We adopted this guidance on July 1, 2011, as required. Under this clarified guidance, we do not report loans modified in a TDR that had been fully paid down, charged off or foreclosed upon by period-end. The adoption of this guidance did not have a material impact on our financial statements.

• Fair Value Measurements Disclosure

        In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately, a reconciliation for fair value measurements using significant unobservable inputs (Level 3) information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). We adopted this guidance for the quarterly period ended March 31, 2011. Since this guidance was disclosure-only in nature, the adoption of this updated guidance did not have a material impact on our financial condition and results of operations. Refer to Note 17 for additional information.

        In May 2011, the FASB issued guidance clarifying how to measure and disclose fair value. This guidance amends the application of the "highest and best use" concept to be used only in the measurement of fair value of nonfinancial assets, clarifies that the measurement of the fair value of equity-classified financial instruments should be performed from the perspective of a market participant who holds the instrument as an asset, clarifies that an entity that manages a group of financial assets and liabilities on the basis of its net risk exposure can measure those financial instruments on the basis of its net exposure to those risks, and clarifies when premiums and discounts should be taken into account when measuring fair value. This guidance also requires new and enhanced disclosures on the quantification and valuation processes for significant unobservable inputs, transfers between Levels 1 and 2, and the categorization of all fair value measurements into the fair value hierarchy, even where those measurements are only for disclosure purposes. We adopted this guidance for the quarterly period ended March 31, 2012. Since this guidance was disclosure-only in nature, and since the Company's Level 3 fair value measurements were not significant for the quarterly period ended March 31, 2012, the adoption of this updated guidance did not have a material impact on our financial condition and results of operations. Refer to Note 17 for additional information.

• (s) Recently Issued Accounting Standards

        In July 2012, the FASB issued guidance on testing indefinite-lived intangible assets for impairment. This guidance simplifies the testing for indefinite lived intangible assets impairment by allowing an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount before proceeding to the quantitative impairment test. The effective date of this guidance was January 1, 2013. We believe that the adoption of this guidance will not have a significant impact on our financial condition and results of operations.

        In December 2011, the FASB issued guidance on disclosures about offsetting assets and liabilities. This guidance requires an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. This effective date of guidance is effective for annual and interim periods beginning on January 1, 2013. We believe that the adoption of this guidance will not have a significant impact on our financial condition and results of operations.

        In February 2013, the FASB issued guidance on reporting of amounts reclassified out of accumulated other comprehensive income. This guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. This guidance is effective prospectively for annual and interim periods beginning after December 15, 2012. We believe that the adoption of this guidance will not have a significant impact on our financial condition and results of operations.

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Loans Receivable (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Loans receivable
Loans receivable - affiliates	$ 6,584	$ 6,719
SBA held for investment, net of allowance for loan losses of $518 and $333	19,372	19,151
Loans receivable - other, net of allowance for loan losses of $1,083	7,530	12,212
Total loans receivable, net	34,573	45,696
Commercial loans | Domestic
Loans receivable
Loans receivable - affiliates	6,584	6,719
SBA held for investment, net of allowance for loan losses of $518 and $333	20,459	26,765
Loans receivable - other, net of allowance for loan losses of $1,083	7,530	12,212
Commercial loans | SBA Loans | Domestic
Loans receivable
Allowance for loan losses	518	333
Commercial loans | Loans Receivable Other | Domestic
Loans receivable
Allowance for loan losses	$ 1,083	$ 1,083

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Fair Value (Tables)

12 Months Ended

Dec. 31, 2012

Fair Value

Schedule of assets measured at fair value on a recurring basis

	At December 31, 2012
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Investment securities available for sale:
Asset-backed securities	$	—	$	—	$	1,670	$	1,670
	$	—	$	—	$	1,670	$	1,670

	At December 31, 2011
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Investment securities available for sale:
Marketable equity security	$	1,000	$	—	$	—	$	1,000
Asset-backed security		—		—		2,798		2,798
	$	1,000	$	—	$	2,798	$	3,798

Schedule of changes to the Level 3 assets measured at fair value on a recurring basis

	Year Ended December 31,
(Dollars in thousands)	2012			2011
Balance, beginning of period	$	2,798		$	2,605
Total realized and unrealized gains for the period included in:
Net income (loss)		100			354
Other comprehensive income		(58	)		(396	)
Purchases		—			3,843
Sales		—			(1,980	)
Issuances		—			—
Settlements		(1,170	)		(1,789	)
Foreign currency translation adjustments		—			161
Net transfers into Level 3		—			—
Balance, end of period	$	1,670		$	2,798

Schedule of fair value hierarchy and the carrying value of assets measured at fair value on a non-recurring basis

	Carrying Value at December 31, 2012
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Portfolio Assets—loans(1)	$	—	$	4,074	$	1,757	$	5,831
Loans receivable—SBA held for investment(1)		—		238		40		278
Real estate held for sale(2)		—		1,452		—		1,452

	Carrying Value at December 31, 2011
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Portfolio Assets—loans(1)	$	—	$	—	$	1,923	$	1,923
Loans receivable—SBA held for investment(1)		—		—		559		559
Real estate held for sale(2)		—		6,297		—		6,297
Investments in unconsolidated subsidiaries		—		—		4,567		4,567
Assets held for sale, net of related liabilities		—		2,011		—		2,011

(1)

Represents the carrying value of impaired loans for which adjustments were based on the collateral value.

(2)

Represents the carrying value of foreclosed real estate properties that were impaired and measured at fair value subsequent to their initial classification as foreclosed assets.

Schedule of decrease in value of certain assets measured at fair value on a non-recurring basis

	Year Ended December 31,
(Dollars in thousands)	2012			2011
Portfolio Assets—loans(1)	$	(1,419	)	$	(921	)
Loans receivable—SBA held for investment(1)		(421	)		(385	)
Real estate held for sale(2)		(409	)		(2,067	)
Investments in unconsolidated subsidiaries(3)		—			(7,435	)
Assets held for sale, net of related liabilities(4)		—			(3,093	)
Total	$	(2,249	)	$	(13,901	)

(1)

Represents write-downs of loans based on the estimated fair value of the collateral for collateral-dependent loans.

(2)

Represents losses on foreclosed real estate properties that were measured at fair value subsequent to their initial classification as foreclosed assets.

(3)

Represents a loss in value on investments in unconsolidated subsidiaries that was deemed to be other-than-temporary (see Note 7).

(4)

Represents the net write-down of a disposal group upon its classification as held for sale (see Note 4).

Schedule of carrying value and estimated fair value of financial instruments, including accrued interests (where applicable), that are not recorded at fair value in their entirety on a recurring basis

	December 31, 2012										December 31, 2011
			Estimated Fair Value
	Carrying Amount										Carrying Amount		Estimated Fair Value
(Dollars in thousands)			Level 1		Level 2		Level 3		Total
Cash, cash equivalents and restricted cash	$	41,095	$	41,095	$	—	$	—	$	41,095	$	36,031	$	36,031
Loan Portfolio Assets and loans receivable held for investment		78,741		—		—		103,345		103,345		135,423		173,616
SBA loans held for sale		1,087		—		1,232		—		1,232		7,614		8,353
Assets held for sale, net of related liabilities(1)		—		—		—		—		—		4,569		6,634
Notes payable and other debt obligations		76,945		—		—		76,945		76,945		189,936		189,936

(1)

Comprised of Portfolio Assets, an affiliated loan receivable and an affiliated note payable (see Note 4).

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies

Commitments and Contingencies

21. Commitments and Contingencies

• Legal Proceedings

        FirstCity and certain of its subsidiaries and affiliates (including Acquisition Partnerships) are involved in various claims and legal proceedings which are incidental to the ordinary course of our business. We initiate lawsuits against borrowers and are occasionally countersued by them in such actions. From time to time, other types of lawsuits are brought against us. In view of the inherent difficulty of predicting the outcome of pending legal actions and proceedings, the Company cannot predict with certainty the eventual outcome of any such proceedings. Based on current knowledge, management does not believe that liabilities, if any, arising from any ordinary course proceeding will have a material adverse effect on the consolidated financial condition, operations, results of operations or liquidity of the Company.

• Class Action Litigation

        On January 15, 2013, a putative class action lawsuit was filed in the District Court in McLennan County, Texas against the Company, its directors, Parent, Merger Subsidiary and Värde purportedly on behalf of the Company's stockholders, under the caption Eric J. Drayer v. James T. Sartain, et. al., Cause No. 2013-246-5. The lawsuit alleges, among other things, that the director defendants breached their fiduciary duties to the District Court in McLennan County, Texas against the Company, its directors, Parent, Merger Subsidiary and Värde purportedly on behalf of the Company's stockholders, under the caption Eric J. Drayer v. James T. Sartain, et. al., Cause No. 2013-246-5. The lawsuit alleges, among other things, that the director defendants breached their fiduciary duties to the Company's stockholders in connection with Värde's merger proposal and that Värde, Parent and Merger Subsidiary have aided and abetted such breaches. The plaintiff seeks declaratory and injunctive relief, reasonable attorneys' and experts' fees and, in the event the transaction is consummated, rescission of the transaction or rescissory damages and an accounting of all damages, profits and special benefits. On February 13, 2013, a first amended petition was filed. The amended petition alleges that the director defendants breached their fiduciary duties by (i) failing to maximize the value of the Company, (ii) taking steps to avoid competitive bidding, (iii) failing to properly value the Company and (iv) omitting material information and providing materially misleading information in the preliminary proxy statement, and seeks the same relief and asserts the same claims as the original petition.

        On January 29, 2013, a putative class action lawsuit was filed in the Court of Chancery of the State of Delaware against the Company, its directors, Parent, Merger Subsidiary and Värde purportedly on behalf of the Company's stockholders, under the caption Paul Perry v. FirstCity Financial Corporation, et. al., Case No. 8259-VCG. The lawsuit alleges, among other things, that the director defendants breached their fiduciary duties to the Company's stockholders by entering into the merger agreement and that the Company, Värde, Parent and Merger Subsidiary have aided and abetted such breaches. The plaintiff seeks declaratory and injunctive relief, reasonable attorneys' and experts' fees and, in the event the transaction is consummated, rescission of the transaction and an accounting of all damages, profits and special benefits. On February 15, 2013, a first amended complaint was filed adding Värde Management, L.P. as a defendant. The amended complaint alleges that the director defendants breached their fiduciary duties by (i) agreeing to the merger consideration which undervalues the Company, (ii) agreeing to the terms of the merger agreement which deter other bidders and (iii) omitting material information and providing materially misleading information in the preliminary proxy statement, and seeks the same relief and asserts the same claims as the original complaint.

        Defendants have not yet filed any responsive pleadings or motions to the amended petitions. In the Perry lawsuit, the plaintiff has moved for a preliminary injunction and sought expedited discovery, but no hearings or proceedings have been scheduled on either motion. The Company believes that the claims in these lawsuits are without merit and intends to vigorously defend itself against them. However, there can be no assurance as to the outcome of these lawsuits.

• Wave Tec Pools, Inc. Litigation.

        FH Partners LLC (formerly FH Partners, L.P.), FC Servicing, and FirstCity Financial Corporation were defendants in a suit that was originally filed by Superior Funding, Inc., Wave Tec Pools, Inc. and Nations Pool Supply, Inc. (collectively, the "Obligors") against State Bank and Cole Harmonson in March 2007. The Obligors alleged that they sustained actual damages of $165 million as a result of alleged breaches by FH Partners LLC and FC Servicing under a loan-related agreement from State Bank to Obligors that was purchased by FH Partners LLC from State Bank in December 2006. Following various court rulings and proceedings (including Prosperity Bank's settlement with the Obligors in 2009), FirstCity entered into an agreement with the Obligors in August 2011, which provided for the settlement of the pending lawsuit and provided for a payment by FH Partners LLC to the Obligors and their attorneys of $100,000. The final settlement is non-appealable, and all FirstCity parties were released from all claims and liability related to the loan and lawsuit. FH Partners LLC continues to pursue collection of the loan.

• Investment Agreement with VIP

        Effective April 1, 2010, FC Diversified, FC Servicing, and VIP, entered into an investment agreement that provides, among other things, a "right of first refusal" provision. Pursuant to the investment agreement, FC Diversified and FC Servicing granted VIP a right of first refusal to participate in distressed asset investment opportunities in which the aggregate amount of the proposed investment is to exceed $3.0 million. FC Diversified and FC Servicing are required to follow a prescribed notice procedure pursuant to which VIP has the option to participate in a proposed investment, whether in the form of a direct purchase, equity investment or loan, by requiring that the purchase, acquisition or loan be effected through an acquisition entity formed by FC Diversified (or its affiliate) and VIP (or its affiliate). An affiliate of FC Diversified will own from 5% to 25% of the acquisition entity at FC Diversified's determination. The investment agreement has a termination date of June 30, 2015, which is subject to consecutive automatic one-year extensions without any action by FC Diversified, FC Servicing and VIP. FC Servicing will be the servicer for all of the acquisition entities formed by FC Diversified and VIP (subject to removal by VIP on a pool-level basis under certain conditions). The parties may terminate the investment agreement prior to June 30, 2015 under certain conditions.

• Indemnification Obligation Commitments

        Strategic Mexican Investment Partners L.P. ("SMIP"), a wholly-owned subsidiary of FirstCity, Cargill Financial Services International Inc. ("CFSI"), and a Mexican acquisition partnership that is collectively owned by SMIP and CFSI (collectively, the "Sellers"), are parties to indemnification arrangements that originated in 2006 in connection with their respective sales of eleven Mexican portfolio entities to Bidmex Holding LLC ("Bidmex Holding") and a loan portfolio to a Bidmex Holding subsidiary. Bidmex Holding is a Mexican acquisition partnership that was formed by certain subsidiaries of American International Group, Inc. ("AIG Entities"), as the 85%-majority owner, and SMIP, as the 15%-minority owner, to acquire the interests of the portfolio entities and loan portfolio from the Sellers. In connection with these sales transactions, the Sellers made various representations and warranties concerning (i) the existence and ownership of the portfolio entities, (ii) the assets and liabilities of the portfolio entities, (iii) taxes related to periods prior to the sales transaction date, (iv) the operations of the portfolio entities, and (v) the ownership of the loan portfolio and existence of the underlying loans. The Sellers agreed to indemnify Bidmex Holding and AIG Entities from damages resulting from a breach of these representation and warranty conditions on basis according to their respective ownership percentages in each Mexican portfolio entity, or on the basis of 80% to CFSI and 20% to SMIP as to any matter that was not related to a particular portfolio entity. The indemnity obligation survives for a period of the statute of limitations for matters related to taxes, existence and authority, capitalization and good standing of the Mexican portfolio entities. The Sellers are not required to make any payments as a result of the indemnity provisions until the aggregate amount payable exceeds certain thresholds (ranging from $25,000 for the loan portfolio transaction to $250,000 for the Mexican portfolio entities transaction). However, claims related to taxes and fraud are not subject to these thresholds. At this time, management does not believe that this potential obligation will have a material adverse impact on the Company's consolidated results of operations, financial position or liquidity.

• Guarantees and Letters of Credit

        FC Commercial has a term loan facility with Bank of Scotland. The obligations under this loan facility are secured by substantially all assets and subsidiaries of FC Commercial (excluding FH Partners LLC). FirstCity provides an unlimited guaranty for the repayment of the indebtedness under this loan facility. At December 31, 2012, the unpaid principal balance on this loan was $31.1 million. Refer to Note 2 for additional information.

        ABL has a $25.0 million revolving loan facility with WFCF (see Note 2). The obligations under this credit facility are secured by substantially all of the assets of ABL, and FirstCity provides WFCF with an unconditional guaranty on ABL's obligations under the loan facility up to a maximum of $5.0 million plus enforcement cost. At December 31, 2012, the unpaid principal balance on this loan facility was $15.2 million.

        FC Investment has a $15.0 million revolving loan facility with FNBCT. The obligations under this facility are secured by substantially all of the assets of FC Investment and its subsidiaries. FirstCity provides an unlimited guaranty for the repayment of the indebtedness under this revolving loan facility. At December 31, 2012, the unpaid principal balance on this loan facility was $2.0 million. Refer to Note 2 for additional information.

        Certain of the Company's consolidated subsidiaries provide guarantees to various financial institutions related to their financing arrangements with certain Acquisition Partnerships. The underlying financing arrangements of these Acquisitions Partnerships mature at various dates through September 2015, and are secured primarily by certain real estate properties held by the Acquisition Partnerships. At December 31, 2012, the unpaid debt obligations of these Acquisition Partnerships attributed to the underlying guarantees of the Company's subsidiaries approximated $1.4 million.

        Fondo de Inversion Privado NPL Fund One ("PIF1"), an equity-method investment of FirstCity, has a credit facility with Banco Santander Chile, S.A. with an unpaid principal balance of $5.3 million at December 31, 2012. PIF1 uses the credit facility to finance the purchases of loan portfolios. Pursuant to terms of the credit facility, FirstCity was required to provide a stand-by letter of credit from Bank of Scotland that would satisfy the current loan balance upon demand. At December 31, 2012, FirstCity had a letter of credit in the amount of $5.4 million from Bank of Scotland under the terms of FirstCity's loan facility with Bank of Scotland, with Banco Santander Chile, S.A. as the letter of credit beneficiary. In the event that a demand is made under the $5.4 million letter of credit, FirstCity would be required to reimburse Bank of Scotland by making payment to Bank of Scotland for all amounts disbursed or to be disbursed by Bank of Scotland under the letter of credit.

• Environmental Matters

        The Company generally retains environmental consultants to conduct or update environmental assessments in connection with the Company's foreclosed and acquired real estate properties. These environmental assessments have not revealed environmental conditions that the Company believes will have a material adverse effect on its business, assets, financial condition, results of operations or liquidity, and the Company is not otherwise aware of environmental conditions with respect to properties that the Company believes would have such a material adverse effect. However, from time to time, environmental conditions at the Company's properties have required and may in the future require environmental testing and/or regulatory filings, as well as remedial action. Liabilities for future remediation costs are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. Other than for assessments, the timing and magnitude of these accruals generally are based on the completion of investigations or other studies or a commitment to a formal plan of action.

• Income Taxes

        We are subject to income taxes in both the United States and the non-U.S. jurisdictions in which we operate. Certain of our entities are under examination by the relevant taxing authorities for various tax years. We regularly assess the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes. We have only recorded financial statement benefits for tax positions which we believe reflect the "more-likely-than-not" criteria incorporated in the FASB's authoritative guidance on accounting for uncertainty in income taxes, and we have established income tax reserves in accordance with this authoritative guidance where necessary. Once a financial statement benefit for a tax position is recorded or a tax reserve is established, we adjust it only when there is more information available or when an event occurs necessitating a change. While we believe that the amount of the recorded financial statement benefits and tax reserves reflect the more-likely-than-not criteria, it is possible that the ultimate outcome of current or future examinations may result in a reduction to the tax benefits previously recorded on the financial statements or may exceed the current income tax reserves in amounts that could be material.

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Other Related Party Transactions

12 Months Ended

Dec. 31, 2012

Other Related Party Transactions

Other Related Party Transactions

20. Other Related Party Transactions

        The Company has contracted with the Acquisition Partnerships and certain other related parties as a third-party loan servicer. Servicing fees and due diligence fees (included in other income) derived from these affiliates approximated $15.9 million in 2012 and $10.2 million in 2011.

        Through a series of related party transactions in 2008, FirstCity (through a majority-owned Mexican subsidiary) acquired a loan portfolio in Mexico. The final funding for this transaction involved two FirstCity majority-owned Mexican subsidiaries and an unconsolidated Mexican affiliated entity, and resulted in an affiliated note payable and an affiliated loan receivable being recorded to the Company's consolidated balance sheet. At December 31, 2011, the carrying values of this affiliated loan receivable and affiliated note payable both approximated $5.1 million (including accrued interest), and were respectively included in "Assets held for sale" and "Liabilities associated with assets held for sale" on our consolidated balance sheet. In July 2012, the Company sold the Mexican subsidiary that held this affiliated loan receivable and affiliated note payable. See Note 4 for additional information.

        The Company owns 80% of FirstCity Denver—a special situations investment platform that was formed for the purpose of investing primarily in lower middle-market private companies through flexible capital structuring arrangements. The other 20% interest in FirstCity Denver is owned by Crestone Capital LLC, a Colorado limited liability company that is owned by Richard Horrigan and Stephen Schmeltekopf. Mr. Horrigan, President of FirstCity Denver, and Mr. Schmeltekopf, Senior Vice President of FirstCity Denver, are also employees of FirstCity Denver and have employment contracts with FirstCity Denver.

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Business Combinations, Sale and Deconsolidation of Subsidiaries, and Noncontrolling Interest (Details)	12 Months Ended		1 Months Ended		6 Months Ended		1 Months Ended	6 Months Ended
	Dec. 31, 2012 USD ($)	Dec. 31, 2011 USD ($)	Dec. 31, 2012 UBN USD ($)	Dec. 31, 2012 UBN EUR (€)	Jun. 30, 2012 Capital and Ownership Restructure USD ($)	Jun. 30, 2012 Capital and Ownership Restructure MCS	Dec. 31, 2012 Capital and Ownership Restructure UBN USD ($)	Jun. 30, 2012 Capital and Ownership Restructure UBN	Jun. 30, 2012 Capital and Ownership Restructure UBN MCS	Jun. 30, 2012 Capital and Ownership Restructure UBN Non-affiliated Investor Group
European Acquisition Partnership and European Servicing Entity - Capital and Ownership Restructure
Ownership interest prior to restructure (as a percent)						37.00%		70.00%	35.00%
Ownership interest after restructure (as a percent)							38.00%	38.00%	100.00%	62.00%
Decrease in cash upon deconsolidation	$ 2,855,000				$ 2,900,000
Non-cash decrease in other liabilities	7,941,000	815,000			500,000
Non-cash decrease in noncontrolling interest	9,334,000				8,500,000
Non-cash decrease to investments in unconsolidated subsidiaries					6,100,000
Agreed upon consideration for sale of ownership interest			26,300,000	20,000,000
Gain realized on transaction							1,000,000
Deferred gain on sale recognized							$ 600,000

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Segment Reporting (Tables)

12 Months Ended

Dec. 31, 2012

Segment Reporting

Schedule of summarized information by segment

	Year Ended December 31, 2012
	Portfolio Asset Acquisition and Resolution			Special Situations Platform			Corporate and Other			Total
	(Dollars in thousands)
Revenues	$	55,577		$	14,117		$	887		$	70,581
Costs and expenses		(37,880	)		(17,926	)		(12,383	)		(68,189	)
Equity income from unconsolidated subsidiaries		8,958			6,286			—			15,244
Gain on business combinations		—			935			—			935
Gain on sale of subsidiaries		1,451			—			—			1,451
Income tax expense		(490	)		(326	)		(158	)		(974	)
Net income attributable to noncontrolling interests		(3,531	)		(1,179	)		—			(4,710	)
Net earnings (loss)	$	24,085		$	1,907		$	(11,654	)	$	14,338

	Year Ended December 31, 2011
	Portfolio Asset Acquisition and Resolution			Special Situations Platform			Corporate and Other			Total
	(Dollars in thousands)
Revenues	$	63,877		$	10,190		$	250		$	74,317
Costs and expenses		(52,481	)		(7,796	)		(8,322	)		(68,599	)
Equity income (loss) from unconsolidated subsidiaries		(624	)		2,855			—			2,231
Gain on business combinations		278			155			—			433
Gain on debt extinguishment		26,543			—			—			26,543
Gain on sale of subsidiaries		1,818			—			—			1,818
Income tax (expense) benefit		(3,807	)		(166	)		271			(3,702	)
Net income attributable to noncontrolling interests		(7,654	)		(1,170	)		—			(8,824	)
Net earnings (loss)	$	27,950		$	4,068		$	(7,801	)	$	24,217

Schedule of revenues, equity income (loss) of unconsolidated subsidiaries and other income from the portfolio asset acquisition and resolution segment

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
Domestic	$	51,191	$	42,180
Latin America		7,255		2,230
Europe		6,089		18,843
Total	$	64,535	$	63,253

Schedule of total assets for each segment and a reconciliation to total assets

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Cash and cash equivalents	$	39,941	$	34,802
Restricted cash		1,154		1,229
Portfolio acquisition and resolution assets:
Domestic		132,487		199,093
Latin America		6,495		17,048
Europe		6,049		41,447
Special situations platform assets		45,158		51,099
Other non-earning assets, net		13,353		11,628
Total assets	$	244,637	$	356,346

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Subsequent Events

12 Months Ended

Dec. 31, 2012

Subsequent Event

Subsequent Event

22. Subsequent Events

        On January 22, 2013, FirstCity Business Lending Corporation, an indirect wholly-owned subsidiary of the Company, entered into a stock purchase agreement with CS ABL Holdings, LLC to sell all of the common stock and the preferred stock of American Business Lending, Inc. to CS ABL Holdings, LLC for a total estimated purchase price of approximately $11.1 million. At December 31, 2012, the carrying value of the Company's investment was $7.5 million. The sale is subject to the approval of the U.S. Small Business Administration, and the satisfaction of other conditions of the stock purchase agreement.

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Selected Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2012

Selected Quarterly Financial Data (Unaudited)

Selected Quarterly Financial Data (Unaudited)

23. Selected Quarterly Financial Data (Unaudited)

        The following are summarized quarterly financial data for the years ended December 31, 2012 and 2011:

	2012										2011
	First Quarter		Second Quarter		Third Quarter			Fourth Quarter			First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(Dollars in thousands, except per share data)
Revenues	$	19,787	$	14,294	$	18,814		$	17,686		$	20,777	$	16,918	$	20,252	$	16,370
Costs and expenses		13,948		14,253		16,971			23,017			14,211		14,785		17,379		22,224
Equity income (loss) from unconsolidated subsidiaries		4,467		2,081		4,249			4,447			1,871		3,283		2,777		(5,700	)
Gain on business combinations		—		935		—			—			—		278		155		—
Gain on debt extinguishment		—		—		—			—			—		—		—		26,543
Gain on sale of subsidiaries		—		—		746			705			5		—		—		1,813
Income tax expense (benefit)		833		5		(59	)		195			602		1,024		421		1,655
Net earnings		9,473		3,052		6,897			(374	)		7,840		4,670		5,384		15,147
Less: Net income attributable to noncontrolling interests		1,108		1,565		2,130			(93	)		4,115		2,242		2,654		(187	)
Net earnings attributable to FirstCity		8,365		1,487		4,767			(281	)		3,725		2,428		2,730		15,334
Less: Net earnings attributable to participating securities		82		29		96			(6	)		—		—		25		142
Net earnings to common stockholders		8,283		1,458		4,671			(275	)		3,725		2,428		2,705		15,192
Basic earnings per share of common stock:
Net earnings	$	0.80	$	0.14	$	0.45		$	(0.03	)	$	0.36	$	0.24	$	0.26	$	1.48
Diluted earnings per share of common stock:
Net earnings	$	0.80	$	0.14	$	0.45		$	(0.03	)	$	0.36	$	0.24	$	0.26	$	1.47

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net earnings	$ 19,048	$ 33,041
Adjustments to reconcile net earnings to net cash used in operating activities:
Net principal advances on SBA loans held for sale	(11,034)	(21,801)
Proceeds from sales of SBA loans held for sale, net	19,937	29,146
Proceeds applied to income from Portfolio Assets	600	4,470
Income from Portfolio Assets	(26,707)	(40,622)
Provision for loan and impairment losses	3,930	7,258
Foreign currency transaction gains, net	(185)	533
Equity income from unconsolidated subsidiaries	(15,244)	(2,231)
Gain on sale of SBA loans held for sale, net	(1,481)	(2,261)
Gain on sale of subsidiaries and equity investments	(1,451)	(2,172)
Gain on debt extinguishment		(26,543)
Gain on sale of railroad property		(1,087)
Gain on business combinations	(935)	(433)
Gain on sale of investment securities	(343)	(90)
Depreciation and amortization, net	3,631	2,533
Increase in other assets	(1,707)	(2,778)
Increase in other liabilities	7,941	815
Other, net	(588)	421
Net cash used in operating activities	(4,588)	(21,801)
Cash flows from investing activities:
Purchases of property and equipment, net	(3,880)	(1,734)
Proceeds from sale of railroad property		1,372
Proceeds from sale of equity investments and consolidated subsidiaries	32,189	253
Proceeds from sale and deconsolidation of subsidiaries, net of cash disposed		2,561
Cash paid for business combinations, net of cash acquired	123	(2,599)
Decrease in cash from deconsolidation of subsidiary	(2,855)
Net principal payments on loans receivable	1,897	2,206
Purchases of SBA loans held for investment		(696)
Net principal advances on SBA loans held for investment	(1,083)	(3,685)
Purchase of investment securities available for sale		(3,843)
Net principal payments on investment securities available for sale	1,170	1,789
Proceeds from sale of investment securities	1,459	1,980
Purchases of Portfolio Assets	(4,720)	(14,894)
Proceeds applied to principal on Portfolio Assets	90,139	132,947
Contributions to unconsolidated subsidiaries	(33,606)	(44,723)
Distributions from unconsolidated subsidiaries	48,625	43,467
Net cash provided by investing activities	129,458	114,401
Cash flows from financing activities:
Borrowings under notes payable to affiliates		696
Borrowings under notes payable to banks and other	22,429	96,796
Principal payments of notes payable to affiliates		(3,237)
Principal payments of notes payable to banks and other	(129,937)	(172,641)
Proceeds from secured borrowings, net		(4,302)
Distributions to noncontrolling interests	(11,990)	(19,904)
Other, net	(408)	(1,322)
Net cash used in financing activities	(119,906)	(103,914)
Effect of exchange rate changes on cash and cash equivalents	175	(481)
Net increase (decrease) in cash and cash equivalents	5,139	(11,795)
Cash and cash equivalents, beginning of period	34,802	46,597
Cash and cash equivalents, end of period	39,941	34,802
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	2,825	10,869
Cash paid during the period for income taxes, net of refunds	$ 1,698	$ 3,473

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

• (b) Basis of Presentation and Principles of Consolidation

        The accompanying consolidated financial statements include the accounts of FirstCity, its wholly-owned and majority-owned subsidiaries, and certain variable interest entities where we are the primary beneficiary as prescribed by the Financial Accounting Standards Board's (the "FASB") accounting guidance on variable interest entities (see below). All significant intercompany transactions and balances have been eliminated in consolidation. Certain amounts in the consolidated financial statements and disclosures for the prior year were reclassified to conform to the current year presentation. These reclassifications were not significant and have no impact on FirstCity's net earnings, total assets or stockholders' equity.

• Consolidated Subsidiaries

        If we determine that we have a controlling financial interest in an entity, then we must consolidate the assets, liabilities and noncontrolling interests of the entity in our consolidated financial statements. A controlling financial interest typically arises as a result of ownership of a majority of the voting interests of an entity. However, we may also have a controlling financial interest in an entity through an arrangement that does not involve voting interests, such as a variable interest entity ("VIE"). We consolidate all VIEs where we are the primary beneficiary as prescribed by the FASB's accounting guidance on the consolidation of VIEs. The primary beneficiary of a VIE is the party that has the power to direct the activities that most significantly impact the economic performance of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. Refer to Note 19 for more information regarding the Company's involvement with VIEs.

• Unconsolidated Subsidiaries

        The Company does not consolidate investments in entities that are not VIEs where the Company does not have an effective controlling interest, or investments in entities that are VIEs where the Company is not the primary beneficiary. Rather, such investments, which represent equity investments in non-publicly-traded entities, are accounted for under the equity method of accounting since the Company has the ability to exercise significant influence (but not control) over operating and financial policies of such subsidiaries (including certain entities where we have less than 20% ownership). FirstCity has the ability to exercise significant influence over the operating and financial policies of its less-than-20%-owned entities, despite its comparatively smaller ownership percentage, due primarily to its active participation in the policy-making process as well as its involvement in the daily management activities of the entities.

        Under the equity method of accounting, the Company's investments in these unconsolidated entities are carried at the cost of acquisition, plus the Company's share of equity in undistributed earnings or losses since acquisition. We eliminate transactions with our equity-method subsidiaries to the extent of our ownership in such subsidiaries. Accordingly, our share of the income or losses of these equity-method subsidiaries is included in our consolidated net income.

        The following is a summary of the Company's combined ownership interests in unconsolidated equity-method subsidiaries at December 31, 2012 and 2011:

	Ownership Interests
	2012	2011
Acquisition Partnerships:
Domestic	10% - 50%	10% - 50%
Latin America	8% - 50%	8% - 50%
Europe	N/A	22% - 50%
Operating and Servicing Entities:
Domestic	39% - 49%	39% - 49%
Latin America	50%	50%
Europe	25%	16% - 37%

        The Company's equity income and losses from its unconsolidated foreign equity investments, except for certain of its unconsolidated European equity-method investments, are recorded on a one-month delay due to the timing of FirstCity's receipt of those financial statements.

        The Company has loans receivable from certain Acquisition Partnerships and other unconsolidated subsidiaries—see Note 6. In situations where the Company is not required to advance additional funds to the Acquisition Partnership and previous losses have reduced the equity investment to zero, the Company continues to report its share of equity method losses in its consolidated statements of earnings to the extent of and as an adjustment to the adjusted basis of the related loan receivable.

        The Company follows the accounting guidance for the equity method of accounting to determine if there has been an other-than-temporary decline in value of its investments in unconsolidated entities. The Company reviews its investments in unconsolidated entities for impairment whenever events or changes indicate that the fair value may be less than the carrying value of its investment. A loss in value of an investment which is other-than-temporary is recognized as a component of equity income (loss) of unconsolidated subsidiaries in the consolidated statements of earnings. This determination is based on the extent and/or length of time to which fair value was less than carrying value, our intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment, and other relevant factors and circumstances. When evaluating for impairment on investments that are not actively traded on a public market, we generally use a discounted cash flow approach to estimate the fair value of our unconsolidated investments and/or look to comparable activities in the marketplace (if available). Management judgment is required in developing the assumptions for the discounted cash flow approach. These assumptions include, among others, net asset values, internal rates of return and discount rates.

Use of Estimates

• (c) Use of Estimates

        The preparation of financial statements in conformity with U.S. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates that are particularly susceptible to significant change in the near-term relate to (1) the estimation of future collections on Portfolio Assets used in the calculation of income from Portfolio Assets; (2) valuation of deferred tax assets and assumptions used in the calculation of income taxes; (3) valuation of servicing assets, investment securities, loans receivable (including loans receivable held in securitization entities) and related allowances for loan losses, real estate, and investments in unconsolidated subsidiaries; (4) guarantee obligations and indemnifications; and (5) legal contingencies. In addition, management has made significant estimates with respect to the valuation of assets, liabilities, non-controlling interests and contingencies attributable to business combinations (see Note 3), and fair value measurements of debt instruments resulting from its debt refinancing arrangement in December 2011 that was accounted for as a debt extinguishment (see Note 2). These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. The continuance of challenging economic conditions and disruptions in the financial, capital, real estate and foreign currency markets, have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Cash and Cash Equivalents

• (d) Cash and Cash Equivalents

        For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. The Company maintains cash balances in various depository institutions that periodically exceed federally insured limits. Management periodically evaluates the creditworthiness of such institutions.

Restricted Cash

• (e) Restricted Cash

        Restricted cash primarily includes monies due on loan-related remittances received by the Company and due to third parties.

Portfolio Assets

• (f) Portfolio Assets

        The Company invests in Portfolio Assets and services and resolves such Portfolio Assets in an effort to maximize the present value of the ultimate cash recoveries. The Portfolio Assets are generally non-homogeneous assets, including loans of varying qualities that are secured by diverse collateral types and real estate. Some Portfolio Assets are loans for which resolution is tied primarily to the real estate securing the loan, while others may be collateralized business loans, the resolution of which may be based on the cash flows of the business or the underlying collateral.

        The following is a description of the classifications and related accounting policies for the Company's significant classes of Portfolio Assets:

• Purchased Credit-Impaired Loans

        The Company accounts for acquired loans and loan portfolios with evidence of credit deterioration since origination ("Purchased Credit-Impaired Loans") at fair value on the acquisition date. The amounts paid for Purchased Credit-Impaired Loans reflect the Company's determination that the loans have experienced deterioration in credit quality since origination and that it is probable the Company will be unable to collect all amounts due according to the contractual terms of the underlying loans. At acquisition, the Company reviews each individual loan to determine whether there is evidence of deterioration of credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan's contractual terms. If both conditions exist, the Company determines whether each such loan is to be accounted for individually or whether such loans will be assembled into static pools based on common risk characteristics (primarily loan type and collateral). Static pools of individual loan accounts may be established and accounted for as a single economic unit for the recognition of income, principal payments and loss provision. Once a static loan pool is established, individual accounts are generally not added to or removed from the pool (unless the Company sells, forecloses or writes off the loan). At acquisition, the Company determines the excess of the scheduled contractual payments over all cash flows expected to be collected for the loan or loan pool as an amount that should not be accreted ("nonaccretable difference"). The excess of the cash flows from the loan or loan pool expected to be collected at acquisition over the initial investment ("accretable difference") is recognized as interest income over the remaining life of the loan or loan pool on a level-yield basis ("accretable yield"). The discount (i.e. the difference between the cost of each loan or loan pool and the related aggregate contractual receivable balance) is not recorded because the Company does not expect to fully collect each contractual receivable balance. As a result, these loans and loan pools are recorded at cost (which approximates fair value) at the time of acquisition.

        The Company accounts for Purchased Credit-Impaired Loans using either the interest method or a non-accrual method (through application of the cost-recovery or cash basis method of accounting). Application of the interest method is dependent on management's ability to develop a reasonable expectation as to both the timing and amount of cash flows expected to be collected. In the event the Company cannot develop or establish a reasonable expectation as to both the timing and amount of cash flows expected to be collected, the Company uses the cost-recovery or cash basis method of accounting.

        Interest method of accounting.    Under the interest method, an effective interest rate, or IRR, is applied to the cost basis of the loan or loan pool. The excess of the contractual cash flows over expected cash flows cannot be recognized as an adjustment of income or expense or on the balance sheet. The IRR that is calculated when the loan is purchased remains constant as the basis for subsequent impairment testing (performed at least quarterly) and income recognition. Significant increases in actual, or expected future cash flows, are used first to reverse any existing valuation allowance for that loan or loan pool; and any remaining increase may be recognized prospectively through an upward adjustment of the IRR over the remaining life of the loan or loan pool. Any increase to the IRR then becomes the new benchmark for impairment testing and income recognition. Subsequent decreases in projected cash flows do not change the IRR, but are recognized as an impairment of the cost basis of the loan or loan pool (to maintain the then-current IRR), and are reflected in the consolidated statements of earnings through provisions charged to operations, with a corresponding valuation allowance offsetting the loan or loan pool in the consolidated balance sheets. FirstCity establishes valuation allowances for loans and loan pools acquired with credit deterioration to reflect only those losses incurred after acquisition—that is, the cash flows expected at acquisition that are no longer expected to be collected. Income from loans and loan pools accounted for under the interest method is accrued based on the IRR of each loan or loan pool applied to their respective adjusted cost basis. Gross collections in excess of the interest accrual and impairments will reduce the carrying value of the loan or loan pool, while gross collections less than the interest accrual will increase the carrying value. The IRR is calculated based on the timing and amount of anticipated cash flows using the Company's proprietary collection models.

        Cost-recovery method of accounting.    If the amount and timing of future cash collections on a loan are not reasonably estimable, the Company accounts for such asset on the cost-recovery method. Under the cost-recovery method, no income is recognized until the Company has fully collected the cost of the loan, or until such time as the Company considers the timing and amount of collections to be reasonably estimable and begins to recognize income based on the interest method as described above. At least quarterly, the Company performs an evaluation to determine if the remaining amount that is probable of collection is less than the carrying value of the loan or loan pool, and if so, recognizes impairment through provisions charged to operations, with a corresponding valuation allowance offsetting the loan or loan pool in the consolidated balance sheets. The carrying value of Purchased Credit-Impaired Loans accounted for under the cost-recovery method approximated $22.1 million at December 31, 2012 and $27.9 million at December 31, 2011.

        Cash basis method of accounting.    If only the amount of future cash collections on a loan is reasonably estimable, the Company accounts for such asset on an individual loan basis under the cash basis method of accounting. Under the cash basis method, no income is recognized unless collections are received during the period, or until such time as the Company considers the timing of collections to be reasonably estimable and begins to recognize income based on the interest method as described above. Income is recognized for the difference between the collections and a pro-rata portion of cost on a loan. Cost allocation is based on a proration of actual collections divided by total projected collections on the loan. Significant increases in future cash flows may be recognized prospectively as income over the remaining life of the loan through increased amounts allocated to income when collections are subsequently received. Subsequent decreases in projected cash flows are recognized as impairment of the loan's cost basis to maintain a constant cost allocation based on initial projections. The Company evaluates the projected cash flows for these loans and loan pools at least quarterly to determine if impairment exists, and if so, recognizes the impairment through provisions charged to operations, with a corresponding valuation allowance offsetting the loan or loan pool in the consolidated balance sheets. Management uses the cash basis method of accounting for such eligible loans primarily due to the increased uncertainty in the timing of future collections (attributable primarily to the borrowers' inability to obtain financing to refinance the loans). The carrying value of Purchased Credit-Impaired Loans accounted for under the cash basis method approximated $17.6 million and $53.8 million at December 31, 2012 and December 31, 2011, respectively.

        Troubled debt restructurings (TDRs):    Modified Purchased Credit-Impaired Loans are not removed from a loan pool even if those loans would otherwise be deemed TDRs. Modified Purchased Credit-Impaired Loans that are accounted for on an individual basis are considered TDRs if there has been a concession granted to the borrower and the Company does not expect to recover its recorded investment in the loan. Purchased Credit-Impaired Loans that are classified as TDRs are measured for impairment. Refer to Note 1(g) below for accounting guidance on loan modifications that result in classification as TDRs.

• Real Estate

        Real estate Portfolio Assets consist of real estate properties purchased from a variety of sellers or acquired through loan foreclosure. Rental income, net of expenses, is generally recognized when received. The Company accounts for its real estate properties on an individual-asset basis as opposed to a pool basis. The following is a description of the classifications and related accounting policies for the Company's various classes of real estate Portfolio Assets:

• Classification and Impairment Evaluation

        Real estate held for sale primarily includes real estate acquired through loan foreclosure. The Company classifies a property as held for sale if (1) management commits to a plan to sell the property; (2) the Company actively markets the property in its current condition for a price that is reasonable in comparison to its fair value; and (3) management considers the sale of such property within one year of the balance sheet date to be probable. Real estate held for sale is stated at the lower of cost or fair value less estimated disposition costs. Real estate is not depreciated while it is classified as held for sale. Impairment losses are recorded if a property's fair value less estimated disposition costs is less than its carrying amount, and charged to operations in the period the impairment is identified.

• Cost Capitalization and Allocation

        Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at the lower of cost (i.e. the underlying loan's carrying value) or estimated fair value less disposition costs at the date of foreclosure—establishing a new cost basis. The amount, if any, by which the carrying value of the underlying loan exceeds the property's fair value less estimated disposition costs at the foreclosure date is charged as a loss against operations. Expenditures for repairs, maintenance, and other holding costs are charged to operations as incurred.

        Real estate properties acquired through a purchase transaction are initially recorded at the cost of the acquisition. The cost of acquired property includes the purchase price of the property, legal fees, and certain other acquisition costs. Subsequent to acquisition, the Company capitalizes capital improvements and expenditures related to significant betterments and replacements, including costs related to the development and improvement of the property for its intended use. Expenditures for repairs, maintenance, and other holding costs are charged to operations as incurred.

        When acquiring real estate with an existing building through a purchase transaction, the Company generally allocates the purchase price between land, land improvements, building, tenant improvements, and intangible assets related to in-place leases based on their relative fair values. The fair values of acquired land and buildings are generally determined based on an estimated discounted future cash flow model with lease-up assumptions as if the building was vacant upon acquisition, third-party valuations, and other relevant data. The fair value of in-place leases includes the value of net lease intangibles for above- and below-market rents and tenant origination costs, determined on a lease-by-lease basis. Amounts allocated to building and improvements are depreciated over their estimated remaining lives. Amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles are amortized over the remaining life of the underlying leases. At December 31, 2012 and December 31, 2011, accumulated depreciation and amortization was not significant.

• Disposition of Real Estate

        Gains on disposition of real estate are recognized upon the sale of the underlying property if the transaction qualifies for gain recognition under the full accrual method, as prescribed by the FASB's accounting guidance on real estate sales transactions. If the transaction does not meet the criteria for the full accrual method of profit recognition based on our assessment, we account for the sale based on an appropriate deferral method determined by the nature and extent of the buyer's investment and our continuing involvement.

Loans Receivable

• (g) Loans Receivable

  Loans Held for Sale

        The portions of U.S. Small Business Administration ("SBA") loans that are guaranteed by the SBA are classified by management as loans held for sale. These loans are recorded at the lower of aggregate cost or estimated fair value. The fair value of SBA loans held for sale is based primarily on prices that secondary markets are currently offering for loans with similar characteristics. Net unrealized losses, if any, are recognized through a valuation allowance through a charge to income. The carrying value of SBA loans held for sale is net of premiums as well as deferred origination fees and costs. Premiums and net origination fees and costs are deferred and included in the basis of the loans in calculating gains and losses upon sale. SBA loans are generally secured by the borrowing entities' assets such as accounts receivable, property and equipment, and other business assets. The Company generally sells the guaranteed portion of each loan to a third-party investor and retains the servicing rights. The non-guaranteed portion of SBA loans is classified as held for investment (discussed below). Effective January 1, 2010, the Company adopted accounting guidance that required SBA loan transactions subject to the SBA's premium recourse provision to be accounted for initially as secured borrowings rather than asset sales. After the premium recourse provisions had elapsed, the transaction was recorded as a sale and the resulting net gain on sale was recognized—which was based on the difference between the proceeds received and the allocated carrying value of the loan sold. However, effective January 31, 2011, the SBA removed the recourse provisions contained in its loan sales agreements for guaranteed portions of SBA loans. As a result, SBA loan sales transacted by the Company under these revised agreements were accounted for initially as a sale, with the corresponding gain recognized at the time of sale. The gains recognized on these loan sales were based on the difference between the sales proceeds received and the allocated carrying value of the loans sold (which included deferred premiums and net origination fees and costs).

• Loans Held for Investment

        Loans receivable consisting of loans made to affiliated entities (including Acquisition Partnerships and other equity-method investees) and non-affiliated entities, and the non-guaranteed portions of SBA loans, are classified by management as held for investment. These loans are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and unamortized premiums or discounts on purchased loans. Loan origination fees and costs, as well as purchase premiums and discounts, are amortized as level-yield adjustments over the respective loan terms. Unamortized net fees, costs, premiums or discounts are recognized upon early repayment or sale of the loan. Repayment of the loans is generally dependent upon future cash flows of the borrowers, future cash flows of the underlying collateral, and distributions made from affiliated entities. Interest is accrued when earned in accordance with the contractual terms of the loans, except for loans on non-accrual status. Interest is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding.

        The Company has established an allowance for loan losses to absorb probable, estimable losses inherent in its portfolio of loans receivable held for investment. This allowance for loan losses includes specific allowances, based on individual evaluations of certain loans and loan relationships, and allowances for pools of loans with similar risk characteristics. Management's determination of the adequacy of the allowance is a quarterly process and is based on evaluating the collectibility of the loans in light of various factors, as applicable, such as quality and composition of the loan portfolio segments, estimated future cash receipts of the borrower's operations or underlying collateral, historical experience, estimated value of underlying collateral, prevailing economic conditions, industry concentrations and conditions, and other relevant factors. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Actual losses experienced in the future may vary from management's estimates. Management attributes portions of the allowance to loans that it evaluates and determines to be impaired and to groups of loans that it evaluates collectively.

        In determining the appropriate level of allowance, management uses information to stratify its portfolio of loans receivable held for investment into loan pools with common risk characteristics. Classes in the affiliated and non-affiliated portfolio asset and commercial loan portfolio segments are generally disaggregated by accrual status (which is generally based on management's assessment on the probability of default). Classes in the non-guaranteed SBA commercial loan portfolio segment are disaggregated based upon underlying credit quality. Certain portions of the allowance are attributed to loan pools based on various factors and analyses, including but not limited to, current and historical loss experience trends, collateral, region, current economic conditions, and industry concentrations and conditions. Loans deemed to be impaired, including loans with an increased probability of default as determined by management, are evaluated individually rather than on a pool basis as described above. We consider a loan to be impaired when, based on current information and events, we determine it is probable that we will not be able to collect all amounts due according to the loan's contractual terms (including scheduled interest payments). When management identifies a loan as impaired, we measure the impairment based on discounted future cash flows, except when foreclosure is probable or the source of repayment is the operation or liquidation of the collateral. In these cases, we use the current fair value of the collateral, less estimated selling costs, instead of discounted cash flows. When a loan is determined to be impaired, we cease to accrue interest on the note and interest previously accrued but not collected becomes part of our recorded investment in the loan and is collectively reviewed for impairment. When ultimate collectibility of the impaired note is in doubt, all collections are applied to reduce the principal amount of such notes until the principal has been recovered, and collections thereafter are recognized as interest income. We return a loan to accrual status when we determine that the collectibility of principal and interest is reasonably assured. Impairment losses are charged against an allowance account through provisions charged to operations in the period impairment is identified. Loans are written-off against the allowance when all possible means of collection have been exhausted and the potential for recovery is considered remote.

        Troubled debt restructurings (TDRs):    In situations where, for economic or legal reasons related to a borrower's financial difficulties, the Company grants a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a TDR. Modification of loan terms that may be considered a concession to the borrower may include rate reductions, principal forgiveness, term extensions, payment forbearance and other actions intended to minimize our economic loss and to avoid foreclosure or repossession of the collateral. For modifications where we may forgive loan principal, the entire amount of such principal forgiveness is immediately charged off. Loans classified as TDRs are considered impaired loans.

Investment Securities Available-for-Sale

• (h) Investment Securities Available-for-Sale

        The Company has investment securities that consist of purchased beneficial interests in securitized financial assets. The Company also had an investment in a marketable equity security, which was sold in December 2012. We classify and account for these securities as available-for-sale and, accordingly, we measure the securities at fair value on the consolidated balance sheet, with unrealized gains and losses included in "Accumulated other comprehensive income." Fair value of the purchased beneficial interests are estimated based on the present value of expected collections on the underlying receivables using an internal valuation model, incorporating market-based assumptions when such information is available. Fair value of the equity security was measured using quoted market prices in an active exchange market for the identical asset. Additional information on the fair value measurement is included in Note 17.

        The excess of all cash flows attributable to the beneficial interest estimated at the acquisition date over the initial investment amount (i.e. the accretable yield) is recognized as interest income over the life of the beneficial interest using the interest method. The Company continues to estimate the projected cash flows over the life of the beneficial interest for the purposes of both recognizing interest income and evaluating impairment.

        Other-than-temporary impairment is considered to have occurred when the fair value of the security has declined below its amortized cost basis and if (1) we have the intent to sell the security; (2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or (3) we do not expect to recover the entire amortized cost basis of the security.

Property and Equipment

• (i) Property and Equipment

        Property, equipment and leasehold improvements (reported in "Other assets" in the consolidated balance sheets) are carried at cost less accumulated depreciation and amortization. Property and equipment are depreciated over their estimated useful lives using the straight-line method of depreciation. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements (or the terms of the underlying leases, if shorter). Generally, buildings and building improvements are depreciated over 25 to 30 years; office equipment is depreciated over 3 to 10 years; depreciable rail property is depreciated over 25 years; machinery and equipment are depreciated over 5 to 15 years; and leasehold improvements are amortized over 2 to 10 years. Maintenance and repairs are charged to expense in the period incurred. Expenditures for improvements and significant betterments that increase productive capacity or extend useful life are capitalized and depreciated over the useful lives of such assets. When property or equipment is sold or retired, the cost and related accumulated depreciation are removed from the consolidated balance sheet and any gain or loss is included in income.

Accounting for Transfers and Servicing of Financial Assets

• (j) Accounting for Transfers and Servicing of Financial Assets

        The Company accounts for transfers of financial assets as sales when control over the transferred assets is surrendered. Control is generally considered to have been surrendered when (1) the transferred assets are legally isolated from the Company or its consolidated affiliates; (2) the transferee has the right to pledge or exchange the assets with no conditions that constrain the transferee and provide more than a trivial benefit to the Company; and (3) the Company does not maintain the obligation or unilateral ability to reclaim or repurchase the assets. If these sale criteria are met, the transferred assets are removed from the Company's balance sheet and a gain or loss on sale is recognized. If not met, the transfer is recorded as a secured borrowing, and the assets remain on the Company's balance sheet, the proceeds from the transaction are recognized as a liability, and gain or loss on sale is deferred until the sale criterion are achieved.

        The Company generally services Portfolio Assets acquired through its investments in Acquisition Partnerships. The Company does not recognize capitalized servicing rights related to its Portfolio Assets owned by the Acquisition Partnerships because (1) servicing is not contractually separated from the underlying assets by sale or securitization of the assets with servicing retained or separate purchase or assumption of the servicing; (2) consideration is not exchanged between the Company and the Acquisition Partnerships for the servicing rights of the acquired Portfolio Assets; (3) the Company has ownership interests in the Acquisition Partnerships that own the Portfolio Assets it services; and (4) the Company does not have the risks and rewards of ownership of servicing rights. The Company services, in all material respects, the Portfolio Assets owned for its own account, the Portfolio Assets owned by the Acquisition Partnerships and, to a very limited extent, certain Portfolio Assets owned by third parties. In connection with the Acquisition Partnerships in the United States, the Company generally earns a servicing fee, which is based on a percentage of gross cash collections generated from the Portfolio Assets. The rate of servicing fee charged is generally a function of the average face value of the assets within each pool being serviced (the larger the average face value of the assets in a Portfolio, the lower the fee percentage within the prescribed range), the type of assets and the level of servicing required for each asset. For the Mexican Acquisition Partnerships, the Company earns a servicing fee based on costs of servicing plus a profit margin. The Acquisition Partnerships in Europe and South America are serviced by various entities in which the Company maintains an equity interest. In all cases, service fees are recognized when they are earned in accordance with the servicing agreements.

        The Company has servicing contracts with certain of its Acquisition Partnerships that entitle the Company to receive additional compensation for servicing after a specified return to the investors has been achieved. The Company recognizes revenue related to these contracts when the investors receive the required level of returns specified in the contracts and the Acquisition Partnerships receive cash in an amount greater than the required returns. There is no guarantee that the required level of returns to the investors will be achieved or that any additional compensation to the Company related to the contracts will be realized. The Acquisition Partnerships accrue a liability for these contingent fees provided that payment of the fees is probable and reasonably estimable.

        In connection with the Company's SBA lending activities, the Company recognizes servicing assets through the sale of originated or purchased loans when servicing rights are retained. The Company initially recognizes and measures at fair value servicing rights obtained from SBA loan sales and purchased servicing rights. The Company subsequently measures these servicing assets by using the amortization method, which amortizes servicing assets in proportion to, and over the period of, estimated net servicing income. The amortization of the servicing assets is analyzed periodically and is adjusted to reflect changes in prepayment rates and other estimates. See Note 8 for more information on servicing rights related to SBA loans.

Revenue Recognition and Contingent Liabilities - Special Situations Platform Subsidiaries

• (k) Revenue Recognition and Contingent Liabilities—Special Situations Platform Subsidiaries

        The Company's consolidated railroad subsidiaries (under its Special Situations Platform) interchange rail cars with connecting carriers, provide rail freight services for on-line customers, operate a transload facility, and operate a rail-served debris transfer station. Freight revenue is recognized at the time the shipment is either delivered to or received from the connecting carrier at the point of interchange. Industrial switching and other service revenues are recognized as such services are provided.

        Certain managers of our Special Situations Platform are party to a management agreement that allows them to participate in the net profits of the underlying investments within the Special Situations Platform. In accordance with this agreement, investments are pooled by year and tracked for performance. Once a pool earns a 20% internal rate of return, the Company is required to pay the managers 37.5% of the remaining net cash flows received from that pool. The Company recognizes a liability for the amount that is deemed estimable and probable to be paid to these employees. The liability is adjusted quarterly as estimates of future net cash flows are revised. At December 31, 2012 and 2011, this liability was $4.9 million and $0.4 million, respectively. In December 2012, the Company's equity-method investment in a manufacturing concern involved in the prefabricated building industry sold substantially all of its net assets for a gain of $8.0 million.

Translation Adjustments

• (l) Translation Adjustments

        The Company has determined that the local currency is the functional currency for its operations outside the United States (primarily Europe and Latin America). We translate the results for our foreign subsidiaries and affiliates from the designated functional currency to the U.S. dollar using average exchange rates during the relevant period, while we translate assets and liabilities at the exchange rate in effect at the reporting date. We report the resulting gains or losses from translating foreign currency financial statements as a separate component of stockholders' equity in accumulated other comprehensive income or loss. An analysis of the changes in the cumulative adjustments for 2012 and 2011 follows (dollars in thousands):

Balance, December 31, 2010	$	(740	)
Aggregate adjustment for the year resulting from translation adjustments and gains and losses on certain hedge transactions		(1,113	)
Balance, December 31, 2011		(1,853	)
Aggregate adjustment for the year resulting from translation adjustments and gains and losses on certain hedge transactions		1,319
Balance, December 31, 2012	$	(534	)

        Increases or decreases in expected functional currency cash flows upon settlement of a foreign currency transaction are recorded as foreign currency transaction gains or losses and included in the Company's operations in the period in which the transaction is settled. Aggregate foreign currency transaction gains and losses included in the consolidated statements of earnings as other expense for 2012 and 2011 were $0.2 million gain and $0.5 million loss, respectively.

        In general, monetary assets and liabilities designated in U.S. dollars give rise to foreign currency realized and unrealized transaction gains and losses, which we record in the consolidated statement of earnings as foreign currency transaction gains, net. However, we report the effects of changes in exchange rates associated with certain U.S. dollar-denominated intercompany loans and advances to certain of our Latin American subsidiaries that are of a long-term investment nature (that is, settlement is not planned or anticipated in the foreseeable future) as other comprehensive income or loss in our consolidated financial statements. We have determined that certain U.S. dollar-denominated intercompany loans and advances to our Latin American subsidiaries are of a long-term investment nature.

        The net foreign currency translation gain (loss) included in accumulated other comprehensive income (loss) relating to the Company's Euro-denominated debt (see Notes 2 and 12) was $0.3 million loss for 2012 and $0.3 million gain for 2011.

Income Taxes

• (m) Income Taxes

        The Company files a U.S. consolidated federal income tax return with its 80%-or-greater-owned subsidiaries. The Company records all of the allocated federal income tax provision of the consolidated group in the parent corporation.

        The Company is subject to income taxes in both the United States and the non-U.S. jurisdictions in which we operate. We account for income taxes in both the U.S. and non-U.S. jurisdictions under the asset and liability method. Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates, if any, would be recognized in earnings in the period that includes the enactment date. We reduce the carrying amounts of deferred tax assets through a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically by the Company based on the more-likely-than-not realization threshold criterion. In this assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other factors, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, excess of appreciated asset value over the tax basis of net assets, impact of gains or charges from one-time events, the duration of statutory carryforward periods, the Company's experience with utilizing available operating loss and tax credit carryforwards, and tax planning strategies. In making such assessments, significant weight is given to evidence that can be objectively verified.

        The Company accounts for income tax uncertainty using the "more-likely-than-not" criteria incorporated in the FASB's authoritative guidance on accounting for uncertainty in income taxes. Accordingly, we account for uncertain tax positions using a two-step approach whereby we recognize an income tax benefit if, based on the technical merits of a tax position, it is more likely than not (a probability of greater than 50%) that the tax position would be sustained upon examination by the taxing authority. We then recognize a tax benefit equal to the largest amount of tax benefit that is greater than 50% likely to be realized upon settlement with the taxing authority, considering all information available at the reporting date. Once a financial statement benefit for a tax position is recorded, we adjust it only when there is more information available or when an event occurs necessitating a change. Tax positions that previously failed to meet the more-likely-than-not recognition threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Earnings per Common Share

• (n) Earnings per Common Share

        The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company's participating securities consist of unvested restricted stock awards that contain a non-forfeitable right to receive dividends and, therefore, are considered to participate in undistributed earnings with common stockholders.

        Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of stock-based awards. We exclude potentially dilutive securities from the computation of diluted earnings per share when the effect of their inclusion would be anti-dilutive.

        The following table sets forth the computation of basic and diluted earnings per common share for the years ended December 31, 2012 and 2011:

	Year Ended December 31,
(In thousands, except per share data)	2012		2011
Net earnings	$	19,048	$	33,041
Less: Net income attributable to noncontrolling interests		4,710		8,824
Net earnings attributable to FirstCity	$	14,338	$	24,217
Less: Net earnings allocable to participating securities		251		180
Net earnings allocable to common shares	$	14,087	$	24,037
Weighted-average common shares outstanding—basic		10,333		10,283
Dilutive effect of restricted stock shares		31		8
Dilutive effect of stock options		44		13
Weighted-average common shares outstanding—diluted		10,408		10,304
Net earnings per share:
Basic	$	1.36	$	2.34
Diluted	$	1.35	$	2.33

        For the years ended December 31, 2012 and 2011, potentially dilutive securities representing approximately 555,000 and 769,000 shares of common stock, respectively, were excluded from the computation of diluted earnings per common share because their effect would have been anti-dilutive.

Long-Lived Assets

• (o) Long-Lived Assets

        The Company assesses the impairment of long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value of the asset exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market prices and third-party independent appraisals, as considered necessary.

Stock-Based Compensation

• (p) Stock-Based Compensation

        The Company measures the compensation cost of stock-based awards using the estimated fair value of those awards on the grant date. We recognize the compensation cost as expense over the vesting period of the awards. See Note 13 for additional disclosure of the Company's stock-based compensation.

Fair Value Measurements

• (q) Fair Value Measurements

        The Company applies the provisions of FASB's accounting guidance for fair value measurements of financial and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or non-recurring basis, as applicable. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price). This guidance also establishes a framework for measuring fair value and expands disclosures about fair value measurements. See Note 17 for additional information.

Recently Adopted Accounting Standards

• (r) Recently Adopted Accounting Standards

  Comprehensive Income Presentation

        In June 2011, the FASB issued guidance on the presentation of other comprehensive income. This guidance requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity was eliminated. In December 2011, the FASB issued updated guidance that defers indefinitely certain requirements from its June 2011 guidance that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. We adopted this guidance for the quarterly period ended March 31, 2012. The adoption of this guidance did not have a material impact on our consolidated financial statements.

• Finance Receivables and Allowance for Credit Losses Disclosure

        In July 2010, the FASB issued accounting guidance related to disclosures about the credit quality of financing receivables and the allowance for credit losses. The objective of the amendment is disclosure of information that enables financial statement users to understand the nature of inherent credit risks, the entity's method of analysis and assessment of credit risk in estimating the allowance for credit losses, and the reasons for changes in both the receivables and allowances when examining a creditor's portfolio of financing receivables and its allowance for losses. We adopted the period-end disclosure requirements of this guidance related to an entity's credit quality of financing receivables and the related allowance for loan losses in the consolidated financial statements for the year ended December 31, 2010. We adopted the activity-related provisions of this guidance for the quarterly period ended March 31, 2011. Since the activity-related provisions of this guidance were disclosure-only in nature, the adoption of this updated guidance did not have a material impact on our financial condition and results of operations. Refer to Notes 1(g), 5 and 6 for additional information.

• Loan Modifications and Loan Pool Accounting

        In April 2011, the FASB issued accounting guidance that clarifies when creditors should classify loan modifications as troubled debt restructurings ("TDRs"). The guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after January 1, 2011. The guidance on measuring the impairment of a receivable restructured in a TDR is effective on a prospective basis. This guidance supersedes the FASB's previous deferral of additional disclosures about TDRs. For a loan restructuring to constitute a TDR, a creditor must conclude that the restructuring constitutes a concession and the debtor is experiencing financial difficulties. We adopted this guidance on July 1, 2011, as required. Under this clarified guidance, we do not report loans modified in a TDR that had been fully paid down, charged off or foreclosed upon by period-end. The adoption of this guidance did not have a material impact on our financial statements.

• Fair Value Measurements Disclosure

        In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately, a reconciliation for fair value measurements using significant unobservable inputs (Level 3) information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). We adopted this guidance for the quarterly period ended March 31, 2011. Since this guidance was disclosure-only in nature, the adoption of this updated guidance did not have a material impact on our financial condition and results of operations. Refer to Note 17 for additional information.

        In May 2011, the FASB issued guidance clarifying how to measure and disclose fair value. This guidance amends the application of the "highest and best use" concept to be used only in the measurement of fair value of nonfinancial assets, clarifies that the measurement of the fair value of equity-classified financial instruments should be performed from the perspective of a market participant who holds the instrument as an asset, clarifies that an entity that manages a group of financial assets and liabilities on the basis of its net risk exposure can measure those financial instruments on the basis of its net exposure to those risks, and clarifies when premiums and discounts should be taken into account when measuring fair value. This guidance also requires new and enhanced disclosures on the quantification and valuation processes for significant unobservable inputs, transfers between Levels 1 and 2, and the categorization of all fair value measurements into the fair value hierarchy, even where those measurements are only for disclosure purposes. We adopted this guidance for the quarterly period ended March 31, 2012. Since this guidance was disclosure-only in nature, and since the Company's Level 3 fair value measurements were not significant for the quarterly period ended March 31, 2012, the adoption of this updated guidance did not have a material impact on our financial condition and results of operations. Refer to Note 17 for additional information.

Recently Issued Accounting Standards

• (s) Recently Issued Accounting Standards

        In July 2012, the FASB issued guidance on testing indefinite-lived intangible assets for impairment. This guidance simplifies the testing for indefinite lived intangible assets impairment by allowing an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount before proceeding to the quantitative impairment test. The effective date of this guidance was January 1, 2013. We believe that the adoption of this guidance will not have a significant impact on our financial condition and results of operations.

        In December 2011, the FASB issued guidance on disclosures about offsetting assets and liabilities. This guidance requires an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. This effective date of guidance is effective for annual and interim periods beginning on January 1, 2013. We believe that the adoption of this guidance will not have a significant impact on our financial condition and results of operations.

        In February 2013, the FASB issued guidance on reporting of amounts reclassified out of accumulated other comprehensive income. This guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. This guidance is effective prospectively for annual and interim periods beginning after December 15, 2012. We believe that the adoption of this guidance will not have a significant impact on our financial condition and results of operations.

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Variable Interest Entities (Details) (USD $)							12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Variable interests in unconsolidated VIEs	Dec. 31, 2012 Special-Purpose Investment Entity VIEs	Dec. 31, 2012 Special-Purpose Investment Entity VIEs Primary Beneficiary	Dec. 31, 2012 Acquisition Partnership VIEs item	Dec. 31, 2012 Acquisition Partnership VIEs Minimum item	Dec. 31, 2012 Operating Entity VIEs
Variable interest entities
Number of investors in VIEs							1
Number of VIEs in which entity and respective non-affiliated investors each hold equal ownership and voting interests						4
Maximum recourse available to third-party creditors under various limited guaranty provisions related to certain debt obligations of the VIEs				$ 38,100,000
Carrying amount and classification of assets and liabilities of VIEs included in consolidated balance sheet
Cash					24,066,000
Portfolio Assets, net	55,075,000	123,946,000			42,056,000
Loans receivable			7,419,000		33,111,000			7,419,000
Equity investments	77,466,000	109,393,000	(502,000)		21,640,000	(1,076,000)		574,000
Other assets	32,755,000	25,593,000			32,954,000
Total assets of consolidated VIEs (1)					153,827,000
Notes payable (2)					71,718,000
Other liabilities (2)	30,425,000	23,690,000			18,210,000
Total liabilities of consolidated VIEs					89,928,000
Notes payable for which creditors do not have recourse					26,500,000
Other liabilities (2)					18,200,000
FirstCity's Maximum Exposure to Loss (1)			$ 8,973,000			$ 980,000		$ 7,993,000

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Foreign Currency Exchange Risk Management (Tables)

12 Months Ended

Dec. 31, 2012

Foreign Currency Exchange Risk Management

Schedule of the carrying value and line item caption of the non-derivative instrument reported on the consolidated balance sheets

At December 31, 2012 and 2011, the carrying value and line item caption of the Company's non-derivative instrument was reported on the consolidated balance sheet as follows (in thousands):

		Carrying Value at:
Non-Derivative Instrument in Net Investment Hedging Relationship	Balance Sheet Location	December 31, 2012		December 31, 2011
Euro-denominated debt	Notes payable to banks	$	—	$	13,240

Schedule of effect of the non-derivative instrument qualifying and designated as a hedging instrument in net foreign investment hedges on the consolidated financial statements

The effect of the non-derivative instrument qualifying and designated as a hedging instrument in net foreign investment hedges on the consolidated financial statements for the years ended December 31, 2012 and 2011 was as follows (in thousands):

	Amount of Gain (Loss) Recognized in AOCI (Effective Portion)						Amount of Gain (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Year Ended December 31,						Year Ended December 31,
						Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Non-Derivative Instrument in Net Investment Hedging Relationship
	2012			2011			2012		2011
Euro-denominated debt	$	(256	)	$	251	Other income (expense)	$	—	$	—

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Liquidity and Capital Resources (Details 3) (USD $) In Millions, unless otherwise specified	1 Months Ended
	Jun. 30, 2010
Minimum
Reducing Note Facility - Bank of Scotland
Minority interests in acquisition entities controlled by larger firms (as a percent)	10.00%
Maximum
Reducing Note Facility - Bank of Scotland
Minority interests in acquisition entities controlled by larger firms (as a percent)	20.00%
Reducing Note Facility - Bank of Scotland
Reducing Note Facility - Bank of Scotland
Principal amount	$ 268.6
Cash flow leak on basis of cash flow after payment of interest and overhead allowance (as a percent)	20.00%
Cash flow leak on basis of cash flow after payment of interest and overhead allowance	$ 20

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Foreign Currency Exchange Risk Management (Details 2) (Euro-denominated debt, Net Investment Hedging Relationship, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Euro-denominated debt | Net Investment Hedging Relationship
Non-derivative instrument qualifying and designated as a hedging instrument in net foreign investment hedges on the consolidated financial statements
Amount of Gain (Loss) Recognized in AOCI (Effective Portion)	$ (256)	$ 251

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 39,941		$ 34,802
Restricted cash	1,154		1,229
Portfolio Assets:
Loan portfolios, net of allowance for loan losses of $394 and $781	44,904		97,090
Real estate held for sale, net	10,171		26,856
Total Portfolio Assets	55,075		123,946
Loans receivable:
Loans receivable - affiliates	6,584		6,719
Loans receivable - SBA held for sale	1,087		7,614
Loans receivable - SBA held for investment, net of allowance for loan losses of $518 and $333	19,372		19,151
Loans receivable - other, net of allowance for loan losses of $1,083	7,530		12,212
Total loans receivable, net	34,573		45,696
Investment securities available for sale	1,670		3,798
Investments in unconsolidated subsidiaries	77,466		109,393
Service fees receivable ($793 and $834 from affiliates)	872		913
Servicing assets - SBA loans	1,131		1,090
Assets held for sale			9,886
Other assets	32,755		25,593
Total Assets	244,637	[1]	356,346	[1]
Liabilities:
Notes payable to banks and other debt obligations	76,945		189,936
Liabilities associated with assets held for sale			5,317
Other liabilities	30,425		23,690
Total Liabilities	107,370	[2]	218,943	[2]
Commitments and contingencies (Note 21)
Stockholders' equity:
Optional preferred stock (par value $.01 per share; 98,000,000 shares authorized; no shares issued or outstanding)
Common stock (par value $.01 per share; 100,000,000 shares authorized; shares issued: 12,056,197 and 11,890,590, respectively; shares outstanding: 10,556,197 and 10,390,590, respectively)	121		119
Treasury stock, at cost: 1,500,000 shares	(10,923)		(10,923)
Paid in capital	107,378		106,330
Retained earnings	32,729		18,391
Accumulated other comprehensive loss	(577)		(1,941)
FirstCity Stockholders' Equity	128,728		111,976
Noncontrolling interests	8,539		25,427
Total Equity	137,267		137,403
Total Liabilities and Equity	$ 244,637		$ 356,346

[1] Our consolidated assets at December 31, 2012 and December 31, 2011 include the following assets of certain variable interest entities ("VIEs") that can only be used to settle the liabilities of those VIEs: Cash and cash equivalents, $24.1 million and $20.4 million; Portfolio Assets, $42.1 million and $98.4 million; Loans receivable, $33.1 million and $45.7 million; Equity investments, $21.6 million and $51.7 million; various other assets, $32.9 million and $35.9 million; and Total assets, $153.8 million and $252.2 million, respectively.

[2] Our consolidated liabilities at December 31, 2012 and December 31, 2011 include the following VIE liabilities for which the VIE creditors do not have recourse to FirstCity: Notes payable, $26.5 million and $70.2 million; Other liabilities, $18.2 million and $19.0 million; and Total liabilities, $44.6 million and $89.2 million, respectively.

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Variable Interest Entities (Tables)

12 Months Ended

Dec. 31, 2012

Consolidated VIEs

Variable interest entities

Schedule of the carrying amount and classification of assets and liabilities of consolidated VIEs included in consolidated balance sheet

(Dollars in thousands)	Special-Purpose Investment VIEs
Cash	$	24,066
Portfolio Assets, net		42,056
Loans receivable		33,111
Equity investments		21,640
Other assets		32,954
Total assets of consolidated VIEs(1)	$	153,827
Notes payable(2)	$	71,718
Other liabilites(2)		18,210
Total liabilities of consolidated VIEs	$	89,928

(1)

These assets can only be used to settle the liabilities of these consolidated VIEs.

(2)

Includes $26.5 million of notes payable and $18.2 million of other liabilities for which creditors do not have recourse to FirstCity.

Unconsolidated VIEs

Variable interest entities

Schedule of the carrying amount and classification of assets and liabilities of consolidated VIEs included in consolidated balance sheet

	Assets on FirstCity's Consolidated Balance Sheet
						FirstCity's Maximum Exposure to Loss(1)
Type of VIE	Loans Receivable		Equity Investment
	(Dollars in thousands)
Acquisition Partnership VIEs	$	—	$	(1,076	)	$	980
Operating Entity VIEs		7,419		574			7,993
Total	$	7,419	$	(502	)	$	8,973

(1)

Includes maximum exposure to loss attributable to FirstCity's debt guarantees provided for certain Acquisition Partnership VIEs.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net earnings	$ 19,048	$ 33,041
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on securities available for sale	561	(868)
Reclassification adjustment for gains on securities available for sale included in net earnings, net of tax	(501)	(97)
Foreign currency translation adjustments	54	(1,237)
Reclassification adjustment for foreign currency losses included in net earnings, net of tax	1,028
Total other comprehensive income, net of tax	1,142	(2,202)
Total comprehensive income	20,190	30,839
Less comprehensive income attributable to noncontrolling interests:
Net income	(4,710)	(8,824)
Net unrealized (gain) loss on securities available for sale, net of tax	(15)	202
Foreign currency translation adjustments	237	124
Comprehensive income attributable to FirstCity	$ 15,702	$ 22,341

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Divestures (Details) (Portfolio Asset Acquisition and Resolution, USD $)	1 Months Ended	3 Months Ended
	Jul. 31, 2012 item	Dec. 31, 2011 item
Mexican Acquisition Partnerships
Divesture - portfolio asset acquisition & resolution business segment
Number of partnerships expected to be sold or otherwise disposed of		3
Period over which subsidiaries expected to be sold or disposed of		12 months
Number of wholly-owned subsidiaries		2
Assets held for sale		$ 9,900,000
Liabilities associated with assets held for sale		5,300,000
Portfolio assets classified as assets held-for-sale		4,800,000
Affiliated loan receivable classified as assets held-for-sale		5,100,000
Affiliated note payable classified as liabilities associated with assets held-for-sale		5,100,000
Number of subsidiaries sold	2
Proceeds from sale of interests in subsidiaries	5,500,000
Gain recognized on the transaction	1,300,000
Recognition of previously-deferred income	500,000
Portfolio assets held for investment reclassified as held and used due to change in disposal plan	700,000
Mexican Acquisition Partnership - majority-owned
Divesture - portfolio asset acquisition & resolution business segment
Net impairment charge recognized		3,100,000
Mexican Acquisition Partnership - majority-owned | Parent
Divesture - portfolio asset acquisition & resolution business segment
Net impairment charge recognized		1,800,000
Mexican Acquisition Partnership - majority-owned | Noncontrolling interest
Divesture - portfolio asset acquisition & resolution business segment
Net impairment charge recognized		$ 1,300,000

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Loans Receivable (Tables)

12 Months Ended

Dec. 31, 2012

Loans Receivable

Loans receivable

Schedule of loans receivable

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Domestic:
Commercial loans:
Affiliates	$	6,584	$	6,719
SBA, net of allowance for loan losses of $518 and $333, respectively		20,459		26,765
Other, net of allowance for loan losses of $1,083		7,530		12,212
Total loans, net	$	34,573	$	45,696

SBA Held for Sale

Loans receivable

Schedule of loans receivable

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Outstanding balance	$	1,083	$	7,483
Capitalized costs, net of fees		4		131
Carrying amount of loans, net	$	1,087	$	7,614

Schedule of changes in loans receivable

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	7,614		$	11,608
Originations and advances of loans		11,099			21,897
Payments received		(65	)		(96	)
Capitalized costs, net		(126	)		(8	)
Loans sold and transferred		(17,435	)		(25,787	)
Ending Balance	$	1,087		$	7,614

Loans Held for Investment

Loans receivable

Schedule of activity in the allowance for loan losses by portfolio of loans held for investment

	Allowance for Loan Losses:
(Dollars in thousands)	SBA held for investment			Affiliates		Other		Total
Balance, January 1, 2012	$	333		$	—	$	1,083	$	1,416
Provisions		635			—		—		635
Recoveries		(46	)		—		—		(46	)
Charge-offs		(404	)		—		—		(404	)
Balance, December 31, 2012	$	518		$	—	$	1,083	$	1,601
Balance, January 1, 2011	$	365		$	—	$	1,083	$	1,448
Provisions		463			—		—		463
Recoveries		(78	)		—		—		(78	)
Charge-offs		(417	)		—		—		(417	)
Balance, December 31, 2011	$	333		$	—	$	1,083	$	1,416

Analysis of the allowance for loan losses and recorded investment

	Commercial Loans:
(Dollars in thousands)	SBA		Affiliates		Other		Total
December 31, 2012:
Loans individually evaluated for impairment	$	585	$	6,584	$	8,613	$	15,782
Loans collectively evaluated for impairment		19,305		—		—		19,305
Total loans evaluated for impairment (excluding loans held for sale)	$	19,890	$	6,584	$	8,613	$	35,087
Allowance for loans individually evaluated for impairment	$	325	$	—	$	1,083	$	1,408
Allowance for loans collectively evaluated for impairment		193		—		—		193
Total allowance for loan losses	$	518	$	—	$	1,083	$	1,601
December 31, 2011:
Loans individually evaluated for impairment	$	404	$	6,719	$	13,295	$	20,418
Loans collectively evaluated for impairment		19,080		—		—		19,080
Total loans evaluated for impairment (excluding loans held for sale)	$	19,484	$	6,719	$	13,295	$	39,498
Allowance for loans individually evaluated for impairment	$	308	$	—	$	1,083	$	1,391
Allowance for loans collectively evaluated for impairment		25		—		—		25
Total allowance for loan losses	$	333	$	—	$	1,083	$	1,416

Schedule of recorded investment in loans (excluding loans held for sale) by credit quality indicator

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2012:
SBA—commercial loans	$	15,315	$	3,954	$	434	$	187	$	19,890

	Accrual		Non-Accrual		Total
Affiliates—commercial loans	$	3,323	$	3,261	$	6,584
Other—commercial loans(1)		3,484		5,129		8,613
	$	6,807	$	8,390	$	15,197
Total loans (excluding loans held for sale)					$	35,087

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2011:
SBA—commercial loans	$	15,325	$	3,648	$	107	$	404	$	19,484

	Accrual		Non-Accrual		Total
Affiliates—commercial loans	$	6,719	$	—	$	6,719
Other—commercial loans(1)		4,398		8,897		13,295
	$	11,117	$	8,897	$	20,014
Total loans (excluding loans held for sale)					$	39,498

(1)

Represents loans made to U.S. non-affiliated entities that are secured primarily by business assets (as disclosed previously under the heading "Loans receivable—other" of this footnote).

Schedule of aging analysis of recorded investment in loans held for investment

	Loans Past Due and Still Accruing
(Dollars in thousands)	31-60 Days		61-90 Days		Over 90 Days		Total		Non-Accrual Loans		Current Loans		Total Loans
December 31, 2012:
Commercial loans:
SBA	$	327	$	5	$	—	$	332	$	585	$	18,973	$	19,890
Affiliates		—		—		—		—		3,261		3,323		6,584
Other		—		—		—		—		5,129		3,484		8,613
Total loans (excluding loans held for sale)	$	327	$	5	$	—	$	332	$	8,975	$	25,780	$	35,087
December 31, 2011:
Commercial loans:
SBA	$	—	$	—	$	—	$	—	$	404	$	19,080	$	19,484
Affiliates		—		—		—		—		—		6,719		6,719
Other		—		—		—		—		8,897		4,398		13,295
Total loans (excluding loans held for sale)	$	—	$	—	$	—	$	—	$	9,301	$	30,197	$	39,498

Schedule of additional information regarding impaired loans

	Recorded Investment In:
(Dollars in thousands)	Impaired Loans Without a Related Allowance		Impaired Loans With a Related Allowance		Total Impaired Loans		Unpaid Principal Balance		Related Valuation Allowance		Average Impaired Loans for the Year
December 31, 2012:
Commercial loans:
SBA	$	—	$	585	$	585	$	620	$	325	$	660
Affiliates		—		—		—		—		—		—
Other		2,159		2,970		5,129		7,027		1,083		6,984
Total loans (excluding loans held for sale)	$	2,159	$	3,555	$	5,714	$	7,647	$	1,408	$	7,644
December 31, 2011:
Commercial loans:
SBA	$	—	$	404	$	404	$	425	$	308	$	652
Affiliates		—		—		—		—		—		—
Other		5,897		3,000		8,897		10,569		1,083		9,648
Total loans (excluding loans held for sale)	$	5,897	$	3,404	$	9,301	$	10,994	$	1,391	$	10,300

Affiliates

Loans receivable

Schedule of loans receivable

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Outstanding balance	$	6,203	$	6,518
Discounts, net		—		(59	)
Capitalized interest		381		260
Carrying amount of loans, net	$	6,584	$	6,719

Schedule of changes in loans receivable

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	6,719		$	16,781
Advances		—			700
Payments received		(316	)		(2,042	)
Capitalized costs, net		122			127
Discount accretion, net		59			89
Loan transfer(1)		—			(1,402	)
Transfer to "held for sale" classification (see Note 4)		—			(7,148	)
Other noncash adjustments		—			(492	)
Foreign exchange gains		—			106
Ending Balance	$	6,584		$	6,719

(1)

Represents the sale and transfer of a loan to an affiliated entity as partial consideration for the repayment of a note payable to that affiliated entity.

SBA Held for Investment, net

Loans receivable

Schedule of loans receivable

	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Outstanding balance	$	21,013		$	20,503
Allowance for loan losses		(518	)		(333	)
Discounts, net		(1,499	)		(1,292	)
Capitalized costs		376			273
Carrying amount of loans, net	$	19,372		$	19,151

Schedule of changes in loans receivable

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	19,151		$	15,415
Purchases of loans		—			696
Originations and advances of loans		3,700			5,617
Payments received		(2,762	)		(2,085	)
Capitalized costs		104			137
Change in allowance for loan losses		(185	)		32
Discount accretion, net		(238	)		(245	)
Charge-offs		(398	)		(416	)
Ending Balance	$	19,372		$	19,151

Other

Loans receivable

Schedule of loans receivable

	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Outstanding balance	$	8,859		$	13,541
Allowance for loan losses		(1,083	)		(1,083	)
Capitalized interest and costs		(246	)		(246	)
Carrying amount of loans, net	$	7,530		$	12,212

Schedule of changes in loans receivable

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	12,212		$	13,011
Advances		1,592			2,974
Payments received		(3,774	)		(3,838	)
Noncash consideration(1)		(2,500	)		—
Capitalized interest and costs		—			50
Discount accretion, net		—			15
Ending Balance	$	7,530		$	12,212

(1)

Represents a principal reduction on a loan receivable upon FirstCity's acquisition of certain underlying loan collateral from the borrower as partial consideration for repayment. See Note 3 for additional information.

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Loans Receivable (Details 4) (USD $) In Thousands, unless otherwise specified	12 Months Ended												12 Months Ended
	Dec. 31, 2012 Loans Held for Investment	Dec. 31, 2011 Loans Held for Investment	Dec. 31, 2012 SBA Held for Investment, net	Dec. 31, 2011 SBA Held for Investment, net	Dec. 31, 2012 Affiliates and Other	Dec. 31, 2011 Affiliates and Other	Dec. 31, 2012 Affiliates	Dec. 31, 2011 Affiliates	Dec. 31, 2012 Other	Dec. 31, 2011 Other	Dec. 31, 2012 Commercial loans Loans Held for Investment	Dec. 31, 2011 Commercial loans Loans Held for Investment	Dec. 31, 2012 Commercial loans SBA Held for Investment, net	Dec. 31, 2011 Commercial loans SBA Held for Investment, net	Dec. 31, 2012 Commercial loans SBA Held for Investment, net Pass	Dec. 31, 2011 Commercial loans SBA Held for Investment, net Pass	Dec. 31, 2012 Commercial loans SBA Held for Investment, net Special Mention	Dec. 31, 2011 Commercial loans SBA Held for Investment, net Special Mention	Dec. 31, 2012 Commercial loans SBA Held for Investment, net Substandard	Dec. 31, 2011 Commercial loans SBA Held for Investment, net Substandard	Dec. 31, 2012 Commercial loans SBA Held for Investment, net Doubtful	Dec. 31, 2011 Commercial loans SBA Held for Investment, net Doubtful	Dec. 31, 2012 Commercial loans Affiliates	Dec. 31, 2011 Commercial loans Affiliates	Dec. 31, 2012 Commercial loans Other	Dec. 31, 2011 Commercial loans Other	Dec. 31, 2010 Commercial loans Other
Activity in the allowance for loan losses
Beginning Balance	$ 1,416	$ 1,448											$ 333	$ 365											$ 1,083	$ 1,083	$ 1,083
Provisions	635	463											635	463
Recoveries	(46)	(78)											(46)	(78)
Charge-offs	(404)	(417)											(404)	(417)
Ending Balance	1,601	1,416											518	333											1,083	1,083	1,083
Analysis of the allowance for loan losses and recorded investment in loans (excluding loans held for sale)
Loans individually evaluated for impairment	15,782	20,418											585	404									6,584	6,719	8,613	13,295
Loans collectively evaluated for impairment	19,305	19,080											19,305	19,080
Total loans evaluated for impairment (excluding loans held for sale)	35,087	39,498	21,013	20,503	15,197	20,014	6,203	6,518	8,859	13,541	35,087	39,498	19,890	19,484	15,315	15,325	3,954	3,648	434	107	187	404	6,584	6,719	8,613	13,295
Allowance for loans individually evaluated for impairment	1,408	1,391											325	308											1,083	1,083
Allowance for loans collectively evaluated for impairment	193	25											193	25
Non-Accrual Loans	8,975	9,301			8,390	8,897							585	404									3,261		5,129	8,897
Current Loans	25,780	30,197			6,807	11,117							18,973	19,080									3,323	6,719	3,484	4,398
Aging Analysis
Loans Past Due and Still Accruing 31-60 Days	327												327
Loans Past Due and Still Accruing 61-90 Days	5												5
Loans Past Due and Still Accruing Total	$ 332												$ 332

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Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes

Income Taxes

14. Income Taxes

        The Company's provision for income taxes from continuing operations for 2012 and 2011 consisted of the following:

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
U.S. state current income tax expense	$	593	$	158
Foreign current income tax expense		317		3,164
Foreign deferred income tax expense		64		380
Total	$	974	$	3,702

        The following table reconciles the Company's provision for income taxes to the expected income tax expense at the U.S. federal statutory income tax rate (computed by applying the U.S. federal income tax rate of 35% to earnings before income taxes and non-controlling interest):

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Computed expected tax based on federal statutory rate	$	5,112		$	9,936
Increase (decrease) in taxes resulting from:
Expired capital loss carryforward		—			17,701
Change in valuation allowance		(4,611	)		(22,316	)
Inclusion of income attributable to noncontrolling
interest in an 80%-owned subsidiary		94			220
Change in tax credit carryforwards		(501	)		(4,955	)
Other		(94	)		(586	)
U.S. state and foreign income tax		974			3,702
	$	974		$	3,702

        The following table displays the significant components of our U.S. deferred tax assets, deferred tax liabilities, and valuation allowance as of December 31, 2012 and 2011:

	December 31,
	2012			2011
	(Dollars in thousands)
Deferred tax assets (liabilities):
Basis difference in Acquisition Partnership investments	$	17,509		$	19,533
Intangibles, principally due to differences in amortization		264			283
Basis difference in property and equipment		143			128
Foreign non-repatriated earnings		1,215			(4,151	)
Federal net operating loss carryforwards		2,725			11,749
Tax credit carryforwards		5,456			4,955
Other		640			67
Total deferred tax assets, net		27,952			32,564
Valuation allowance		(27,952	)		(32,564	)
Net deferred tax assets	$	—		$	—

        At December 31, 2012 and 2011, the Company had deferred foreign tax liabilities of zero and $0.1 million, respectively, included in "Other liabilities" in its consolidated balance sheets. These deferred tax liabilities were attributable primarily to our consolidated foreign operations, and unrealized holding gains from investment securities held by a consolidated foreign subsidiary.

        The Company recognizes deferred tax assets and liabilities in both the U.S. and non-U.S. jurisdictions based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates, if any, would be recognized in earnings in the period that includes the enactment date. We reduce the carrying amounts of deferred tax assets through a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically by the Company based on the more-likely-than-not realization threshold criterion. In this assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other factors, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, excess of appreciated asset value over the tax basis of net assets, impact of gains or charges from one-time events, the duration of statutory carryforward periods, the Company's experience with utilizing available operating loss and tax credit carryforwards, and tax planning strategies. In making such assessments, significant weight is given to evidence that can be objectively verified. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws between our projected operating performance, our actual results and other factors.

        For purposes of evaluating the need for a deferred tax valuation allowance, significant weight is given to evidence that can be objectively verified. At December 31, 2012 and 2011, the Company established a full valuation allowance for its U.S. deferred tax assets due to the lack of sufficient objective evidence regarding the realization of these assets in the foreseeable future. Regardless of the deferred tax valuation allowance established at December 31, 2012, the Company continues to retain net operating loss carryforwards for federal income tax purposes of approximately $7.8 million available to offset future federal taxable income, if any, through the year 2027. To the extent that the Company generates taxable income in the future to utilize the tax benefits of the related deferred tax assets, subject to certain potential limitations, it may be able to reduce its effective tax rate by reducing the valuation allowance. The Company's net operating loss carryforwards of $7.8 million expire in various years from 2020 through 2027.

        The Company accounts for income tax uncertainty using the "more-likely-than-not" criteria incorporated in the FASB's authoritative guidance on accounting for uncertainty in income taxes. Accordingly, we account for uncertain tax positions using a two-step approach whereby we recognize an income tax benefit if, based on the technical merits of a tax position, it is more likely than not (a probability of greater than 50%) that the tax position would be sustained upon examination by the taxing authority. We then recognize a tax benefit equal to the largest amount of tax benefit that is greater than 50% likely to be realized upon settlement with the taxing authority, considering all information available at the reporting date. Once a financial statement benefit for a tax position is recorded, we adjust it only when there is more information available or when an event occurs necessitating a change. The difference between the benefit recognized for a position in accordance with this accounting model and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. The Company did not have any unrecognized tax benefits at December 31, 2012 or at December 31, 2011. The Company records interest and penalties related to income tax uncertainties in the provision for income taxes.

        FirstCity currently files tax returns in approximately 39 U.S. states, and one of its consolidated subsidiaries is currently being examined in one state for the year 2004. Tax year 1997 and subsequent years are open to U.S. federal examination, and tax year 2008 and subsequent years are open to U.S. state examination.

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Investments in Unconsolidated Subsidiaries (Tables)

12 Months Ended

Dec. 31, 2012

Investments in Unconsolidated Subsidiaries

Schedule of Condensed Combined Financial Statements

Condensed Combined Balance Sheets

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Acquisition Partnerships:
Assets	$	437,176	$	450,189
Liabilities	$	14,783	$	39,401
Net equity		422,393		410,788
	$	437,176	$	450,189
Servicing and operating entities:
Assets	$	45,676	$	163,647
Liabilities	$	22,818	$	86,269
Net equity		22,858		77,378
	$	45,676	$	163,647
Total:
Assets	$	482,852	$	613,836
Liabilities	$	37,601	$	125,670
Net equity		445,251		488,166
	$	482,852	$	613,836
Equity investment in Acquisition Partnerships	$	60,581	$	59,952
Equity investment in servicing and operating entities		16,885		49,441
	$	77,466	$	109,393

Condensed Combined Summary of Operations

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
Acquisition Partnerships:
Revenues	$	90,716	$	58,722
Costs and expenses		52,179		61,539
Net earnings (loss)	$	38,537	$	(2,817	)
Servicing and operating entities:
Revenues	$	97,291	$	104,124
Costs and expenses		75,338		86,257
Net earnings	$	21,953	$	17,867
Equity income (loss) from Acquisition Partnerships	$	4,788	$	(6,460	)
Equity income from servicing and operating entities		10,456		8,691
	$	15,244	$	2,231

Schedule of assets and equity (deficit) of the equity investees, and the entity's share of equity income (losses), by geographic region

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Combined assets of the Equity Investees:
Domestic:
Acquisition Partnerships	$	352,123	$	349,529
Operating entities		40,531		53,256
Latin America:
Acquisition Partnerships		85,053		100,660
Servicing entities		2,057		1,857
Europe—servicing entities		3,088		108,534
	$	482,852	$	613,836

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Combined equity of the Equity Investees:
Domestic:
Acquisition Partnerships	$	344,045	$	325,557
Operating entities		19,511		20,515
Latin America:
Acquisition Partnerships		78,348		85,231
Servicing entities		828		763
Europe—servicing entities		2,519		56,100
	$	445,251	$	488,166
Company's carrying value of its investments in the Equity Investees:
Domestic:
Acquisition Partnerships	$	57,802	$	55,612
Operating entities		13,199		12,508
Latin America:
Acquisition Partnerships		2,779		4,340
Servicing entities		3,008		2,758
Europe—servicing entities(1)		678		34,175
	$	77,466	$	109,393

(1)

Includes a $6.1 million non-cash reduction to the carrying value of FirstCity's equity-method investment in a European servicing entity in June 2012 (see Note 3 for additional information).

Schedule of revenues and net earnings (losses) of the equity investees, and the entity's share of equity income (losses), by geographic region

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Revenues of the Equity Investees:
Domestic:
Combined Värde Acquisition Partnerships	$	74,955		$	39,150
Other Acquisition Partnerships		627			374
FC Crestone Oak LLC (operating entity)(1)		16,624			11,027
Other operating entities		26,934			28,529
Latin America:
Acquisition Partnerships		15,134			18,907
Servicing entity		9,887			10,533
Europe:
Acquisition Partnerships		—			291
MCS et Associes (servicing entity)		39,466			49,225
Other servicing entities		4,380			4,810
	$	188,007		$	162,846
Net earnings (loss) of the Equity Investees:
Domestic:
Combined Värde Acquisition Partnerships	$	40,502		$	20,152
Other Acquisition Partnerships		(1,104	)		(765	)
FC Crestone Oak LLC (operating entity)(1)		11,781			6,857
Other operating entities		1,283			(870	)
Latin America:
Acquisition Partnerships		(861	)		(22,240	)
Servicing entity		1,122			1,373
Europe:
Acquisition Partnerships		—			36
MCS et Associes (servicing entity)		7,565			10,008
Other servicing entities		202			499
	$	60,490		$	15,050
Company's equity income (loss) from the Equity Investees:
Domestic:
Combined Värde Acquisition Partnerships	$	6,132		$	4,004
Other Acquisition Partnerships		(515	)		(340	)
FC Crestone Oak LLC (operating entity)(1)		5,773			3,360
Other operating entities		513			(505	)
Latin America:
Acquisition Partnerships		(829	)		(10,153	)
Servicing entity		561			686
Europe:
Acquisition Partnerships		—			29
MCS et Associes (servicing entity)		3,559			5,028
Other servicing entities		50			122
	$	15,244		$	2,231

(1)

FC Crestone Oak LLC operates in the prefabricated building manufacturing industry.

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Leases

12 Months Ended

Dec. 31, 2012

Leases

Leases

16. Leases

        The Company leases its corporate headquarters under a non-cancellable operating lease. The lease calls for monthly payments of $16,000 through October 31, 2015, then monthly payments of $17,250 from November 1, 2015 through its expiration in October 2020. Rental expense under this lease was $192,000 for 2012 and $196,000 for 2011. The Company also leases office space and equipment under operating leases expiring in various years prior to 2017. Rental expense under these leases for 2012 and 2011 was $746,000 and $681,000, respectively. As of December 31, 2012, the future minimum lease payments under all non-cancellable operating leases are as follows: $572,000 in 2013; $456,000 in 2014; $398,000 in 2015; $359,000 in 2016; $281,000 in 2017; and $2.6 million thereafter.

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Servicing Assets - SBA Loans (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Amortized servicing assets
Ending Balance (net of reserve)	$ 1,131	$ 1,090
Servicing Assets - SBA Loans
Changes in amortized servicing assets
Beginning Balance	1,193	954
Servicing Assets capitalized	334	453
Servicing Assets amortized	(242)	(214)
Ending Balance	1,285	1,193
Reserve for impairment of servicing assets:
Beginning Balance	(103)	(118)
Impairments	(63)	(75)
Recoveries	12	90
Ending Balance	(154)	(103)
Amortized servicing assets
Ending Balance (net of reserve)	1,131	1,090
Fair value of amortized servicing assets
Beginning Balance	1,326	921
Ending Balance	$ 1,402	$ 1,326
Significant assumptions for estimated fair value of servicing assets
Discount rate (as a percent)	13.70%
Servicing Assets - SBA Loans | Minimum
Significant assumptions for estimated fair value of servicing assets
Prepayment speed (as a percent)	14.00%
Servicing Assets - SBA Loans | Maximum
Significant assumptions for estimated fair value of servicing assets
Prepayment speed (as a percent)	15.00%

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $) In Thousands, unless otherwise specified	Total	Common Stock	Treasury Stock	Paid in Capital	Retained Earnings (Accumulated Deficit)	Accumulated Other Comprehensive Income (Loss)	Non-controlling Interests
Balances at Dec. 31, 2010	$ 124,740	$ 118	$ (10,923)	$ 105,038	$ (5,826)	$ (65)	$ 36,398
Increase (Decrease) in Stockholders' Equity
Net earnings	33,041				24,217		8,824
Change in net unrealized gain on securities available for sale, net of tax	(965)					(763)	(202)
Foreign currency translation adjustments	(1,237)					(1,113)	(124)
Issuance of common stock under stock-based compensation plans	70	1		69
Stock-based compensation expense	739			739
Sales of subsidiary shares in noncontrolling interests	691			484			207
Distributions to noncontrolling interests	(19,904)						(19,904)
Other	228						228
Balances at Dec. 31, 2011	137,403	119	(10,923)	106,330	18,391	(1,941)	25,427
Increase (Decrease) in Stockholders' Equity
Net earnings	19,048				14,338		4,710
Change in net unrealized gain on securities available for sale, net of tax	60					45	15
Foreign currency translation adjustments	1,082					1,319	(237)
Issuance of common stock under stock-based compensation plans		2		(2)
Stock-based compensation expense	1,050			1,050
Deconsolidation and disposition of majority-owned entities (see Note 3)	(9,334)						(9,334)
Distributions to noncontrolling interests	(11,990)						(11,990)
Other	(52)						(52)
Balances at Dec. 31, 2012	$ 137,267	$ 121	$ (10,923)	$ 107,378	$ 32,729	$ (577)	$ 8,539

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Dec. 31, 2012		Dec. 31, 2011
Cash and cash equivalents	$ 39,941,000		$ 34,802,000
Portfolio Assets	55,075,000		123,946,000
Loans receivable	34,573,000		45,696,000
Equity investments	77,466,000		109,393,000
Other assets	32,755,000		25,593,000
Total assets	244,637,000	[1]	356,346,000	[1]
Total liabilities	107,370,000	[2]	218,943,000	[2]
Loan portfolios, allowance for loan losses (in dollars)	394,000		781,000
Service fees receivable, affiliates (in dollars)	793,000		834,000
Optional preferred stock, par value (in dollars per share)	$ 0.01		$ 0.01
Optional preferred stock, shares authorized	98,000,000		98,000,000
Optional preferred stock, shares issued	0		0
Optional preferred stock, shares outstanding	0		0
Common stock, par value (in dollars per share)	$ 0.01		$ 0.01
Common stock, shares authorized	100,000,000		100,000,000
Common stock, shares issued	12,056,197		11,890,590
Common stock, shares outstanding	10,556,197		10,390,590
Treasury stock, shares	1,500,000		1,500,000
Loans and Leases Receivable Loans And Leases Small Business Administration Held for Investment
Loans receivable	19,372,000		19,151,000
Loans receivable - allowance for loan losses (in dollars)	518,000		333,000
Loans Receivable Other
Loans receivable	7,530,000		12,212,000
Loans receivable - allowance for loan losses (in dollars)	1,083,000		1,083,000
Consolidated VIE's
Cash and cash equivalents	24,100,000		20,400,000
Portfolio Assets	42,100,000		98,400,000
Loans receivable	33,100,000		45,700,000
Equity investments	21,600,000		51,700,000
Other assets	32,900,000		35,900,000
Total assets	153,800,000		252,200,000
Notes payable	26,500,000		70,200,000
Other liabilities	18,200,000		19,000,000
Total liabilities	$ 44,600,000		$ 89,200,000

[1] Our consolidated assets at December 31, 2012 and December 31, 2011 include the following assets of certain variable interest entities ("VIEs") that can only be used to settle the liabilities of those VIEs: Cash and cash equivalents, $24.1 million and $20.4 million; Portfolio Assets, $42.1 million and $98.4 million; Loans receivable, $33.1 million and $45.7 million; Equity investments, $21.6 million and $51.7 million; various other assets, $32.9 million and $35.9 million; and Total assets, $153.8 million and $252.2 million, respectively.

[2] Our consolidated liabilities at December 31, 2012 and December 31, 2011 include the following VIE liabilities for which the VIE creditors do not have recourse to FirstCity: Notes payable, $26.5 million and $70.2 million; Other liabilities, $18.2 million and $19.0 million; and Total liabilities, $44.6 million and $89.2 million, respectively.

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Notes Payable to Banks and Other Debt Obligations

12 Months Ended

Dec. 31, 2012

Notes Payable to Banks and Other Debt Obligations

Notes Payable to Banks and Other Debt Obligations

9. Notes Payable to Banks and Other Debt Obligations

        The Company's notes payable and other debt obligations at December 31, 2012 and 2011 consisted of the following (dollars in thousands):

Description	Interest Rate	Other Terms and Conditions	Outstanding Borrowings as of December 31, 2012		Outstanding Borrowings as of December 31, 2011
Bank of Scotland reducing note facility, net of unamortized discount ("BoS Facility A")[1][2]	0.25% fixed	Secured by substantially all assets and subsidiaries of FC Commercial (excluding FH Partners) and guaranteed by FirstCity, matures December 2014	$	29,991	$	86,579
BOS (USA) $25.0 million term note ("BoS Facility B")[1]	None	Secured by all assets of FLBG2, matures December 2014		—		—
Bank of America term note[1]	LIBOR + 2.75%	Secured by all assets of FH Partners, matures December 2014		16,194		49,228
WFCF $25.0 million revolving loan facility[3]	Alternate interest rates based on Wells Fargo base rate plus 4.25%, LIBOR plus 4.25%, or 7.5%	Secured by assets of ABL and guaranteed by FirstCity up to $5.0 million, matures January 2015		15,214		21,405
FNBCT $15.0 million revolving loan facility[4]	Greater of WSJ prime rate or 4.0%	Secured by assets of FC Investment and its subsidiaries, and guaranteed by FirstCity, matures August 2013		2,000		—
Non-recourse bank notes payable of various U.S. Portfolio Entities	Interest rates ranging from 3.0% to 5.0% (weighted average interest rate of 4.3%)	Secured by assets (primarily Portfolio Assets) of the underlying entities, various maturities through August 2014		4,712		18,113
Non-recourse bank notes payable of consolidated railroad subsidiaries:	Prime Rate + margin (0.50-1.50%) or LIBOR + margin (2.25-3.25%)	Secured by assets of the subsidiaries
Term loan		Matures March 2016		3,094		3,531
$1.0 million revolving facility		Matures March 2014		—		—
$5.0 million acquisition facility		Advances mature March 2016; unused commitment matures March 2013		3,950		1,625
Non-recourse bank note payable of real estate investment entity[5]	6.07% fixed	Secured by real estate property owned by the entity		—		7,361
Other notes and debt obligations				1,790		2,094
Total notes payable and other debt obligations			$	76,945	$	189,936

[1]

In December 2011, FirstCity entered into a debt refinancing arrangement with Bank of Scotland that resulted in the amendment and restatement of the Reducing Note Facility ("BoS Facility A") and a new loan agreement with BOS (USA) ("BoS Facility B"). In connection with this debt refinancing arrangement, FirstCity also obtained a new credit facility with Bank of America. This debt refinancing transaction was accounted for as a debt extinguishment and, as such, BoS Facility A and BoS Facility B were initially recorded at their estimated fair values of $91.6 million and $-0-, respectively, in December 2011 (see Note 2).

[2]

The unamortized discount on this loan facility at December 31, 2012 and December 31, 2011 was $1.1 million and $3.1 million, respectively. Also, the carrying value of this loan facility included zero and $13.2 million denominated in Euros at December 31, 2012 and December 31, 2011, respectively (see Note 12).

[3]

This revolving loan facility was amended and restated on January 31, 2012 (Refer to Note 2 for additional information).

[4]

FC Investment, a FirstCity wholly-owned subsidiary, obtained this revolving loan facility in May 2012 (Refer to Note 2 for additional information).

[5]

FirstCity de-recognized this note payable from its consolidated balance sheet in March 2012 upon the acquisition of the underlying real estate property by the creditor in a foreclosure transaction (see Note 5 for additional information). This non-cash activity did not have a material impact on the Company's results of operations for 2012.

        Refer to Note 2 for additional information on the primary terms and conditions of the Company's loan facilities with Bank of Scotland, Bank of America, FNBCT and WFCF at December 31, 2012, and other matters concerning the Company's financings and liquidity. Under terms of certain borrowings, the Company and its subsidiaries are required to maintain certain tangible net worth levels and comply with various financial covenant ratios that are customary for credit facilities. In addition, certain loan facilities to which the Company and its subsidiaries are parties contain restrictions relating to the incurrence of additional debt, and the payment of dividends and other distributions.

        The aggregate principal maturities of the Company's notes payable and other debt obligations for each of the five years subsequent to December 31, 2012, after giving consideration to the terms of ABL's revolving loan facility renewal discussed above, are as follows (exclusive of unamortized discounts): $51.7 million in 2013, $3.8 million in 2014, $16.1 million in 2015, $6.0 million in 2016, and $0.4 million thereafter. Given the repayment terms of the Company's loan facilities with Bank of Scotland and Bank of America (repayment over time as cash flows from the respective underlying pledged assets are realized—see Note 2), the future principal maturities for these debt obligations were based on estimated cash flows from the underlying pledged assets.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Mar. 15, 2013	Jun. 30, 2012
Document and Entity Information
Entity Registrant Name	FIRSTCITY FINANCIAL CORP
Entity Central Index Key	0000828678
Document Type	10-K
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 63,866,808
Entity Common Stock, Shares Outstanding		10,556,197
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY

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Stockholders' Equity

12 Months Ended

Dec. 31, 2012

Stockholders' Equity

Stockholders' Equity

10. Stockholders' Equity

        The Company's Board of Directors may issue an additional series of optional preferred stock and designate the relative rights and preferences of the optional preferred stock when and if issued. Such rights and preferences can include liquidation preferences, redemption rights, voting rights and dividends and shares can be issued in multiple series with different rights and preferences. The Company has no current plans for the issuance of an additional series of optional preferred stock.

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Fair Value (Details 4) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Level 1
Carrying value and estimated fair value of financial instruments, including accrued interests (where applicable), that are not recorded at fair value in their entirety on a recurring basis
Cash, cash equivalents and restricted cash	$ 41,095
Level 2
Carrying value and estimated fair value of financial instruments, including accrued interests (where applicable), that are not recorded at fair value in their entirety on a recurring basis
SBA loans held for sale	1,232
Level 3
Carrying value and estimated fair value of financial instruments, including accrued interests (where applicable), that are not recorded at fair value in their entirety on a recurring basis
Loan Portfolio Assets and loans receivable held for investment	103,345
Notes payable and other debt obligations	76,945
Total
Carrying value and estimated fair value of financial instruments, including accrued interests (where applicable), that are not recorded at fair value in their entirety on a recurring basis
Cash, cash equivalents and restricted cash	41,095	36,031
Loan Portfolio Assets and loans receivable held for investment	103,345	173,616
SBA loans held for sale	1,232	8,353
Assets held for sale, net of related liabilities (1)		6,634
Notes payable and other debt obligations	76,945	189,936
Carrying Value
Carrying value and estimated fair value of financial instruments, including accrued interests (where applicable), that are not recorded at fair value in their entirety on a recurring basis
Cash, cash equivalents and restricted cash	41,095	36,031
Loan Portfolio Assets and loans receivable held for investment	78,741	135,423
SBA loans held for sale	1,087	7,614
Assets held for sale, net of related liabilities (1)		4,569
Notes payable and other debt obligations	$ 76,945	$ 189,936

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CONSOLIDATED STATEMENTS OF EARNINGS (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Revenues:
Servicing fees ($15,893 and $10,151 from affiliates, respectively)	$ 16,918	$ 11,065
Income from Portfolio Assets	26,707	40,622
Gain on sale of SBA loans held for sale, net	1,481	2,261
Gain on sale of investment securities	343	90
Interest income from SBA loans	1,507	1,433
Interest income from loans receivable - affiliates	840	2,942
Interest income from loans receivable - other	369	606
Revenue from railroad operations	12,481	6,989
Other income	9,935	8,309
Total revenues	70,581	74,317
Costs and expenses:
Interest and fees on notes payable to banks and other	5,429	13,032
Interest and fees on notes payable to affiliates		1,502
Salaries and benefits	24,756	22,794
Provision for loan and impairment losses	3,930	4,165
Asset-level expenses	3,370	6,094
Costs and expenses from railroad operations	9,538	4,583
Other costs and expenses	21,166	16,429
Total costs and expenses	68,189	68,599
Earnings before other revenue and income taxes	2,392	5,718
Equity income from unconsolidated subsidiaries	15,244	2,231
Gain on business combinations	935	433
Gain on debt extinguishment		26,543
Gain on sale of subsidiaries	1,451	1,818
Earnings before income taxes	20,022	36,743
Income tax expense (benefit)	974	3,702
Net earnings	19,048	33,041
Less: Net income attributable to noncontrolling interests	4,710	8,824
Net earnings attributable to FirstCity	$ 14,338	$ 24,217
Basic earnings per share of common stock (in dollars per share)	$ 1.36	$ 2.34
Diluted earnings per share of common stock (in dollars per share)	$ 1.35	$ 2.33

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Divestures

12 Months Ended

Dec. 31, 2012

Divestures

Divestures

4. Divestures

• Divestures—Mexican Acquisition Partnerships (Portfolio Asset Acquisition and Resolution Business Segment)

        In the fourth quarter of 2011, the Company determined that it expected to sell or otherwise dispose of its three consolidated Mexican Acquisition Partnerships over the next twelve months. The Company wholly-owned two of these subsidiaries, and held a majority ownership interest in the other subsidiary. In connection with the Company's disposal plan and expectations, each subsidiary was determined to be a separate disposal group, and the assets and liabilities of each subsidiary were measured at the lower of their respective carrying amount or estimated fair value (less costs to sell) and classified as "held for sale" on the Company's consolidated balance sheet. The Company determined that the carrying value of its majority-owned Mexican subsidiary (inclusive of cumulative translation adjustments) exceeded its estimated fair value, less estimated costs to sell, by $3.1 million (of which $1.8 million was attributed to FirstCity). As such, the Company recognized a net impairment charge of $1.8 million in the fourth quarter of 2011. The impact of this $1.8 million net impairment charge on the Company's 2011 consolidated statement of earnings comprised a $3.1 million estimated loss included in "Other costs and expenses" on the Company's consolidated statements of earnings for 2011, off-set partially by the noncontrolling investor's share of the loss (approximately $1.3 million) included in "Net income attributable to noncontrolling interests." The estimated fair value for each of our wholly-owned Mexican subsidiaries, less estimated costs to sell, exceeded their respective carrying values (inclusive of cumulative translation adjustments). These subsidiaries did not meet the accounting and reporting requirements as discontinued operations.

        At December 31, 2011, the consolidated assets and liabilities for these Mexican subsidiaries, as measured at the lower of their respective carrying amount or estimated fair value (less costs to sell), have been respectively classified as "Assets held for sale" ($9.9 million) and "Liabilities associated with assets held for sale" ($5.3 million) on our consolidated balance sheet. The assets included primarily Portfolio Assets ($4.8 million) and an affiliated loan receivable ($5.1 million), and the liabilities included primarily an affiliated note payable ($5.1 million). See Note 20 for additional information related to the affiliated loan receivable and affiliated note payable.

        In July 2012, the Company sold its interests in two of these Mexican subsidiaries for $5.5 million. The Company recognized a gain of approximately $1.3 million on this transaction, which included recognition of $0.5 million of previously-deferred income attributed to one of the subsidiaries. Subsequent to this transaction, the Company determined that it no longer expected to sell or otherwise dispose of its remaining Mexican subsidiary disposal group. As such, in July 2012, the Company reclassified the net assets of this Mexican subsidiary, comprised primarily of $0.7 million of Portfolio Assets, from "Assets held for sale" ("held for sale" classification) to "Portfolio Assets" ("held and used" classification) on the Company's consolidated balance sheet. The reclassification of this Mexican subsidiary did not have an impact on the Company's earnings.

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Business Combinations, Sale and Deconsolidation of Subsidiaries, and Noncontrolling Interest

12 Months Ended

Dec. 31, 2012

Business Combinations, Sale and Deconsolidation of Subsidiaries, and Noncontrolling Interest

Business Combinations, Sale and Deconsolidation of Subsidiaries, and Noncontrolling Interest

3. Business Combinations, Sale and Deconsolidation of Subsidiaries, and Noncontrolling Interest

• Portfolio Asset Acquisition & Resolution Business Segment

  European Acquisition Partnership and European Servicing Entity—Capital and Ownership Restructure and Subsequent Sale

        In June 2012, the capital and ownership structures of two European entities under common control of FirstCity and a non-affiliated investor group were modified (as agreed upon by FirstCity and the non-affiliated investor group). The entities involved included UBN, SAS ("UBN"), an Acquisition Partnership and MCS et Associés ("MCS"), a servicing entity. At the time of restructure, FirstCity had a direct 70% controlling ownership interest in UBN and a combined direct and indirect 37% noncontrolling ownership interest in MCS. FirstCity's indirect ownership interest in MCS resulted from its ownership in UBN, which had a direct 35% noncontrolling ownership interest in MCS. Under terms of the restructure, FirstCity and the non-affiliated investor group contributed their MCS ownership interests to UBN in exchange for modified ownership interests in UBN that approximated their respective economic interests in these entities (on a combined basis) prior to the restructure. As a result, UBN now has a 100% controlling interest in MCS, and FirstCity's ownership interest in UBN decreased to 38% (the controlling 62% interest in UBN is now held by the non-affiliated investor group). As such, the form of FirstCity's investment in UBN changed from a consolidated subsidiary to an unconsolidated subsidiary (now treated as an equity-method investment), and FirstCity no longer has any direct investment in MCS.

        The restructure resulted in FirstCity's deconsolidation of UBN (since FirstCity now has a noncontrolling interest in UBN) and the exchange of an equity-method investment in MCS with an equity-method investment in UBN. FirstCity accounted for this activity as a non-monetary exchange transaction between entities with common ownership, and accounted for the restructure at historical cost (i.e. there was no impact to FirstCity's consolidated earnings). The net impact to FirstCity's consolidated balance sheet from recording this activity on the restructure date consisted primarily of the following: (1) $2.9 million decrease in cash (remove cash held by UBN upon deconsolidation); (2) $0.5 million non-cash decrease in other liabilities (remove obligations of UBN upon deconsolidation); (3) $8.5 million non-cash decrease in noncontrolling interest (remove the noncontrolling equity interest in UBN attributable to the non-affiliated investor group upon deconsolidation); and (4) $6.1 million non-cash decrease to investments in unconsolidated subsidiaries (upon FirstCity's exchange of an equity-method investment in MCS with an equity-method investment in UBN).

        In December 2012 FirstCity sold its 38% ownership interest in UBN to Miromesnil Gestion, a French societe anonyme, which is a wholly-owned subsidiary of MCS for an aggregate purchase price of 20,000,000 Euros (or approximately $26.3 million). FirstCity realized a gain of approximately $1.0 million from this transaction, which included recognition of $0.6 million of previously deferred income attributed to sales of investments in 2011.

• European Acquisition Partnerships—Sale of Subsidiaries

        In February 2011, the Company sold a substantial majority of its interests in certain German Portfolio Assets and its wholly-owned equity interest in a German entity to a European Acquisition Partnership for approximately $22.5 million. FirstCity, through a wholly-owned subsidiary, has a noncontrolling 13% beneficial interest in the European Acquisition Partnership that purchased the Portfolio Assets and German entity (the remaining 87% beneficial interest is owned by an affiliate of Värde).

        In November 2011, the Company, through its majority-owned foreign subsidiary (UBN), sold its equity interests in sixteen French Acquisition Partnerships to a foreign equity-method investee of FirstCity (i.e. unconsolidated equity investment) for $3.4 million. Prior to this transaction, the Company held a controlling interest in these Acquisition Partnerships through its combined direct and indirect majority ownership. This transaction was accounted for as an asset sale, and accordingly, the assets ($0.8 million of cash and $0.5 million of Portfolio Assets) and non-controlling interests ($0.6 million) attributable to these French Acquisition Partnerships were removed from FirstCity's consolidated balance sheet. FirstCity realized a $2.8 million gain from UBN's sale of these Acquisition Partnerships, of which $1.0 million was deferred (portion attributable to FirstCity's 36.8% ownership interests in the foreign equity-method investee) and ratably accreted to income in 2012 until the sale of UBN mentioned above.

• European Acquisition Partnership—Business Combination

        In June 2011, the Company acquired a controlling interest in a European Acquisition Partnership from a foreign equity-method investee for $0.6 million. The Company owned a noncontrolling equity interest in this entity prior to the transaction. As a result of this transaction, the Company's ownership interest in the Acquisition Partnership increased to 100% and the Company obtained control of such entity, resulting in the Acquisition Partnership becoming a consolidated subsidiary of the Company. The transaction was accounted for as a business combination, and accordingly, all of the assets and liabilities of the Acquisition Partnership were measured at fair value on the acquisition date and included in the Company's consolidated balance sheet. The estimated fair value of the Acquisition Partnership's identifiable assets and liabilities that were added to the Company's consolidated balance sheet on the acquisition date included $2.7 million of Portfolio Assets and $1.7 million of notes payable and accrued liabilities (including $0.9 million of intercompany notes payable that were eliminated in consolidation with the Company's consolidated financial statements).

        Under business combination accounting guidance, the Company's carrying value of its previously-held equity-method investment in the Acquisition Partnership was re-measured to fair value at the acquisition date. The fair value of the Company's previously-held equity interest exceeded the aggregate carrying value by approximately $0.3 million, which the Company recognized as "Gain on business combination" in its consolidated statement of earnings for 2011.

• Latin American Acquisition Partnership—Sale of Equity Investment

        In November 2012, FirstCity sold its 20% ownership interest in a Brazilian Acquisition Partnership for $0.4 million. FirstCity realized a gain of approximately $0.4 million from this transaction.

• Special Situations Platform Business Segment

  Railroad Operation—Business Combination

        In June 2012, FirstCity, through its majority-owned Special Situations Platform subsidiary, acquired certain assets from a company that operated a rail-served debris transfer station, as partial payment of the company's debt obligation to FirstCity. The Company's acquisition of the operating assets was accounted for as a business combination, and accordingly, all of the assets acquired and liabilities assumed were measured at fair value on the acquisition date and included in the Company's consolidated balance sheet. The estimated fair value of the identifiable assets acquired included $2.8 million of property and equipment, $0.5 million of trade receivables, and $0.2 million of various other assets. The estimated fair value of the identifiable liabilities assumed by the Company was not significant. The fair value of the net asset acquired by the Company exceeded its $2.5 million purchase price by approximately $0.9 million, which the Company recognized as "Gain on business combination" in its consolidated statement of earnings for 2012.

        In August 2011, the Company, through its majority-owned Special Situations Platform subsidiary, acquired certain net assets from a company that provided short-line rail services and operated a transload facility for $2.1 million. The transaction was accounted for as a business combination, and accordingly, all of the assets acquired and liabilities assumed were measured at fair value on the acquisition date and included in the Company's consolidated balance sheet. The estimated fair value of the identifiable assets acquired included $2.1 million of property and equipment and $0.2 million of intangible assets. The estimated fair value of the identifiable liabilities assumed by the Company as a result of the transaction was not significant. The fair value of the net assets acquired by the Company exceeded the purchase price by approximately $0.2 million, which the Company recognized as "Gain on business combination" in its consolidated statement of earnings for 2011.

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Employee Benefit Plan

12 Months Ended

Dec. 31, 2012

Employee Benefit Plan

Employee Benefit Plan

15. Employee Benefit Plan

        The Company has a defined contribution 401(k) employee profit sharing plan pursuant to which the Company matches employee contributions at a stated percentage of employee contributions to a defined maximum. The Company's contributions to the 401(k) plan were $0.2 million in 2012 and $0.3 million in 2011.

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Accumulated Other Comprehensive Loss

12 Months Ended

Dec. 31, 2012

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

11. Accumulated Other Comprehensive Loss

        Accumulated other comprehensive loss was comprised of the following as of December 31, 2012 and 2011:

	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Cumulative foreign currency translation adjustments	$	(534	)	$	(1,853	)
Net unrealized gain (loss) on securities available for sale, net of tax		(43	)		(88	)
Total accumulated other comprehensive loss	$	(577	)	$	(1,941	)

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Other Related Party Transactions (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Other related party transactions
Carrying value of affiliated loan receivable included in "Assets held for sale"		$ 9,886,000
Carrying value of affiliated note payable included in Liabilities associated with assets held for sale		5,317,000
Acquisition Partnerships and related parties
Other related party transactions
Servicing fees and due diligence fees (included in other income)	15,900,000	10,200,000
Mexican subsidiaries
Other related party transactions
Number of majority-owned Mexican subsidiaries involved in final funding	2
Carrying value of affiliated loan receivable included in "Assets held for sale"		5,100,000
Carrying value of affiliated note payable included in Liabilities associated with assets held for sale		$ 5,100,000
FirstCity Denver
Other related party transactions
Ownership percentage	80.00%
FirstCity Denver | Crestone Capital LLC
Other related party transactions
Ownership percentage	20.00%

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Investments in Unconsolidated Subsidiaries

12 Months Ended

Dec. 31, 2012

Investments in Unconsolidated Subsidiaries

Investments in Unconsolidated Subsidiaries

7. Investments in Unconsolidated Subsidiaries

        The Company has investments in Acquisition Partnerships and various servicing and operating entities that are accounted for under the equity method of accounting—refer to Note 1(b). The condensed combined financial position and results of operations of the Acquisition Partnerships (which include our U.S. and foreign Acquisition Partnerships) and the servicing and operating entities (collectively, the "Equity Investees"), are summarized as follows:

Condensed Combined Balance Sheets

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Acquisition Partnerships:
Assets	$	437,176	$	450,189
Liabilities	$	14,783	$	39,401
Net equity		422,393		410,788
	$	437,176	$	450,189
Servicing and operating entities:
Assets	$	45,676	$	163,647
Liabilities	$	22,818	$	86,269
Net equity		22,858		77,378
	$	45,676	$	163,647
Total:
Assets	$	482,852	$	613,836
Liabilities	$	37,601	$	125,670
Net equity		445,251		488,166
	$	482,852	$	613,836
Equity investment in Acquisition Partnerships	$	60,581	$	59,952
Equity investment in servicing and operating entities		16,885		49,441
	$	77,466	$	109,393

Condensed Combined Summary of Operations

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
Acquisition Partnerships:
Revenues	$	90,716	$	58,722
Costs and expenses		52,179		61,539
Net earnings (loss)	$	38,537	$	(2,817	)
Servicing and operating entities:
Revenues	$	97,291	$	104,124
Costs and expenses		75,338		86,257
Net earnings	$	21,953	$	17,867
Equity income (loss) from Acquisition Partnerships	$	4,788	$	(6,460	)
Equity income from servicing and operating entities		10,456		8,691
	$	15,244	$	2,231

        In 2011, the Company recognized a $7.4 million impairment charge on certain investments in Latin American (Mexico) Acquisition Partnerships to write-down the investments to fair value, primarily due to the fair value being significantly lower than the cost basis of these investments and management's belief that the fair value of these investments will not recover (as evidenced by low transaction volumes in the distressed asset market in Mexico). This impairment charge was included in equity income (loss) from unconsolidated subsidiaries in our consolidated statements of earnings.

        At December 31, 2012 and 2011, the Acquisition Partnerships' total carrying value of loans accounted for under non-accrual methods of accounting (i.e. cost-recovery or cash basis method) approximated $350.3 million and $377.7 million, respectively.

        The combined assets and equity (deficit) of the Equity Investees, and the Company's carrying value of its equity investments in the Equity Investees, are summarized by geographic region below.

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Combined assets of the Equity Investees:
Domestic:
Acquisition Partnerships	$	352,123	$	349,529
Operating entities		40,531		53,256
Latin America:
Acquisition Partnerships		85,053		100,660
Servicing entities		2,057		1,857
Europe—servicing entities		3,088		108,534
	$	482,852	$	613,836

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Combined equity of the Equity Investees:
Domestic:
Acquisition Partnerships	$	344,045	$	325,557
Operating entities		19,511		20,515
Latin America:
Acquisition Partnerships		78,348		85,231
Servicing entities		828		763
Europe—servicing entities		2,519		56,100
	$	445,251	$	488,166
Company's carrying value of its investments in the Equity Investees:
Domestic:
Acquisition Partnerships	$	57,802	$	55,612
Operating entities		13,199		12,508
Latin America:
Acquisition Partnerships		2,779		4,340
Servicing entities		3,008		2,758
Europe—servicing entities(1)		678		34,175
	$	77,466	$	109,393

(1)

Includes a $6.1 million non-cash reduction to the carrying value of FirstCity's equity-method investment in a European servicing entity in June 2012 (see Note 3 for additional information).

        Revenues and net earnings (losses) of the Equity Investees, and the Company's share of equity income (loss) of those entities, are summarized by geographic region below. The tables below include individual entities and combined entities under common management that are considered to be significant Equity Investees of FirstCity at December 31, 2012 and 2011.

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Revenues of the Equity Investees:
Domestic:
Combined Värde Acquisition Partnerships	$	74,955		$	39,150
Other Acquisition Partnerships		627			374
FC Crestone Oak LLC (operating entity)(1)		16,624			11,027
Other operating entities		26,934			28,529
Latin America:
Acquisition Partnerships		15,134			18,907
Servicing entity		9,887			10,533
Europe:
Acquisition Partnerships		—			291
MCS et Associes (servicing entity)		39,466			49,225
Other servicing entities		4,380			4,810
	$	188,007		$	162,846
Net earnings (loss) of the Equity Investees:
Domestic:
Combined Värde Acquisition Partnerships	$	40,502		$	20,152
Other Acquisition Partnerships		(1,104	)		(765	)
FC Crestone Oak LLC (operating entity)(1)		11,781			6,857
Other operating entities		1,283			(870	)
Latin America:
Acquisition Partnerships		(861	)		(22,240	)
Servicing entity		1,122			1,373
Europe:
Acquisition Partnerships		—			36
MCS et Associes (servicing entity)		7,565			10,008
Other servicing entities		202			499
	$	60,490		$	15,050
Company's equity income (loss) from the Equity Investees:
Domestic:
Combined Värde Acquisition Partnerships	$	6,132		$	4,004
Other Acquisition Partnerships		(515	)		(340	)
FC Crestone Oak LLC (operating entity)(1)		5,773			3,360
Other operating entities		513			(505	)
Latin America:
Acquisition Partnerships		(829	)		(10,153	)
Servicing entity		561			686
Europe:
Acquisition Partnerships		—			29
MCS et Associes (servicing entity)		3,559			5,028
Other servicing entities		50			122
	$	15,244		$	2,231

(1)

FC Crestone Oak LLC operates in the prefabricated building manufacturing industry.

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Portfolio Assets (Details) (USD $)	12 Months Ended				12 Months Ended					12 Months Ended						12 Months Ended																										12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Feb. 28, 2011 European securitization entity	Feb. 28, 2011 Foreign equity-method investee	Dec. 31, 2012 Purchased Credit-Impaired Loans	Dec. 31, 2011 Purchased Credit-Impaired Loans	Dec. 31, 2012 Loan Portfolios	Dec. 31, 2011 Loan Portfolios	Dec. 31, 2010 Loan Portfolios	Dec. 31, 2012 Loan Portfolios Purchased Credit-Impaired Loans	Dec. 31, 2011 Loan Portfolios Purchased Credit-Impaired Loans	Dec. 31, 2012 Loan Portfolios Purchased performing loans	Dec. 31, 2011 Loan Portfolios Purchased performing loans	Dec. 31, 2011 Loan Portfolios UBN	Dec. 31, 2010 Loan Portfolios UBN	Dec. 31, 2012 Loan Portfolios Other	Dec. 31, 2011 Loan Portfolios Other	Dec. 31, 2012 Loan Portfolios Commercial real estate	Dec. 31, 2011 Loan Portfolios Commercial real estate	Dec. 31, 2012 Loan Portfolios Business assets	Dec. 31, 2011 Loan Portfolios Business assets	Dec. 31, 2012 Loan Portfolios Other commercial	Dec. 31, 2011 Loan Portfolios Other commercial	Dec. 31, 2012 Loan Portfolios Other commercial Other	Dec. 31, 2011 Loan Portfolios Other commercial Other	Dec. 31, 2010 Loan Portfolios Other commercial Other	Dec. 31, 2012 Loan Portfolios Domestic Commercial real estate Purchased Credit-Impaired Loans	Dec. 31, 2011 Loan Portfolios Domestic Commercial real estate Purchased Credit-Impaired Loans	Dec. 31, 2010 Loan Portfolios Domestic Commercial real estate Purchased Credit-Impaired Loans	Dec. 31, 2012 Loan Portfolios Domestic Business assets Purchased Credit-Impaired Loans	Dec. 31, 2011 Loan Portfolios Domestic Business assets Purchased Credit-Impaired Loans	Dec. 31, 2010 Loan Portfolios Domestic Business assets Purchased Credit-Impaired Loans	Dec. 31, 2012 Loan Portfolios Domestic Other commercial Purchased Credit-Impaired Loans	Dec. 31, 2011 Loan Portfolios Domestic Other commercial Purchased Credit-Impaired Loans	Dec. 31, 2010 Loan Portfolios Domestic Other commercial Purchased Credit-Impaired Loans	Dec. 31, 2012 Loan Portfolios Latin America Commercial real estate Purchased Credit-Impaired Loans	Dec. 31, 2011 Loan Portfolios Latin America Commercial real estate Purchased Credit-Impaired Loans	Dec. 31, 2010 Loan Portfolios Latin America Commercial real estate Purchased Credit-Impaired Loans	Dec. 31, 2012 Loan Portfolios Europe Commercial real estate Purchased Credit-Impaired Loans	Dec. 31, 2011 Loan Portfolios Europe Commercial real estate Purchased Credit-Impaired Loans	Dec. 31, 2010 Loan Portfolios Europe Commercial real estate Purchased Credit-Impaired Loans	Dec. 31, 2012 Real Estate Portfolios	Dec. 31, 2011 Real Estate Portfolios	Mar. 31, 2012 Real Estate Portfolios Special Situations Platform
Loan and real estate portfolios
Carrying Value							$ 45,298,000	$ 97,871,000																$ 5,194,000	$ 5,904,000		$ 28,487,000	$ 73,154,000		$ 4,047,000	$ 10,742,000		$ 3,087,000	$ 3,754,000		$ 1,034,000	$ 50,000		$ 3,449,000	$ 4,267,000
Allowance for Loan Losses	394,000	781,000					394,000	781,000	45,162,000						43,291,000									41,000	5,000	49,000		553,000	354,000	26,000	185,000	252,000		38,000	90,000	327,000		260,000			866,000
Carrying Value, net	44,904,000	97,090,000					44,904,000	97,090,000										32,643,000	76,918,000	4,021,000	10,557,000	8,240,000	9,615,000	5,153,000	5,899,000		28,487,000	72,601,000		4,021,000	10,557,000		3,087,000	3,716,000		707,000	50,000		3,449,000	4,267,000
Real estate held for sale, net	10,171,000	26,856,000
Total Portfolio Assets	55,075,000	123,946,000
Carrying value of real estate property																																												6,900,000
Income from Portfolio Assets	26,707,000	40,622,000								23,363,000	37,481,000	312,000	445,000	1,760,000		169,000	192,000																									2,863,000	744,000
Changes in accretable yield
Beginning Balance					4,732,000	1,380,000
Accretion					(600,000)	(4,321,000)
Reclassification from (to) nonaccretable difference					(2,040,000)	4,253,000
Disposals					(2,092,000)	(5,488,000)
Transfer from non-accrual						8,912,000
Translation adjustments						(4,000)
Ending Balance						4,732,000
Summary of acquisitions
Face value at acquisition					11,270,000	31,859,000
Cash flows expected to be collected at acquisition, net of adjustments					6,544,000	19,803,000
Basis in acquired loans at acquisition					4,120,000	14,329,000
Other disclosures
Aggregate carrying value of portfolio asset sold	28,700,000	50,300,000
Portfolio assets sold			21,900,000	3,000,000
Provisions for loan and impairment losses, net of recoveries, through a charge to income	3,100,000	3,800,000
Provision for loan losses, net of recoveries							2,500,000	1,700,000
Impairment charges																																										$ 600,000	$ 2,100,000

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Portfolio Assets

12 Months Ended

Dec. 31, 2012

Portfolio Assets

Portfolio Assets

5. Portfolio Assets

        Portfolio Assets are summarized as follows:

	December 31, 2012 (Dollars in thousands)
	Carrying Value		Allowance for Loan Losses		Carrying Value, net
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	28,487	$	—	$	28,487
Business assets		4,047		26		4,021
Other		3,087		—		3,087
Latin America—commercial real estate		1,034		327		707
Europe—commercial real estate		3,449		—		3,449
Other		5,194		41		5,153
Total Loan Portfolios	$	45,298	$	394		44,904
Real estate held for sale, net						10,171
Total Portfolio Assets					$	55,075

	December 31, 2011 (Dollars in thousands)
	Carrying Value		Allowance for Loan Losses		Carrying Value, net
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	73,154	$	553	$	72,601
Business assets		10,742		185		10,557
Other		3,754		38		3,716
Latin America—commercial real estate		50		—		50
Europe—commercial real estate		4,267		—		4,267
Other		5,904		5		5,899
Total Loan Portfolios	$	97,871	$	781		97,090
Real estate held for sale, net						26,856
Total Portfolio Assets					$	123,946

        Certain Portfolio Assets are pledged to secure loan facilities with Bank of Scotland and Bank of America (see Note 2). In addition, certain Portfolio Assets are pledged to secure notes payable of certain consolidated affiliates of FirstCity that are generally non-recourse to FirstCity or any affiliate other than the entity that incurred the debt.

        In March 2012, a real estate property with a carrying value of $6.9 million (owned by a subsidiary under the Company's Special Situations Platform business segment) was acquired by the creditor holding the mortgage secured by this property in a foreclosure transaction. The Company had the legal right to bring the account into good standing by paying all past due payments; however, the Company believed it would be unable to facilitate a positive cash flow on the property for an extended period of time based on local economic conditions. Management further believed that the property's liquidation value was less than the debt obligation securing the property. Upon acquisition of the real estate property by the creditor and legal release from the obligation, the Company de-recognized the related non-recourse debt obligation from its consolidated balance sheet (see Note 9). This non-cash activity did not have a material impact on the Company's results of operations for 2012.

        Income from Portfolio Assets is summarized as follows:

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
Loan Portfolios:
Purchased Credit-Impaired Loans	$	23,363	$	37,481
Purchased performing loans		312		445
UBN		—		1,760
Other		169		192
Real Estate Portfolios		2,863		744
Income from Portfolio Assets	$	26,707	$	40,622

        Accretable yield represents the amount of income the Company can expect to generate over the remaining life of its existing income-accruing Purchased Credit-Impaired Loans based on estimated future cash flows as of December 31, 2012 and 2011. Reclassifications from nonaccretable difference to accretable yield primarily result from the Company's increase in its estimates of future cash flows on Purchased Credit-Impaired Loans, whereas reclassifications to nonaccretable difference from accretable yield primarily result from the Company's decrease in its estimates of future cash flows on these loans. Transfers from (to) non-accrual primarily result from adjustments to the income-recognition method applied to Purchased Credit-Impaired Loans based on management's ability to reasonably estimate both the timing and amount of future cash flows—see Note 1(f). Changes in accretable yield related to the Company's Purchased Credit-Impaired Loans for the years ended December 31, 2012 and 2011 are as follows:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	4,732		$	1,380
Accretion		(600	)		(4,321	)
Reclassification from (to) nonaccretable difference		(2,040	)		4,253
Disposals		(2,092	)		(5,488	)
Transfer from non-accrual		—			8,912
Translation adjustments		—			(4	)
Ending Balance	$	—		$	4,732

Acquisitions of Purchased Credit-Impaired Loans for 2012 and 2011 are summarized in the table below:

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
Face value at acquisition	$	11,270	$	31,859
Cash flows expected to be collected at acquisition, net of adjustments		6,544		19,803
Basis in acquired loans at acquisition		4,120		14,329

        During 2012, the Company sold loan Portfolio Assets with an aggregate carrying value of $28.7 million. During 2011, the Company sold loan Portfolio Assets with an aggregate carrying value of $50.3 million—which included $21.9 million of loans (plus real estate and certain other assets) that were sold to a European securitization entity (formed by an affiliate of Värde) in February 2011 (see Note 3) and $3.0 million of loans sold to a foreign equity-method investee of FirstCity.

        During 2012, the Company recorded provisions for loan and impairment losses, net of recoveries, through a charge to income of $3.1 million—which was comprised of $0.6 million of impairment charges on real estate portfolios and $2.5 million of provision for loan losses, net of recoveries. During 2011, the Company recorded provisions for loan and impairment losses, net of recoveries, through a charge to income of $3.8 million—which was comprised of $2.1 million of impairment charges on real estate portfolios and $1.7 million of provision for loan losses, net of recoveries.

        Changes in the allowance for loan losses related to our loan Portfolio Assets are as follows:

	Purchased Credit-Impaired Loans																		Other
	Domestic									Latin America
(dollars in thousands)	Commercial Real Estate			Business Assets			Other			Commercial Real Estate			Residential Real Estate			Europe			UBN(1)			Other			Total
Beginning balance,
January 1, 2011	$	354		$	252		$	90		$	260		$	—		$	866		$	43,291		$	49		$	45,162
Provisions		1,702			519			24			103			64			—			—			199			2,611
Recoveries		(164	)		(13	)		(7	)		—			—			—			(719	)		(28	)		(931	)
Charge offs		(1,339	)		(573	)		(69	)		—			—			(856	)		(701	)		(215	)		(3,753	)
Removal upon sale of loans(1)		—			—			—			—			—			—			(45,002	)		—			(45,002	)
Transfer to "held for sale" classification (see Note 4)		—			—			—			(317	)		(62	)		—			—			—			(379	)
Translation adjustments		—			—			—			(46	)		(2	)		(10	)		3,131			—			3,073
Ending balance, December 31, 2011		553			185			38			—			—			—			—			5			781
Provisions		1,996			329			15			100			—			—			—			130			2,570
Recoveries		(21	)		(87	)		—			—			—			—			—			—			(108	)
Charge offs		(2,528	)		(401	)		(53	)		—			—			—			—			(94	)		(3,076	)
Transfer from "held for sale" classification (see Note 4)		—			—			—			210			—			—			—			—			210
Translation adjustments		—			—			—			17			—			—			—			—			17
Ending balance, December 31, 2012	$	—		$	26		$	—		$	327		$	—		$	—		$	—		$	41		$	394

(1)

The Company sold the underlying UBN loan portfolio in November 2011—refer to Note 1(f).

        The following table presents our recorded investment in loan Portfolio Assets by credit quality indicator at December 31, 2012 and 2011. Our loan Portfolio Assets, which are primarily comprised of Purchased Credit-Impaired Loans, are categorized by credit quality indicators based on the common risk characteristics that management generally uses for pooling purposes (when management elects to pool groups of purchased loans).

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Commercial real estate	$	32,643	$	76,918
Business assets		4,021		10,557
Other commercial		8,240		9,615
	$	44,904	$	97,090

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Loans Receivable

12 Months Ended

Dec. 31, 2012

Loans Receivable

Loans Receivable

6. Loans Receivable

        The following is a composition of the Company's loans receivable by loan type and region:

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Domestic:
Commercial loans:
Affiliates	$	6,584	$	6,719
SBA, net of allowance for loan losses of $518 and $333, respectively		20,459		26,765
Other, net of allowance for loan losses of $1,083		7,530		12,212
Total loans, net	$	34,573	$	45,696

Loans receivable—SBA held for sale

        Loans receivable—SBA held for sale are summarized as follows:

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Outstanding balance	$	1,083	$	7,483
Capitalized costs, net of fees		4		131
Carrying amount of loans, net	$	1,087	$	7,614

        Changes in loans receivable—SBA held for sale are as follows:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	7,614		$	11,608
Originations and advances of loans		11,099			21,897
Payments received		(65	)		(96	)
Capitalized costs, net		(126	)		(8	)
Loans sold and transferred		(17,435	)		(25,787	)
Ending Balance	$	1,087		$	7,614

        Loans receivable—SBA held for sale represent the portion of SBA loans acquired and originated by the Company that are guaranteed by the SBA. These loans are generally secured by assets such as accounts receivable, property and equipment, and other business assets. The Company did not record any write-downs of SBA loans held for sale below their cost in 2012 and 2011.

Loans receivable—affiliates

        Loans receivable—affiliates, which are designated by management as held for investment, are summarized as follows:

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Outstanding balance	$	6,203	$	6,518
Discounts, net		—		(59	)
Capitalized interest		381		260
Carrying amount of loans, net	$	6,584	$	6,719

        A summary of activity in loans receivable—affiliates follows:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	6,719		$	16,781
Advances		—			700
Payments received		(316	)		(2,042	)
Capitalized costs, net		122			127
Discount accretion, net		59			89
Loan transfer(1)		—			(1,402	)
Transfer to "held for sale" classification (see Note 4)		—			(7,148	)
Other noncash adjustments		—			(492	)
Foreign exchange gains		—			106
Ending Balance	$	6,584		$	6,719

(1)

Represents the sale and transfer of a loan to an affiliated entity as partial consideration for the repayment of a note payable to that affiliated entity.

        Loans receivable—affiliates represent advances to Acquisition Partnerships and other affiliates to acquire portfolios of under-performing and non-performing commercial and consumer loans and other assets; and senior debt financing arrangements with equity-method investees to provide capital for business expansion and operations. Advances to affiliates to acquire loan portfolios are secured by the underlying collateral of the individual notes within the portfolios, which is generally real estate; whereas advances to affiliates for capital investments and working capital are generally secured by business assets (i.e. accounts receivable, inventory and equipment).

        The Company did not record any provisions for impairment on loans receivable—affiliates in 2012 or 2011. During 2011, the Company sold an affiliated loan with a carrying value of $1.4 million. The Company did not sell any affiliated loans during 2012. Information related to the credit quality and loan loss allowances related to loans receivable—affiliates is presented under the heading "Credit Quality and Allowance for Loan Losses—Loans Held for Investment" below.

Loans receivable—SBA held for investment, net

        Loans receivable—SBA held for investment are summarized as follows:

	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Outstanding balance	$	21,013		$	20,503
Allowance for loan losses		(518	)		(333	)
Discounts, net		(1,499	)		(1,292	)
Capitalized costs		376			273
Carrying amount of loans, net	$	19,372		$	19,151

        Changes in loans receivable—SBA held for investment are as follows:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	19,151		$	15,415
Purchases of loans		—			696
Originations and advances of loans		3,700			5,617
Payments received		(2,762	)		(2,085	)
Capitalized costs		104			137
Change in allowance for loan losses		(185	)		32
Discount accretion, net		(238	)		(245	)
Charge-offs		(398	)		(416	)
Ending Balance	$	19,372		$	19,151

        Loans receivable—SBA held for investment represent the non-guaranteed portion of SBA loans purchased or originated by the Company. These loans are secured primarily by business assets such as accounts receivable, property and equipment, real estate and inventory. The Company recorded net impairment provisions on SBA loans held for investment of $0.6 million in 2012 and $0.4 million in 2011. Information related to the credit quality and loan loss allowances related to SBA loans held for investment is presented under the heading "Credit Quality and Allowance for Loan Losses—Loans Held for Investment" below.

Loans receivable—other

        Loans receivable—other, which are designated by management as held for investment, are summarized as follows:

	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Outstanding balance	$	8,859		$	13,541
Allowance for loan losses		(1,083	)		(1,083	)
Capitalized interest and costs		(246	)		(246	)
Carrying amount of loans, net	$	7,530		$	12,212

        Changes in loans receivable—other are as follows:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	12,212		$	13,011
Advances		1,592			2,974
Payments received		(3,774	)		(3,838	)
Noncash consideration(1)		(2,500	)		—
Capitalized interest and costs		—			50
Discount accretion, net		—			15
Ending Balance	$	7,530		$	12,212

(1)

Represents a principal reduction on a loan receivable upon FirstCity's acquisition of certain underlying loan collateral from the borrower as partial consideration for repayment. See Note 3 for additional information.

        Loans receivable—other include loans made to non-affiliated entities and are secured by assets such as accounts receivable, inventory, property and equipment, real estate and various other assets. The Company did not record any net impairment provisions on loans receivable—other in 2012 or in 2011. Information related to the credit quality and loan loss allowances related to loans receivable—other is presented under the heading "Credit Quality and Allowance for Loan Losses—Loans Held for Investment" below.

Credit Quality and Allowance for Loan Losses—Loans Held for Investment

        The Company has established an allowance for loan losses to absorb probable, estimable losses inherent in its portfolio of loans receivable held for investment. This allowance for loan losses includes specific allowances, based on individual evaluations of certain loans and loan relationships, and allowances for pools of loans with similar risk characteristics. In determining the appropriate level of allowance, management uses information to stratify its portfolio of loans receivable held for investment into loan pools with common risk characteristics. Certain portions of the allowance are attributed to loan pools based on various factors and analyses. Loans deemed to be impaired, including loans with an increased probability of default as determined by management, are evaluated individually rather than on a pool basis. Management's determination of the adequacy of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Actual losses experienced in the future may vary from management's estimates. Management attributes portions of the allowance to loans that it evaluates and determines to be impaired and to groups of loans that it evaluates collectively.

        The following table summarizes the activity in the allowance for loan losses by our portfolio of loans held for investment:

	Allowance for Loan Losses:
(Dollars in thousands)	SBA held for investment			Affiliates		Other		Total
Balance, January 1, 2012	$	333		$	—	$	1,083	$	1,416
Provisions		635			—		—		635
Recoveries		(46	)		—		—		(46	)
Charge-offs		(404	)		—		—		(404	)
Balance, December 31, 2012	$	518		$	—	$	1,083	$	1,601
Balance, January 1, 2011	$	365		$	—	$	1,083	$	1,448
Provisions		463			—		—		463
Recoveries		(78	)		—		—		(78	)
Charge-offs		(417	)		—		—		(417	)
Balance, December 31, 2011	$	333		$	—	$	1,083	$	1,416

        The following table presents an analysis of the allowance for loan losses and recorded investment in loans (excluding loans held for sale) as of December 31, 2012 and 2011:

	Commercial Loans:
(Dollars in thousands)	SBA		Affiliates		Other		Total
December 31, 2012:
Loans individually evaluated for impairment	$	585	$	6,584	$	8,613	$	15,782
Loans collectively evaluated for impairment		19,305		—		—		19,305
Total loans evaluated for impairment (excluding loans held for sale)	$	19,890	$	6,584	$	8,613	$	35,087
Allowance for loans individually evaluated for impairment	$	325	$	—	$	1,083	$	1,408
Allowance for loans collectively evaluated for impairment		193		—		—		193
Total allowance for loan losses	$	518	$	—	$	1,083	$	1,601
December 31, 2011:
Loans individually evaluated for impairment	$	404	$	6,719	$	13,295	$	20,418
Loans collectively evaluated for impairment		19,080		—		—		19,080
Total loans evaluated for impairment (excluding loans held for sale)	$	19,484	$	6,719	$	13,295	$	39,498
Allowance for loans individually evaluated for impairment	$	308	$	—	$	1,083	$	1,391
Allowance for loans collectively evaluated for impairment		25		—		—		25
Total allowance for loan losses	$	333	$	—	$	1,083	$	1,416

        The following table presents our recorded investment in loans (excluding loans held for sale) by credit quality indicator as of December 31, 2012 and 2011. SBA commercial loans are detailed by categories related to underlying credit quality and are defined below:

• •

  Pass—Includes all loans not included in categories of special mention, substandard or doubtful.

  •

  Special Mention—Loans that have potential weaknesses which may, if not reversed or corrected, weaken the credit or inadequately protect the Company's position at some future date. Loans in this category may also be subject to economic or market conditions which may, in the future, have an adverse effect on the borrower's debt service ability.

  •

  Substandard—Loans that exhibit a well-defined weakness, or weaknesses, which presently jeopardizes debt repayment, even though they may be currently performing. These loans are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected.

  •

  Doubtful—Loans for which management has determined that full collection of principal or interest is in doubt.
  
  
  

          Classes in the affiliated and non-affiliated portfolio asset and commercial loan portfolios are disaggregated by accrual status (which is generally based on management's assessment on the probability of default).

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2012:
SBA—commercial loans	$	15,315	$	3,954	$	434	$	187	$	19,890

	Accrual		Non-Accrual		Total
Affiliates—commercial loans	$	3,323	$	3,261	$	6,584
Other—commercial loans(1)		3,484		5,129		8,613
	$	6,807	$	8,390	$	15,197
Total loans (excluding loans held for sale)					$	35,087

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2011:
SBA—commercial loans	$	15,325	$	3,648	$	107	$	404	$	19,484

	Accrual		Non-Accrual		Total
Affiliates—commercial loans	$	6,719	$	—	$	6,719
Other—commercial loans(1)		4,398		8,897		13,295
	$	11,117	$	8,897	$	20,014
Total loans (excluding loans held for sale)					$	39,498

(1)

Represents loans made to U.S. non-affiliated entities that are secured primarily by business assets (as disclosed previously under the heading "Loans receivable—other" of this footnote).

        The following table includes an aging analysis of our recorded investment in loans held for investment as of December 31, 2012 and 2011:

	Loans Past Due and Still Accruing
(Dollars in thousands)	31-60 Days		61-90 Days		Over 90 Days		Total		Non-Accrual Loans		Current Loans		Total Loans
December 31, 2012:
Commercial loans:
SBA	$	327	$	5	$	—	$	332	$	585	$	18,973	$	19,890
Affiliates		—		—		—		—		3,261		3,323		6,584
Other		—		—		—		—		5,129		3,484		8,613
Total loans (excluding loans held for sale)	$	327	$	5	$	—	$	332	$	8,975	$	25,780	$	35,087
December 31, 2011:
Commercial loans:
SBA	$	—	$	—	$	—	$	—	$	404	$	19,080	$	19,484
Affiliates		—		—		—		—		—		6,719		6,719
Other		—		—		—		—		8,897		4,398		13,295
Total loans (excluding loans held for sale)	$	—	$	—	$	—	$	—	$	9,301	$	30,197	$	39,498

        The following table presents additional information regarding the Company's impaired loans as of December 31, 2012 and 2011:

	Recorded Investment In:
(Dollars in thousands)	Impaired Loans Without a Related Allowance		Impaired Loans With a Related Allowance		Total Impaired Loans		Unpaid Principal Balance		Related Valuation Allowance		Average Impaired Loans for the Year
December 31, 2012:
Commercial loans:
SBA	$	—	$	585	$	585	$	620	$	325	$	660
Affiliates		—		—		—		—		—		—
Other		2,159		2,970		5,129		7,027		1,083		6,984
Total loans (excluding loans held for sale)	$	2,159	$	3,555	$	5,714	$	7,647	$	1,408	$	7,644
December 31, 2011:
Commercial loans:
SBA	$	—	$	404	$	404	$	425	$	308	$	652
Affiliates		—		—		—		—		—		—
Other		5,897		3,000		8,897		10,569		1,083		9,648
Total loans (excluding loans held for sale)	$	5,897	$	3,404	$	9,301	$	10,994	$	1,391	$	10,300

        The Company did not recognize any significant amounts of interest income on impaired loans in 2012 and 2011.

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Servicing Assets - SBA Loans

12 Months Ended

Dec. 31, 2012

Servicing Assets - SBA Loans

Servicing Assets - SBA Loans

8. Servicing Assets—SBA Loans

        The Company recognizes servicing assets through the sale of originated SBA loans when the rights to service those loans are retained. Servicing rights resulting from the sale of loans are initially recognized at fair value at the date of transfer. The Company subsequently measures the carrying value of the servicing assets by using the amortization method, which amortizes the servicing assets in proportion to and over the period of estimated net servicing income, and evaluates servicing assets for impairment based on fair value at each reporting date. The Company evaluates the possible impairment of servicing assets based on the difference between the carrying amount and current fair value of the servicing assets. Impairment is charged to servicing fees in the period recognized.

        Changes in the Company's amortized servicing assets are as follows:

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	1,193		$	954
Servicing Assets capitalized		334			453
Servicing Assets amortized		(242	)		(214	)
Ending Balance	$	1,285		$	1,193
Reserve for impairment of servicing assets:
Beginning Balance	$	(103	)	$	(118	)
Impairments		(63	)		(75	)
Recoveries		12			90
Ending Balance	$	(154	)	$	(103	)
Ending Balance (net of reserve)	$	1,131		$	1,090
Fair value of amortized servicing assets:
Beginning balance	$	1,326		$	921
Ending balance	$	1,402		$	1,326

        The Company relies primarily on a discounted cash flow model to estimate the fair value of its servicing assets. This model calculates estimated fair value of the servicing assets using significant assumptions including a discount rate of 13.7% and prepayment speeds of 14.0% to 15.0% (depending on certain characteristics of the related loans). These assumptions are subject to change based on management's judgments and estimates of changes in future cash flows, among other things.

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Loans Receivable (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Changes in loans receivable
Ending Balance	$ 34,573	$ 45,696
SBA Held for Sale
Changes in loans receivable
Beginning Balance	7,614	11,608
Advances	11,099	21,897
Payments received	(65)	(96)
Capitalized interest and costs	(126)	(8)
Loan transfer (1)	(17,435)	(25,787)
Ending Balance	1,087	7,614
Affiliates
Changes in loans receivable
Beginning Balance	6,719	16,781
Advances		700
Payments received	(316)	(2,042)
Capitalized interest and costs	122	127
Discount accretion, net	59	89
Loan transfer (1)		(1,402)
Transfer to "held for sale" classification (see Note 4)		(7,148)
Other noncash adjustments		(492)
Foreign exchange gains		106
Ending Balance	6,584	6,719
SBA Held for Investment, net
Changes in loans receivable
Beginning Balance	19,151	15,415
Purchases of loans		696
Advances	3,700	5,617
Payments received	(2,762)	(2,085)
Capitalized interest and costs	104	137
Change in allowance for loan losses	(185)	32
Discount accretion, net	(238)	(245)
Charge-offs	(398)	(416)
Ending Balance	19,372	19,151
Other
Changes in loans receivable
Beginning Balance	12,212	13,011
Advances	1,592	2,974
Payments received	(3,774)	(3,838)
Noncash consideration (1)	(2,500)
Capitalized interest and costs		50
Discount accretion, net		15
Ending Balance	$ 7,530	$ 12,212

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Commitments and Contingencies (Details) (USD $)		12 Months Ended		0 Months Ended						12 Months Ended	1 Months Ended
	Dec. 31, 2012 AIG Entities	Dec. 31, 2012 SMIP	Dec. 31, 2012 CFSI	Apr. 02, 2010 Investment Agreement Varde	Apr. 02, 2010 Investment Agreement Varde Minimum	Dec. 31, 2012 Investment Agreement Affiliate of FirstCity Diversified Minimum	Apr. 02, 2010 Investment Agreement Affiliate of FirstCity Diversified Minimum	Dec. 31, 2012 Investment Agreement Affiliate of FirstCity Diversified Maximum	Apr. 02, 2010 Investment Agreement Affiliate of FirstCity Diversified Maximum	Dec. 31, 2012 Indemnification Obligation Commitments item	Mar. 31, 2007 Wave Tec Pools, Inc. Litigation	Aug. 31, 2011 Wave Tec Pools, Inc. Litigation FH Partners LLC
Commitments and contingencies
Amount of actual damages sustained by the obligors											$ 165,000,000
Settlement payment made to the obligors and their attorneys												100,000
Aggregate amount of proposed investment triggering first right of refusal terms					3,000,000
Proposed ownership in the acquired entity by an affiliate of FC Diversified (as a percent)						5.00%	5.00%	25.00%	25.00%
Consecutive automatic extension period for the investment agreement				1 year
Number of Mexican portfolio entities sold										11
Ownership percentage in Bidmex Holding	85.00%	15.00%
Indemnification of damages as to any matter that was not related to a particular portfolio entity (as a percent)		20.00%	80.00%
Threshold aggregate amount payable for making payment under indemnity provisions, for loan portfolio transaction										25,000
Threshold aggregate amount payable for making payment under indemnity provisions, for Mexican portfolio entities transaction										$ 250,000

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Loans Receivable (Details 5) (Commercial loans, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Additional information regarding impaired loans
Recorded Investment In Impaired Loans Without a Related Allowance	$ 2,159	$ 5,897
Recorded Investment In Impaired Loans With a Related Allowance	3,555	3,404
Recorded Investment In Total Impaired Loans	5,714	9,301
Unpaid Principal Balance	7,647	10,994
Related Valuation Allowance	1,408	1,391
Average Impaired Loans for the Period	7,644	10,300
SBA
Additional information regarding impaired loans
Recorded Investment In Impaired Loans With a Related Allowance	585	404
Recorded Investment In Total Impaired Loans	585	404
Unpaid Principal Balance	620	425
Related Valuation Allowance	325	308
Average Impaired Loans for the Period	660	652
Other
Additional information regarding impaired loans
Recorded Investment In Impaired Loans Without a Related Allowance	2,159	5,897
Recorded Investment In Impaired Loans With a Related Allowance	2,970	3,000
Recorded Investment In Total Impaired Loans	5,129	8,897
Unpaid Principal Balance	7,027	10,569
Related Valuation Allowance	1,083	1,083
Average Impaired Loans for the Period	$ 6,984	$ 9,648

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Loans Receivable (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Loans receivable
Total loans receivable, net	$ 34,573	$ 45,696
SBA Held for Sale
Loans receivable
Outstanding balance	1,083	7,483
Capitalized costs, net of fees	4	131
Total loans receivable, net	1,087	7,614	11,608
Affiliates
Loans receivable
Outstanding balance	6,203	6,518
Discounts, net		(59)
Capitalized costs, net of fees	381	260
Total loans receivable, net	6,584	6,719	16,781
SBA Held for Investment, net
Loans receivable
Outstanding balance	21,013	20,503
Allowance for loan losses	(518)	(333)
Discounts, net	(1,499)	(1,292)
Capitalized costs, net of fees	376	273
Total loans receivable, net	19,372	19,151	15,415
Other
Loans receivable
Outstanding balance	8,859	13,541
Allowance for loan losses	(1,083)	(1,083)
Capitalized costs, net of fees	(246)	(246)
Total loans receivable, net	$ 7,530	$ 12,212	$ 13,011

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Portfolio Assets (Tables) (Portfolio Assets)

12 Months Ended

Dec. 31, 2012

Portfolio Assets

Loan and real estate portfolios

Summary of loans receivable

	December 31, 2012 (Dollars in thousands)
	Carrying Value		Allowance for Loan Losses		Carrying Value, net
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	28,487	$	—	$	28,487
Business assets		4,047		26		4,021
Other		3,087		—		3,087
Latin America—commercial real estate		1,034		327		707
Europe—commercial real estate		3,449		—		3,449
Other		5,194		41		5,153
Total Loan Portfolios	$	45,298	$	394		44,904
Real estate held for sale, net						10,171
Total Portfolio Assets					$	55,075

	December 31, 2011 (Dollars in thousands)
	Carrying Value		Allowance for Loan Losses		Carrying Value, net
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	73,154	$	553	$	72,601
Business assets		10,742		185		10,557
Other		3,754		38		3,716
Latin America—commercial real estate		50		—		50
Europe—commercial real estate		4,267		—		4,267
Other		5,904		5		5,899
Total Loan Portfolios	$	97,871	$	781		97,090
Real estate held for sale, net						26,856
Total Portfolio Assets					$	123,946

Summary of income from portfolio assets

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
Loan Portfolios:
Purchased Credit-Impaired Loans	$	23,363	$	37,481
Purchased performing loans		312		445
UBN		—		1,760
Other		169		192
Real Estate Portfolios		2,863		744
Income from Portfolio Assets	$	26,707	$	40,622

Schedule of changes in accretable yield related to purchased credit-impaired loans

	Year Ended December 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	4,732		$	1,380
Accretion		(600	)		(4,321	)
Reclassification from (to) nonaccretable difference		(2,040	)		4,253
Disposals		(2,092	)		(5,488	)
Transfer from non-accrual		—			8,912
Translation adjustments		—			(4	)
Ending Balance	$	—		$	4,732

Schedule of acquisitions of purchased credit-impaired loans

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
Face value at acquisition	$	11,270	$	31,859
Cash flows expected to be collected at acquisition, net of adjustments		6,544		19,803
Basis in acquired loans at acquisition		4,120		14,329

Schedule of changes in the allowance for loan losses

	Purchased Credit-Impaired Loans																		Other
	Domestic									Latin America
(dollars in thousands)	Commercial Real Estate			Business Assets			Other			Commercial Real Estate			Residential Real Estate			Europe			UBN(1)			Other			Total
Beginning balance,
January 1, 2011	$	354		$	252		$	90		$	260		$	—		$	866		$	43,291		$	49		$	45,162
Provisions		1,702			519			24			103			64			—			—			199			2,611
Recoveries		(164	)		(13	)		(7	)		—			—			—			(719	)		(28	)		(931	)
Charge offs		(1,339	)		(573	)		(69	)		—			—			(856	)		(701	)		(215	)		(3,753	)
Removal upon sale of loans(1)		—			—			—			—			—			—			(45,002	)		—			(45,002	)
Transfer to "held for sale" classification (see Note 4)		—			—			—			(317	)		(62	)		—			—			—			(379	)
Translation adjustments		—			—			—			(46	)		(2	)		(10	)		3,131			—			3,073
Ending balance, December 31, 2011		553			185			38			—			—			—			—			5			781
Provisions		1,996			329			15			100			—			—			—			130			2,570
Recoveries		(21	)		(87	)		—			—			—			—			—			—			(108	)
Charge offs		(2,528	)		(401	)		(53	)		—			—			—			—			(94	)		(3,076	)
Transfer from "held for sale" classification (see Note 4)		—			—			—			210			—			—			—			—			210
Translation adjustments		—			—			—			17			—			—			—			—			17
Ending balance, December 31, 2012	$	—		$	26		$	—		$	327		$	—		$	—		$	—		$	41		$	394

(1)

The Company sold the underlying UBN loan portfolio in November 2011—refer to Note 1(f).

Schedule of recorded investment in loan portfolio assets by credit quality indicator

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Commercial real estate	$	32,643	$	76,918
Business assets		4,021		10,557
Other commercial		8,240		9,615
	$	44,904	$	97,090

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Liquidity and Capital Resources (Details) (Special-Purpose Investment Entity VIEs, Primary Beneficiary, USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Special-Purpose Investment Entity VIEs | Primary Beneficiary
Consolidated VIEs
Cash that can only be used to settle liabilities of certain VIEs	$ 24,066

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2012

Stock-Based Compensation

Stock-Based Compensation

13. Stock-Based Compensation

        The Company has three stock option and award plans for the primary benefit of its non-management directors and key employees—the 2004 Stock Option and Award Plan, the 2006 Stock Option and Award Plan and the 2010 Stock Option and Award Plan. These plans are administered by the Compensation Committee of the Board of Directors and enable the Company to make stock awards up to a total of 1.1 million common shares (net of shares cancelled and forfeited) in various forms and combinations including incentive stock options, nonqualified stock options, performance-based awards and restricted stock. Shares subject to options granted under these plans that terminate without being exercised will become available for grant. At December 31, 2012, the Company had approximately 153,000 shares that were available to grant under these plans.

        Accounting for stock-based compensation requires that the cost resulting from all stock-based payments be recognized in the financial statements based on the grant-date fair value of the award. The Company's stock-based compensation expense consists of stock options and restricted stock awards. Accounting guidance on share-based payments requires companies to estimate the fair value of stock option awards on the date of the grant using an option-pricing model. The Company uses the Black-Scholes option-pricing model to determine fair value of its stock option awards. The Company determines fair value for restricted stock grants based on the grant-date fair value of our common stock. All stock option and restricted stock grants are amortized ratably over the requisite service periods of the underlying awards, which are generally the vesting periods. The Company recognizes share-based compensation expense only for those shares that are expected to vest, based on the Company's historical experience and future expectations. The Company recorded stock-based compensation expense of $1.1 million for 2012 and $0.7 million for 2011.

• Stock Option Awards

        The Company's stock option awards are granted with an exercise price equal to the market price of FirstCity's common stock on the date of issuance. These stock option awards generally vest based on four years of continuous service from the grant date and have ten-year contractual terms. Certain stock options issued to non-employee directors are exercisable immediately. The Company did not grant any stock option awards in 2012 and 2011.

        The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock option awards on the grant date. The Company uses assumptions relating to expected life of options granted, expected volatility and risk-free interest rate to determine the fair value of stock option awards. The expected life of options granted represents the period of time for which the options are expected to be outstanding, taking into account the percentage of option exercises, the percentage of options that expire unexercised and the percentage of options outstanding. The expected volatility is based on the historical volatility of the Company's common stock over the estimated expected life of the options. The risk-free interest rate is derived from the U.S. Treasury rate with a maturity date corresponding to the stock options' expected life. The Company does not currently anticipate paying any cash dividends on its common stock. Consequently, the Company uses an expected dividend yield of zero in the options-pricing model. The Company also estimates option forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures significantly differ from those estimates. To determine an expected forfeiture rate, the Company uses historical experience as a proxy for forfeitures.

        A summary of the Company's stock options and related activity as of and for the years ended December 31, 2012 and 2011 is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
								(in thousands)
Options outstanding at January 1, 2011		747,400		$	7.99
Granted		—			—
Exercised		(15,000	)		4.69
Expired		—			—
Forfeited		(10,000	)		8.39
Options outstanding at January 1, 2012		722,400		$	8.06
Granted		—			—
Exercised		—			—
Expired		—			—
Forfeited		(7,500	)		7.90
Options outstanding at December 31, 2012		714,900		$	8.06		4.43	$	1,382
Options exercisable at December 31, 2011		589,900		$	8.31
Options exercisable at December 31, 2012		649,900		$	8.17		4.22	$	1,199

        The total intrinsic value of stock options exercised during 2012 and 2011 was zero and $30,000, respectively. As of December 31, 2012, there was approximately $0.2 million of total unrecognized compensation cost related to unvested stock options. That cost is expected to be recognized over a weighted average period of .6 years.

        A summary of the status and changes of FirstCity's non-vested stock option shares as of and for the year ended December 31, 2012 is presented below:

	Shares			Weighted- Average Grant-Date Fair Value
Non-vested at January 1, 2012		132,500		$	6.93
Granted		—		$	—
Vested		(66,250	)	$	6.93
Forfeited		(1,250	)	$	6.93
Non-vested at December 31, 2012		65,000		$	6.93

• Restricted Stock Awards

        In March 2011, the Company granted (i) 27,258 shares of restricted stock awards to non-employee directors that cliff-vest one year from the grant date; and (ii) 68,868 shares of restricted stock awards to executive management that time-vest over a three-year period. The weighted-average grant-date fair value of the awards was $6.58—which was based on the fair value of our common stock on the respective grant dates. In March 2012, the Company granted (i) 26,250 shares of restricted stock awards to non-employee directors that cliff-vest one year from the grant date; and (ii) 139,357 shares of restricted stock awards to executive management that time-vest over a three-year period. The weighted-average grant-date fair value of the awards was $8.78—which was based on the fair value of our common stock on the respective grant dates. Holders of the restricted stock awards have voting rights, and vesting of the grants is based on their continued service. Sales of the restricted stock are prohibited until the awards vest. As of December 31, 2012, there was approximately $1.1 million of total unrecognized compensation cost related to unvested restricted stock awards to be recognized over a weighted average period of 2.0 years.

        A summary of the Company's restricted stock awards and related activity as of and for the year ended December 31, 2012 is presented below:

	Number of Shares
Shares outstanding at December 31, 2011		96,126
Shares granted		165,607
Shares vested		(50,212	)
Shares outstanding at December 31, 2012		211,521

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Segment Reporting

12 Months Ended

Dec. 31, 2012

Segment Reporting

Segment Reporting

18. Segment Reporting

        At December 31, 2012 and 2011, the Company was engaged in two major business segments—Portfolio Asset Acquisition and Resolution business and Special Situations Platform business.

        In the Portfolio Asset Acquisition and Resolution business, the Company acquires and resolves portfolios of under-performing and non-performing loans, and to a lesser extent, performing loans and other assets (collectively, "Portfolio Assets" or "Portfolios"), which are generally acquired at a discount to their legal principal balance or appraised value. Purchases may be in the form of pools of assets or single assets. The Portfolio Assets are generally aggregated, including loans of varying qualities that are secured or unsecured by diverse collateral types and real estate. Some Portfolio Assets are loans for which resolution is linked primarily to the real estate securing the loan, while others may be collateralized business loans for which resolution may be based either on real estate, business assets or other collateral cash flow. Portfolio Assets are acquired on behalf of the Company or its consolidated subsidiaries, and on behalf of U.S. and foreign investment entities formed with co-investors ("Acquisition Partnerships"). The Company services, manages and ultimately resolves or otherwise disposes of substantially all Portfolio Assets acquired by the Company, its Acquisition Partnerships, or other related entities. The Company services such assets until they are collected or sold.

        The Company engages in its Special Situations Platform business through its majority ownership interest in FirstCity Denver Investment Corp. ("FirstCity Denver"). Through its Special Situations Platform business, the Company provides investment capital to privately-held lower middle-market companies through flexible capital structuring arrangements. The nature of the capital investments primarily takes the form of senior and junior financing arrangements, but also includes direct equity investments and common equity warrants. In addition, our Special Situations Platform business engages in other types of investment activity including distressed debt transactions and leveraged buyouts. FirstCity Denver's primary investment objective is to generate both current income and capital appreciation through debt and equity investments, and to generally structure the investments to be repaid or exited in 12 to 60 months.

        We evaluate the performance of our Portfolio Asset Acquisition and Resolution and Special Situations Platform business segments based primarily on the results of the segments without allocating certain corporate and administrative expenses and other items. "Corporate and Other" in the tables below represent the portions of our expenses (primarily salaries and benefits, accounting fees and legal expenses) and certain other items that are not allocable to our business segments.

        The following tables set forth summarized information by segment for the years ended December 31, 2012 and 2011:

	Year Ended December 31, 2012
	Portfolio Asset Acquisition and Resolution			Special Situations Platform			Corporate and Other			Total
	(Dollars in thousands)
Revenues	$	55,577		$	14,117		$	887		$	70,581
Costs and expenses		(37,880	)		(17,926	)		(12,383	)		(68,189	)
Equity income from unconsolidated subsidiaries		8,958			6,286			—			15,244
Gain on business combinations		—			935			—			935
Gain on sale of subsidiaries		1,451			—			—			1,451
Income tax expense		(490	)		(326	)		(158	)		(974	)
Net income attributable to noncontrolling interests		(3,531	)		(1,179	)		—			(4,710	)
Net earnings (loss)	$	24,085		$	1,907		$	(11,654	)	$	14,338

	Year Ended December 31, 2011
	Portfolio Asset Acquisition and Resolution			Special Situations Platform			Corporate and Other			Total
	(Dollars in thousands)
Revenues	$	63,877		$	10,190		$	250		$	74,317
Costs and expenses		(52,481	)		(7,796	)		(8,322	)		(68,599	)
Equity income (loss) from unconsolidated subsidiaries		(624	)		2,855			—			2,231
Gain on business combinations		278			155			—			433
Gain on debt extinguishment		26,543			—			—			26,543
Gain on sale of subsidiaries		1,818			—			—			1,818
Income tax (expense) benefit		(3,807	)		(166	)		271			(3,702	)
Net income attributable to noncontrolling interests		(7,654	)		(1,170	)		—			(8,824	)
Net earnings (loss)	$	27,950		$	4,068		$	(7,801	)	$	24,217

        Revenues and equity income (loss) of investments in unconsolidated subsidiaries from the Special Situations Platform segment are all attributable to U.S. operations. Revenues, equity income (loss) of unconsolidated subsidiaries and other income from the Portfolio Asset Acquisition and Resolution segment are attributable to U.S. and foreign operations as summarized as follows:

	Year Ended December 31,
	2012		2011
	(Dollars in thousands)
Domestic	$	51,191	$	42,180
Latin America		7,255		2,230
Europe		6,089		18,843
Total	$	64,535	$	63,253

        Total assets for each segment and a reconciliation to total assets are as follows:

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Cash and cash equivalents	$	39,941	$	34,802
Restricted cash		1,154		1,229
Portfolio acquisition and resolution assets:
Domestic		132,487		199,093
Latin America		6,495		17,048
Europe		6,049		41,447
Special situations platform assets		45,158		51,099
Other non-earning assets, net		13,353		11,628
Total assets	$	244,637	$	356,346

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Summary of Significant Accounting Policies (Details 3) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Revenue Recognition and Contingent Liabilities - Special Situations Platform Subsidiaries
Gain on sale of net assets	$ 8,000,000
Analysis of the changes in the cumulative adjustments
Balance at the beginning of the period	(1,853,000)	(740,000)
Aggregate adjustment for the year resulting from translation adjustments and gains and losses on certain hedge transactions	1,319,000	(1,113,000)
Balance at the end of the period	(534,000)	(1,853,000)
Foreign currency transaction gain and losses	200,000	(500,000)
Foreign currency translation gain (loss) included in accumulated other comprehensive income (loss) relating to the Euro-denominated debt	(300,000)	300,000
Income Taxes
Threshold of subsidiary ownership percentage used to determine the consolidated group for filing federal income tax returns	80.00%
Special Situations Platform
Revenue Recognition and Contingent Liabilities - Special Situations Platform Subsidiaries
Internal rate of return (as a percent)	20.00%
Payment to manager on basis of remaining net cash flows (as a percent)	37.50%
Liability related to the management agreement	$ 4,900,000	$ 400,000

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2012

Stock-Based Compensation

Schedule of stock options and related activity

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
								(in thousands)
Options outstanding at January 1, 2011		747,400		$	7.99
Granted		—			—
Exercised		(15,000	)		4.69
Expired		—			—
Forfeited		(10,000	)		8.39
Options outstanding at January 1, 2012		722,400		$	8.06
Granted		—			—
Exercised		—			—
Expired		—			—
Forfeited		(7,500	)		7.90
Options outstanding at December 31, 2012		714,900		$	8.06		4.43	$	1,382
Options exercisable at December 31, 2011		589,900		$	8.31
Options exercisable at December 31, 2012		649,900		$	8.17		4.22	$	1,199

Summary of the status and changes of the company's non-vested stock option shares

	Shares			Weighted- Average Grant-Date Fair Value
Non-vested at January 1, 2012		132,500		$	6.93
Granted		—		$	—
Vested		(66,250	)	$	6.93
Forfeited		(1,250	)	$	6.93
Non-vested at December 31, 2012		65,000		$	6.93

Schedule of restricted stock awards and related activity

	Number of Shares
Shares outstanding at December 31, 2011		96,126
Shares granted		165,607
Shares vested		(50,212	)
Shares outstanding at December 31, 2012		211,521

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CONSOLIDATED STATEMENTS OF EARNINGS (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
CONSOLIDATED STATEMENTS OF EARNINGS
Servicing fees, affiliates	$ 15,893	$ 10,151

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Selected Quarterly Financial Data (Unaudited) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Selected Quarterly Financial Data (Unaudited)
Revenues	$ 17,686	$ 18,814	$ 14,294	$ 19,787	$ 16,370	$ 20,252	$ 16,918	$ 20,777	$ 70,581	$ 74,317
Costs and expenses	23,017	16,971	14,253	13,948	22,224	17,379	14,785	14,211	68,189	68,599
Equity income (loss) from unconsolidated subsidiaries	4,447	4,249	2,081	4,467	(5,700)	2,777	3,283	1,871	15,244	2,231
Gain on business combinations			935			155	278		935	433
Gain on debt extinguishment					26,543					26,543
Gain on sale of subsidiaries	705	746			1,813			5	1,451	1,818
Income tax expense (benefit)	195	(59)	5	833	1,655	421	1,024	602	974	3,702
Net earnings	(374)	6,897	3,052	9,473	15,147	5,384	4,670	7,840	19,048	33,041
Less: Net income attributable to noncontrolling interests	(93)	2,130	1,565	1,108	(187)	2,654	2,242	4,115	4,710	8,824
Net earnings attributable to FirstCity	(281)	4,767	1,487	8,365	15,334	2,730	2,428	3,725	14,338	24,217
Less: Net earnings attributable to participating securities	(6)	96	29	82	142	25
Net earnings to common stockholders	$ (275)	$ 4,671	$ 1,458	$ 8,283	$ 15,192	$ 2,705	$ 2,428	$ 3,725	$ 14,087	$ 24,037
Basic earnings per share of common stock:
Net earnings (in dollars per share)	$ (0.03)	$ 0.45	$ 0.14	$ 0.80	$ 1.48	$ 0.26	$ 0.24	$ 0.36	$ 1.36	$ 2.34
Diluted earnings per share of common stock:
Net earnings (in dollars per share)	$ (0.03)	$ 0.45	$ 0.14	$ 0.80	$ 1.47	$ 0.26	$ 0.24	$ 0.36	$ 1.35	$ 2.33

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Liquidity and Capital Resources

12 Months Ended

Dec. 31, 2012

Liquidity and Capital Resources

Liquidity and Capital Resources

2. Liquidity and Capital Resources

        The Company requires liquidity to fund its operations, Portfolio Asset acquisitions, investments in and advances to Acquisition Partnerships, capital investments in privately-held lower middle-market companies, other debt and equity investments, repayments of bank borrowings and other debt, and working capital to support our growth. Historically, our primary sources of liquidity have been funds generated from operations (primarily loan and real estate collections and service fees), equity distributions from the Acquisition Partnerships and other subsidiaries, interest and principal payments on subordinated intercompany debt, dividends from the Company's subsidiaries, borrowings from credit facilities with external lenders, and other special-purpose short-term borrowings. At December 31, 2012, the Company had $24.1 million of cash on its consolidated balance sheet that could only be used to settle the liabilities of certain consolidated VIEs (see Note 19).

        Our ability to fund operations and make new investments is dependent on (1) anticipated cash flows from our unencumbered Portfolio Assets and equity investments; (2) our current holdings of unencumbered cash; (3) residual cash flows from the pledged assets and equity investments after full repayment of our term loan facilities with Bank of Scotland and Bank of America (as discussed below); (4) cash leak-through provisions included in our term loan facilities with Bank of Scotland and Bank of America (as discussed below); and (5) our investment agreement with Värde Investment Partners, L.P. (as discussed below). Many factors, including general economic conditions, are essential to our ability to generate cash flows. Fluctuations in our collections, investment income, credit availability, and adverse changes in other factors could have a negative impact on our ability to generate sufficient cash flows to support our business.

        Historically, the Company's primary sources of funding for purchasing distressed loan portfolios were loans under credit facilities with third-party lenders, other special purpose short-term borrowings, funds generated from operations, equity distributions from acquisition entities and other subsidiaries and interest and principal payments on subordinated intercompany debt. A substantial majority of the Company's portfolio investments prior to July 2010 were funded through loan facilities provided by Bank of Scotland and BoS(USA), Inc.

        Although Bank of Scotland had provided financing to the Company for several years, following Lloyds Banking Group's acquisition of Bank of Scotland, Bank of Scotland and BoS(USA), Inc. placed the Company's revolving loan facility in a wind-down structure. In June 2010, the facilities with Bank of Scotland and BoS(USA), Inc. were restructured into one facility with a principal amount of $268.6 million ("Reducing Note Facility") under which Bank of Scotland and BoS(USA), Inc. had no further obligations to provide financing to the Company. The Reducing Note Facility permitted a monthly cash leak-through to the Company to cover the overhead of the ongoing business and a cash flow leak-through of 20% of cash flows up to a maximum amount of $20 million after the payment of interest and overhead allowance. The lack of a corporate line of credit substantially restricted the Company's ability to acquire loan portfolios. As a result, the Company's source of funding for acquisitions was primarily limited to its unencumbered cash flow from operations and the cash flow leak-through, and the Company began to seek alternative sources of funding, which ultimately proved to be unachievable as the Company was never able to replace this source of funding.

        Due to a lack of funding, the Company was unable to pursue an aggressive acquisition strategy for its own account and almost all of the Company's new acquisitions were off-balance sheet in the form of minority interests (ranging from 10% to 20%) in acquisition entities controlled by larger firms. The Company was unable to obtain financing to purchase investments for its own account on reasonable terms. As a result, the Company's balance sheet began to shrink as its existing portfolios matured and new acquisitions were off-balance sheet and the value of its servicing platform diminished.

        The following is a summary of FirstCity's investment agreement and primary external lending facilities that it uses to finance and provide liquidity for equity and loan investments, Portfolio Asset acquisitions, Acquisition Partnership investments, capital investments, and working capital:

• Investment Agreement with Värde Investment Partners, L.P. ("VIP")

        FirstCity, through its wholly-owned subsidiaries FC Diversified Holdings LLC ("FC Diversified") and FirstCity Servicing Corporation ("FC Servicing"), and VIP are parties to an investment agreement, effective April 1, 2010, whereby VIP may invest, at its discretion, in distressed loan portfolios and similar investment opportunities alongside FirstCity, subject to the terms and conditions contained in the agreement. The primary terms of the agreement are as follows:

• •

  FirstCity will act as the exclusive servicer for the investment portfolios;

  •

  FirstCity will provide VIP with a "right of first refusal" with regard to distressed asset investment opportunities in excess of $3 million sourced by FirstCity;

  •

  FirstCity, at its determination, will co-invest between 5%-25% in each investment;

  •

  FirstCity will receive a $200,000 monthly retainer in exchange for its services and commitments;

  •

  FirstCity will receive a base servicing fee (based on investment portfolio collections) and will be eligible to receive additional incentive-based servicing fees (depending on the performance of the portfolios acquired); and

  •

  FirstCity will be eligible to receive incentive-based management fees (depending on the aggregate amount and performance of the portfolios acquired).

        The investment agreement has a termination date of June 30, 2015, which is subject to consecutive automatic one-year extensions without any action by FirstCity and VIP. FC Servicing will be the servicer for all of the acquisition entities formed by FC Diversified and VIP (subject to removal by VIP on a pool-level basis under certain conditions). The parties may terminate the investment agreement prior to June 30, 2015 under certain conditions.

        The cash flows from the assets and equity interests from the Company's Portfolio Asset investments made in connection with the investment agreement with VIP, which are held by FC Investment Holdings Corporation ("FC Investment") (a wholly-owned subsidiary of FirstCity) and its subsidiaries, are not subject to the security interest requirements of the Bank of Scotland and Bank of America loan facilities described below.

Bank of Scotland Credit Facilities

• Reducing Note Facility—Bank of Scotland

        In June 2010, FirstCity refinanced its then-existing acquisition loan facilities with Bank of Scotland and closed on a $268.6 million Reducing Note Facility Agreement ("Reducing Note Facility") that provided for repayment to Bank of Scotland over time as cash flows from the underlying assets securing the term loan facility were realized. The Company's outstanding indebtedness and letter of credit obligations under its then-existing loan facilities with Bank of Scotland were refinanced by the Reducing Note Facility. This term loan facility capped FirstCity's financing arrangements with Bank of Scotland, and as such, Bank of Scotland had no further obligation to provide financing to fund FirstCity's investment activities and operations after June 2010. The Reducing Note Facility was secured by substantially all of the assets of FirstCity's subsidiaries that were subject to the obligations of the former loan facilities with Bank of Scotland. FC Investment and its subsidiaries, which hold investments made in connection with FirstCity's investment agreement with VIP (discussed above), and various other investments that FirstCity originated subsequent to June 2010, were not subject to the security interest requirements of the Reducing Note Facility.

        In December 2011, FirstCity entered into an agreement to amend and restate the Reducing Note Facility with Bank of Scotland, which had an unpaid principal balance of approximately $173.2 million at closing. As a result, FirstCity's primary obligation under the Reducing Note Facility, as amended ("BoS Facility A"), was reduced by the assumption of $25.0 million of debt ("BoS Facility B") by a newly-formed, wholly-owned subsidiary of FirstCity, combined with a $53.4 million reduction primarily from proceeds obtained by FirstCity from its new $50.0 million credit facility with Bank of America ("BoA Loan") and other cash payments at closing. FirstCity's remaining $94.8 million debt obligation under BoS Facility A (post-closing) carries a 0.25% annual interest rate through maturity (December 2014), and allows for repayment over time as cash flows from the underlying pledged assets are realized. FirstCity's $25.0 million debt obligation under BoS Facility B does not bear interest, and allows for repayment over time as cash flows from the underlying pledged assets, if any, are realized (FirstCity has not received any significant cash flows from these underlying assets and has not allocated any value to these assets for the past three years). As a result of its December 2011 debt refinancing arrangements, FirstCity was able to significantly reduce its aggregate future cash outlay to Bank of Scotland and Bank of America under these new loan facilities in comparison to the repayment terms under the former Reducing Note Facility with Bank of Scotland—which, in turn, will provide more liquidity in the future to fund investment opportunities.

• BoS Facility A—Bank of Scotland

        At December 31, 2012, the unpaid principal balance on BoS Facility A was $31.1 million and the unamortized fair value discount was $1.1 million. Prior to December 2012, a portion of the unpaid principal balance included Euro-denominated debt that FirstCity used to partially off-set its business exposure to foreign currency exchange risk attributable to its net equity investments in Europe (see Note 12). The Euro-denominated debt was paid off in December out of proceeds from the sale of the Company's investment in UBN, SAS (see Note 3). The primary terms and conditions of FC Commercial's loan facility with Bank of Scotland under BoS Facility A are as follows:

• •

  Release of assets of FH Partners LLC (the "FH Partners Assets") which secured the Reducing Note Facility to allow FH Partners LLC to pledge the FH Partners Assets as collateral for the BoA Loan (Bank of Scotland was granted a subordinated security interest in these assets);

  •

  Repayment will be made over time (no scheduled amortization) as cash flows are realized from the pledged assets (primarily loans, real estate and equity investments) other than the FH Partners Assets;

  •

  Additional repayment will be made from residual cash flows from the FH Partners Assets from excess cash flow released to FH Partners LLC under the loan facility for the BoA Loan ("FH Partners Excess Cash Flow") and after the payment of the BoA Loan;

  •

  Fixed annual interest rate equal to 0.25%;

  •

  Maturity date of December 19, 2014;

  •

  Unlimited guaranty provided by FirstCity for the repayment of the indebtedness under BoS Facility A;

• •

  No advances will be made under this loan facility, except for draws on an outstanding letter of credit in the amount of $5.4 million;

  •

  FirstCity will receive a management fee after payment to Bank of Scotland of interest and fees, certain expenses and other items, which is equal to 10% of the monthly collections from the underlying pledged assets other than the FH Partners Assets, and 5% of the of the monthly collections from the FH Partners Assets as FH Partners Excess Cash Flow is paid to Bank of Scotland (i.e. cash "leak-through"), which fees are not required to be applied to the debt owed to Bank of Scotland; the 5% management fee related to the FH Partners Assets is in addition to a 5% servicing fee paid under the loan facility for the BoA Loan and is deferred on a cumulative basis until the FH Partners Excess Cash Flow is paid to Bank of Scotland;

  •

  After payment of the BoA Loan, FirstCity will receive a management fee equal to 10% of any monthly collections from the FH Partners Assets, after payment to Bank of Scotland of interest and fees, certain expenses and other items;

  •

  FirstCity must maintain a minimum tangible net worth (as defined in the amended and restated reducing note facility agreement with Bank of Scotland) of $90.0 million;

  •

  Release of FC Commercial, FH Partners, FLBG Corp, FirstCity, and certain FirstCity subsidiaries obligated under the Reducing Note Facility from liability for payment to Bank of Scotland or BoS-USA for the $25.0 million loan principal amount assumed by FLBG2 (under BoS Facility B with BoS-USA); and

  •

  Guaranty provided by FLBG Corp. and a substantial majority of its subsidiaries, which are the entities that were primarily subject to the obligations of the Reducing Note Facility (the "Covered Entities").

        This loan facility is secured by substantially all of the assets of the Covered Entities. FH Partners LLC provides a subordinated guaranty of the BoS Facility A (subordinated to the BoA Loan) and a subordinated security interest in the FH Partners Assets. FC Servicing does not guarantee the BoS Facility A, but provides a non-recourse security interest in certain equity interests owned by it and in most of the servicing fees from agreements entered into prior to the execution of the Reducing Note Facility.

        BoS Facility A contains covenants, representations and warranties on the part of FirstCity, FC Commercial and FLBG Corp. that are typical for a loan facility of this type. In addition, BoS Facility A contains customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, Bank of Scotland may accelerate the indebtedness under this loan facility. At December 31, 2012, FirstCity was in compliance with all covenants or other requirements set forth in BoS Facility A.

• BoS Facility B—Bank of Scotland

        At December 31, 2012, the Company did not have a recorded carrying value on its consolidated balance sheet for BoS Facility B (as described under the heading Reducing Note Facility—Bank of Scotland above). The primary terms and conditions of FLBG2's $25.0 million debt obligation with BoS-USA under BoS Facility B are as follows:

• •

  Source of repayment will be derived solely from future cash flows from the assets of FLBG2, if any (loans with nominal value—see discussion below);

  •

  No interest accrues under this loan facility (subject to default interest provisions);

  •

  Maturity date of December 19, 2014 (see discussion below); and

  •

  FirstCity will receive a management fee equal to 10% of the monthly collections on the assets of FLBG2 (i.e. cash "leak-through"), if any, after payment to BoS-USA of any fees.

        The assets of FLBG2 consist of loans transferred to it by the Covered Entities for nominal consideration. FirstCity has not received any significant cash flows from the assets of FLBG2 and has not allocated any value to such assets for the past three years. FLBG2 has no assets other than the loans pledged to this loan facility, and has no intent to actively pursue collection of these assets. FLBG2 has no alternative sources of income or liquidity. FirstCity and its other subsidiaries are not obligated to provide any additional funds or capital to FLBG2, do not guaranty the repayment of BoS Facility B, and do not intend to contribute any funds to FLBG2 or pay any amounts owed by FLBG2 under BoS Facility B (before or after its maturity).

        At maturity of the BoS Facility B, there will likely be a default by FLBG2 as no collections are projected by FirstCity to be received from the assets of FLBG2. The sole recourse of Bank of Scotland on any such default will be to foreclose on the assets of FLBG2. Any default will not have a material adverse effect on FirstCity, as there is no carrying value for this loan facility on FirstCity's consolidated balance sheet.

        BoS Facility B contains limited covenants, representations and warranties on the part of FLGB2 in light of the nature of the assets of FLBG2 and the lack of liquidity or sources of funds for FLBG2. In addition, BoS Facility B contains customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, Bank of Scotland may accelerate the indebtedness under this loan facility. At December 31, 2012, FLBG2 was in compliance with all covenants or other requirements set forth in BoS Facility B.

• Bank of America

        On December 20, 2011, FH Partners LLC, as borrower, and Bank of America, as lender, entered into a $50.0 million term loan facility ("BoA Loan") that allows for repayment over time as cash flows from the underlying assets securing this loan facility are realized. FirstCity used the proceeds from this loan facility to reduce the principal balance outstanding under the Reducing Note Facility (as described above). At December 31, 2012, the unpaid principal balance under this loan facility was $16.2 million. The primary terms and conditions under the BoA Loan are as follows:

• •

  Minimum principal payments through maturity so that the total principal balance outstanding does not exceed the following amounts on the dates indicated: $45.0 million at June 30, 2012; $30.0 million at December 31, 2012; $25.0 million at June 30, 2013; $20.0 million at December 31, 2013; $15.0 million at June 30, 2014; and $10.0 million at December 31, 2014 (initial maturity);

  •

  Initial maturity date of December 31, 2014, which may be extended one year (subject to certain terms and conditions);

  •

  Variable annual interest rate based on LIBOR daily floating rate plus 2.75%;

  •

  FirstCity will receive a servicing fee equal to 5% of the monthly collections (i.e. cash "leak-through") from the pledged assets after payment to Bank of America of interest, fees and required principal payment reductions;

  •

  Minimum debt service coverage ratio (defined) of 1.4 to 1.0 (beginning with the quarterly period ended March 31, 2012); and

  •

  FC Servicing must maintain a minimum net worth of $1.0 million.

        The BoA Loan contains covenants, representations and warranties on the part of FH Partners LLC that are typical for a loan facility of this type. In addition, the BoA Loan contains customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, Bank of America may accelerate the indebtedness under this loan facility. At December 31, 2012, FH Partners LLC was in compliance with all covenants or other requirements set forth in the BoA Loan.

• Wells Fargo Capital Finance

        On January 31, 2012, American Business Lending, Inc. ("ABL"), a FirstCity wholly-owned subsidiary, and Wells Fargo Capital Finance ("WFCF") entered into an Amended and Restated Loan Agreement ("WFCF Credit Facility") that amended and restated the existing $25.0 million loan facility agreement, as amended. The WFCF Credit Facility is a $25 million revolving loan facility that provides funding for ABL to finance and acquire SBA 7(a) loans, and is secured by substantially all of ABL's assets. The unpaid principal balance on this loan facility at December 31, 2012 was $15.2 million. In addition, FirstCity provides WFCF with an unconditional guaranty for all of ABL's obligations up to a maximum of $5.0 million plus enforcement costs. The primary terms and conditions of the WFCF Credit Facility are as follows:

• •

  Provides for maximum outstanding borrowings of up to $25.0 million ("Maximum Credit Line");

  •

  Provides for a borrowing base for originating loans based on the amount by which the sum of (i) ABL-originated SBA guaranteed loans (up to 100%) and non-guaranteed loans (60%-80%) plus (ii) certain previously-purchased performing loans (up to 80%), exceeds the aggregate amount, if any, of loan reserves established by ABL and/or WFCF on the borrowing base loans;

  •

  Outstanding borrowings bear interest at alternate annual rates equal to (i) LIBOR rate plus 3.50% for LIBOR rate loans; (ii) base rate (higher of LIBOR rate or Wells Fargo prime rate) plus 0.75% for base rate loans; or (iii) base rate plus 0.75% otherwise;

• •

  Provides for a prepayment fee in the event of ABL's termination of the credit facility equal to 3.0% of the Maximum Credit Line if prepayment is made on or before January 31, 2013, or 2.0% of the Maximum Credit Line if prepayment is made between January 31, 2013 and January 30, 2015; and

  •

  Provides for an initial maturity date of January 31, 2015 (which may be extended upon agreement by WFCF and ABL).

        The WFCF Credit Facility includes covenants that are customary for a loan facility of this type, including maximum capital expenditure levels and financial covenants related to minimum tangible net worth levels, maximum indebtedness to tangible net worth ratio, maximum delinquent and defaulted loan levels, maximum loan charge-off levels, and minimum net interest coverage levels.

        In addition, the WFCF Credit Facility contains representations and warranties of ABL that are typical for a loan facility of this type. The WFCF Credit Facility also contains customary events of default, including but not limited to, failure to make required payments; failure to comply with certain agreements or covenants; change of control; certain events of bankruptcy and insolvency; and failure to pay certain judgments. In the event that an event of default occurs and is continuing, WFCF may accelerate the indebtedness under this loan facility. At December 31, 2012, ABL was in compliance with all covenants or other requirements set forth in the WFCF Credit Facility.

• First National Bank of Central Texas Loan Facility

        FC Investment has a $15.0 million revolving loan facility (the "FNBCT Loan Facility") with First National Bank of Central Texas ("FNBCT") for the purpose of financing the purchase of loans and other assets, to make investments in equity interests in or capital contributions to affiliates which are owned with other investors, and for working capital. At December 31, 2012, the unpaid principal balance under this revolving loan facility was $2.0 million. The primary terms and conditions of the FNBCT Loan Facility are as follows:

• •

  Provides maximum outstanding borrowings up to $15.0 million;

  •

  The loan facility is secured by security interests in substantially all of the assets of FC Investment and its subsidiaries (the "Covered Entities"). FirstCity Servicing Corporation ("FC Servicing"), a FirstCity wholly-owned subsidiary, provides a security interest in servicing fees payable to it by the Covered Entities and the non-wholly owned portfolio entities owned by the Covered Entities. FC Servicing does not provide a security interest in servicing agreements entered into with the Covered Entities, or in any of its other assets and does not guaranty the obligations under this loan facility;

  •

  Provides that no advance will be made that causes the outstanding balance of the loan facility to exceed an amount equal to 25.0% of the net present value of the equity interests and loans and other assets owned by the Covered Entities which are pledged to secure the loan facility reduced by any reserves established by FNBCT related to the pledged loans and other assets and the pledged equity interests ("Net Present Collateral Value");

  •

  Provides for a fluctuating interest rate equal to the greater of (i) the rate of interest published in the Wall Street Journal as the prime rate of commercial banks, or (ii) 4.0%;

• •

  Provides for a maturity date of August 15, 2013;

  •

  Provides that all net cash flow from the pledged assets be deposited into a pledged account with FNBCT on a monthly basis, and for funds to be distributed out of the pledged account and applied in the following manner and priority: (i) to interest due under the loan facility, (ii) to fees and expenses due under the loan facility, (iii) payment of principal outstanding under the loan facility in an amount required to reduce the outstanding principal balance of the loan as is required so that the principal balance of the loan is equal to 25.0% of the Net Present Collateral Value, (iv) payment of principal if an event of default has occurred, (v) payment of the principal in such additional amount as may be determined by FNBCT in its discretion, and (vi) any remaining balance to FC Investment;

  •

  Provides that FNBCT is only required to fund up to $7.5 million, with the balance of the commitment under the revolving loan facility to be funded by a participating bank in the loan facility;

  •

  Provides for (i) an administration fee of $25,000 for the period through the maturity date, which fee was paid at closing, (ii) a facility fee in the amount of $93,750 for the period through the maturity date, which fee was paid at closing, and (iii) a non-utilization fee payable following each calendar quarter equal to 0.50% of the average daily amount by which the outstanding principal amount of the revolving loan during the preceding calendar quarter is less than $15.0 million, provided, in the event the financial institution participating in the revolving loan fails to advance its pro-rata share of any advance in a circumstance in which FNBCT is funding the advance, the non-utilization fee shall be calculated based on the average daily amount by which the total amount funded by FNBCT from its own funds during the preceding calendar quarter is less than $7.5 million;

  •

  FC Investment must maintain a minimum interest coverage ratio, based on net cash flows from the pledged assets, of 2.0 to 1.0 (on a consolidated basis);

  •

  FC Investment must maintain a minimum tangible net worth (defined) of $75.0 million (on a consolidated basis); and

  •

  The FNBCT Loan Facility and other loan documents do not create any security interest in the property of, or impose any contractual limitations upon, FirstCity Commercial Corporation, FH Partners LLC, FLBG Corporation or any of their subsidiaries, which are FirstCity subsidiaries and are parties to, or provide guaranties or security interests with respect to, FirstCity's loan facility with Bank of Scotland.

        In addition to the foregoing, the FNBCT Loan Facility contains representations, warranties and certain other covenants on the part of FC Investment, FirstCity and the other Covered Entities that are typical for a loan facility of this type. Furthermore, the FNBCT Loan Facility and related loan documents contain customary events of default, including, failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, FNBCT may accelerate the indebtedness under this loan facility. At December 31, 2012, FC Investment was in compliance with all covenants or other requirements set forth in the FNBCT Loan facility.

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Business Combinations, Sale and Deconsolidation of Subsidiaries, and Noncontrolling Interest (Details 3) (USD $)	3 Months Ended			12 Months Ended		1 Months Ended	3 Months Ended	0 Months Ended
	Jun. 30, 2012	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2012	Dec. 31, 2011	Jun. 30, 2011 European Acquisition Partnership	Jun. 30, 2012 Railroad Operation Special Situations Platform	Aug. 31, 2011 Short-line rail services and transload facility Special Situations Platform
Business Combination - Portfolio Asset Acquisition & Resolution Business Segment
Cost of acquisition						$ 600,000
Ownership interest in acquired entity (as a percent)						100.00%
Portfolio assets acquired						2,700,000
Notes payable and accrued liabilities acquired						1,700,000
Intercompany notes payable that were eliminated in consolidation with the entity's consolidated financial statements						900,000
Property and equipment							2,800,000	2,100,000
Trade receivables							500,000
Various other assets							200,000
Purchase price							2,500,000	2,100,000
Intangible assets								200,000
Gain on business combinations	$ 935,000	$ 155,000	$ 278,000	$ 935,000	$ 433,000	$ 300,000	$ 900,000	$ 200,000

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Segment Reporting (Details 2) (USD $) In Thousands, unless otherwise specified						12 Months Ended				12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010	Dec. 31, 2012 Portfolio Asset Acquisition and Resolution	Dec. 31, 2011 Portfolio Asset Acquisition and Resolution	Dec. 31, 2012 Special Situations Platform	Dec. 31, 2011 Special Situations Platform	Dec. 31, 2012 Domestic Portfolio Asset Acquisition and Resolution	Dec. 31, 2011 Domestic Portfolio Asset Acquisition and Resolution	Dec. 31, 2012 Latin America Portfolio Asset Acquisition and Resolution	Dec. 31, 2011 Latin America Portfolio Asset Acquisition and Resolution	Dec. 31, 2012 Europe Portfolio Asset Acquisition and Resolution	Dec. 31, 2011 Europe Portfolio Asset Acquisition and Resolution
Segment reporting
Revenues, equity income (loss) of unconsolidated subsidiaries and other income						$ 64,535	$ 63,253			$ 51,191	$ 42,180	$ 7,255	$ 2,230	$ 6,089	$ 18,843
Total assets for each segment and a reconciliation to total assets
Cash and cash equivalents	39,941		34,802		46,597
Restricted cash	1,154		1,229
Other non-earning assets, net	13,353		11,628
Total Assets	$ 244,637	[1]	$ 356,346	[1]				$ 45,158	$ 51,099	$ 132,487	$ 199,093	$ 6,495	$ 17,048	$ 6,049	$ 41,447

[1] Our consolidated assets at December 31, 2012 and December 31, 2011 include the following assets of certain variable interest entities ("VIEs") that can only be used to settle the liabilities of those VIEs: Cash and cash equivalents, $24.1 million and $20.4 million; Portfolio Assets, $42.1 million and $98.4 million; Loans receivable, $33.1 million and $45.7 million; Equity investments, $21.6 million and $51.7 million; various other assets, $32.9 million and $35.9 million; and Total assets, $153.8 million and $252.2 million, respectively.

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Notes Payable to Banks and Other Debt Obligations (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Notes payable to banks
Debt obligations, net of unamortized discount	76,945,000	189,936,000
Aggregate principal maturities of notes payable and other debt obligations
2013	51,700,000
2014	3,800,000
2015	16,100,000
2016	6,000,000
Thereafter	400,000
BoS Facility A
Notes payable to banks
Debt obligations, net of unamortized discount	29,991,000	86,579,000
Stated interest rate (as a percent)	0.25%	0.25%
Estimated fair value of debt		91,600,000
Unamortized discount	1,100,000	3,100,000
Euro-denominated debt
Notes payable to banks
Debt obligations, net of unamortized discount	0	13,200,000
BOS (USA) reducing note facility
Notes payable to banks
Term note maximum capacity	25,000,000
Bank of America loan facility
Notes payable to banks
Debt obligations, net of unamortized discount	16,194,000	49,228,000
Bank of America loan facility | LIBOR
Notes payable to banks
Variable rate basis	LIBOR	LIBOR
Interest rate added to alternate annual base rates (as a percent)	2.75%	2.75%
WFCF Credit Facility
Notes payable to banks
Debt obligations, net of unamortized discount	15,214,000	21,405,000
Maximum credit line	25,000,000	25,000,000
Unconditional limited guaranty obligation to WFCF for all of ABL's obligations	5,000,000	5,000,000
Interest rate (as a percent)	7.50%	7.50%
WFCF Credit Facility | LIBOR
Notes payable to banks
Variable rate basis	LIBOR	LIBOR
Interest rate added to alternate annual base rates (as a percent)	4.25%	4.25%
WFCF Credit Facility | Base rate
Notes payable to banks
Variable rate basis	Wells Fargo base rate	Wells Fargo base rate
Interest rate added to alternate annual base rates (as a percent)	4.25%	4.25%
U.S. portfolio entities
Notes payable to banks
Non-recourse bank note payable	4,712,000	18,113,000
Weighted average interest rate (as a percent)	4.30%	4.30%
U.S. portfolio entities | Maximum
Notes payable to banks
Interest rate (as a percent)	5.00%	5.00%
U.S. portfolio entities | Minimum
Notes payable to banks
Interest rate (as a percent)	3.00%	3.00%
Consolidated railroad subsidiaries | LIBOR
Notes payable to banks
Variable rate basis	LIBOR	LIBOR
Consolidated railroad subsidiaries | Prime rate
Notes payable to banks
Variable rate basis	Prime Rate	Prime Rate
Consolidated railroad subsidiaries | Maximum | LIBOR
Notes payable to banks
Interest rate added to alternate annual base rates (as a percent)	3.25%	3.25%
Consolidated railroad subsidiaries | Maximum | Prime rate
Notes payable to banks
Interest rate added to alternate annual base rates (as a percent)	1.50%	1.50%
Consolidated railroad subsidiaries | Minimum | LIBOR
Notes payable to banks
Interest rate added to alternate annual base rates (as a percent)	2.25%	2.25%
Consolidated railroad subsidiaries | Minimum | Prime rate
Notes payable to banks
Interest rate added to alternate annual base rates (as a percent)	0.50%	0.50%
Consolidated railroad subsidiaries, term loan
Notes payable to banks
Non-recourse bank note payable	3,094,000	3,531,000
Consolidated railroad subsidiaries, revolving facility
Notes payable to banks
Maximum credit line	1,000,000	1,000,000
Consolidated railroad subsidiaries, acquisition facility
Notes payable to banks
Non-recourse bank note payable	3,950,000	1,625,000
Maximum credit line	5,000,000	5,000,000
Real estate investment entity
Notes payable to banks
Non-recourse bank note payable		7,361,000
Stated interest rate (as a percent)		6.07%
Other notes and debt obligations
Notes payable to banks
Debt obligations, net of unamortized discount	1,790,000	2,094,000
FNBCT Loan Facility
Notes payable to banks
Debt obligations, net of unamortized discount	2,000,000
Maximum credit line	15,000,000
FNBCT Loan Facility | Minimum
Notes payable to banks
Interest rate (as a percent)	4.00%
FNBCT Loan Facility | Minimum | Prime rate
Notes payable to banks
Variable rate basis	WSJ prime rate

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Variable Interest Entities

12 Months Ended

Dec. 31, 2012

Variable Interest Entities

Variable Interest Entities

19. Variable Interest Entities

        In the normal course of business, the Company enters into various types of on- and off-balance sheet transactions with entities that involve variable interests. Variable interests are generally defined as contractual, ownership or other economic interests in an entity that change with fluctuations in the entity's net asset value. If certain characteristics are present in these transactions, the entity is subject to a variable interests consolidation analysis, and consolidation is based on variable interests, and not solely on ownership of the entity's outstanding voting stock. In making the determination as to whether an entity is considered to be a variable interest entity ("VIE"), we first perform a qualitative analysis, which requires certain subjective decisions regarding our assessments, including, but not limited to, the design of the entity, the variability that the entity was designed to create and pass along to its interest holders, the rights of the parties, and the purpose of the arrangement. If we cannot conclude after a qualitative analysis whether an entity is a VIE, we perform a quantitative analysis.

        In general, a VIE is an entity that has one or more of the following characteristics (1) the entity has total equity at risk that is not sufficient to finance its principal activities without additional subordinated financial support from other entities; (2) the group of equity owners does not have the ability to make significant decisions about the entity's activities; (3) the group of equity owners does not have the obligation to absorb losses or the right to receive residual returns generated by its operations, or both; or (4) the voting rights of some investors are not proportional to their obligations to absorb the losses or the right to receive residual returns of the entity, or both, and substantially all of the entity's activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. If any of these characteristics is present, the entity is subject to a variable interests consolidation analysis, and consolidation is based on variable interests, and not solely on ownership of the entity's outstanding voting stock.

        If an entity is determined to be a VIE, we determine if our variable interest causes us to be considered the primary beneficiary. We are the primary beneficiary and are required to consolidate the entity if we have the power to direct the activities of the VIE that most-significantly impact the entity's economic performance and we have the obligation to absorb losses or the right to receive returns that could be significant to the entity. The assessment of the party that has the power to direct the activities of the VIE may require significant management judgment when more than one party has power, or more than one party is involved in the design of the VIE but no party has the power to direct the ongoing activities that could be significant. We are required to continually assess whether we are the primary beneficiary and, therefore, may consolidate a VIE through the duration of our involvement. Examples of certain events that may change whether or not we consolidate the VIE include a change in the design of the entity or a change in our ownership. Generally, if we are the primary beneficiary of a VIE, then we initially record the assets, liabilities and noncontrolling interests of the VIE in our consolidated financial statements at fair value. If we cease to be deemed the primary beneficiary of a consolidated VIE, then we deconsolidate the VIE.

        The following provides a summary of different types of VIEs with which the Company has entered into significant transactions:

Acquisition Partnership VIEs—The Company is involved with Acquisition Partnerships that were formed with one or more investors to invest in Portfolio Assets. These Acquisition Partnerships are typically financed through debt and/or equity provided by the investors (including FirstCity). Certain of these Acquisition Partnerships are VIEs primarily because they do not have sufficient equity to finance their activities without additional subordinated financial support, or the investors do not have the ability to make certain significant decisions about the Acquisition Partnership's activities. The voting interests for all but four of the Acquisition Partnership VIEs are either wholly-owned or majority-owned by non-affiliated investors, and the Company determined that it was not the primary beneficiary of these minority-owned Acquisition Partnership VIEs. However, the Company is deemed to be the primary beneficiary for four Acquisition Partnership VIEs in which the Company and respective non-affiliated investors each hold equal ownership and voting interests (these four Acquisition Partnership VIEs are consolidated by our Special-Purpose Investment Entity VIEs described below). The investors and third-party creditors, including FirstCity, generally have recourse only to the extent of the assets held by the Acquisition Partnership VIEs. Certain third-party creditors have recourse to both FirstCity and the non-affiliated investors where we jointly provide a guaranty to the Acquisition Partnership VIE. The Company does not generally provide financial support to any Acquisition Partnership VIE beyond that which is contractually required, but may provide additional liquidity alongside the non-affiliated investors to fund additional investments.

Operating Entity VIEs—The Company has variable interests with various commercial enterprise entities (attributable primarily to certain equity and debt investments made by our Special Situations Platform business). FirstCity provided financing in the form of debt and/or equity to help finance the activities of the Operating Entity VIEs. These Operating Entities are VIEs primarily because they do not have sufficient equity to finance their activities without additional subordinated financial support. The voting interests for all of the Operating Entity VIEs are either wholly-owned or majority-owned by non-affiliated investors, and the Company determined that it was not the primary beneficiary of these minority-owned Operating Entity VIEs. The investors and creditors, including FirstCity, generally have recourse only to the extent of the assets held by the Operating Entity VIEs. The Company does not generally provide financial support to any Operating Entity VIE beyond that which is contractually required.

Special-Purpose Investment Entity VIEs—The Company has significant variable interests with special-purpose investment entities that were created to invest in Portfolio Assets, debt and equity investments, and various other types of investments. Certain of these special-purpose investment entities are VIEs because they do not have sufficient equity to finance their activities without additional subordinated financial support. The Company owns all of the voting and equity interests in these Special-Purpose Investment Entity VIEs, and the Company was determined to be the primary beneficiary of these entities. Third-party creditors have recourse to FirstCity up to $38.1 million under guaranty provisions related to certain debt obligations of these Special-Purpose Investment Entity VIEs and certain of their unconsolidated subsidiaries, which are collateralized by their assets, only to the extent that such pledged assets of the respective entities do not generate sufficient cash to service and repay their debt obligations (see Note 21). The Company does not generally provide financial support to the Special-Purpose Investment Entity VIEs beyond that which is contractually required.

        The following table displays the carrying amount and classification of assets and liabilities of the Company's consolidated Special-Purpose Investment Entity VIEs (which include the accounts of the four consolidated Acquisition Partnership VIEs described above) that are included in its consolidated balance sheet as of December 31, 2012. In general, third-party creditors have recourse only to the assets of the Special-Purpose Investment Entity VIEs and do not have recourse to FirstCity, except where we provided a guaranty to the entity. We record third-party ownership in these consolidated VIEs in "Noncontrolling interests" in our consolidated balance sheet.

(Dollars in thousands)	Special-Purpose Investment VIEs
Cash	$	24,066
Portfolio Assets, net		42,056
Loans receivable		33,111
Equity investments		21,640
Other assets		32,954
Total assets of consolidated VIEs(1)	$	153,827
Notes payable(2)	$	71,718
Other liabilites(2)		18,210
Total liabilities of consolidated VIEs	$	89,928

(1)

These assets can only be used to settle the liabilities of these consolidated VIEs.

(2)

Includes $26.5 million of notes payable and $18.2 million of other liabilities for which creditors do not have recourse to FirstCity.

        The following table summarizes the carrying amounts of the assets and liabilities and the maximum loss exposure as of December 31, 2012 related to the Company's variable interests in unconsolidated VIEs.

	Assets on FirstCity's Consolidated Balance Sheet
						FirstCity's Maximum Exposure to Loss(1)
Type of VIE	Loans Receivable		Equity Investment
	(Dollars in thousands)
Acquisition Partnership VIEs	$	—	$	(1,076	)	$	980
Operating Entity VIEs		7,419		574			7,993
Total	$	7,419	$	(502	)	$	8,973

(1)

Includes maximum exposure to loss attributable to FirstCity's debt guarantees provided for certain Acquisition Partnership VIEs.

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Income Taxes (Details) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2012 item	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012 item	Dec. 31, 2011
Provision for income taxes from continuing operations
U.S. state current income tax expense									$ 593,000	$ 158,000
Foreign current income tax expense									317,000	3,164,000
Foreign deferred income tax expense									64,000	380,000
Total	195,000	(59,000)	5,000	833,000	1,655,000	421,000	1,024,000	602,000	974,000	3,702,000
Reconciliation of provision for income taxes to the expected income tax expense at the U.S. federal statutory income tax rate
U.S. federal income tax rate (as a percent)									35.00%
Computed expected tax based on federal statutory rate									5,112,000	9,936,000
Expired capital loss carryforward										17,701,000
Change in valuation allowance									(4,611,000)	(22,316,000)
Inclusion of income attributable to noncontrolling interest in an 80%-owned subsidiary									94,000	220,000
Change in tax credit carryforwards									(501,000)	(4,955,000)
Other									(94,000)	(586,000)
U.S. state and foreign income tax									974,000	3,702,000
Total	195,000	(59,000)	5,000	833,000	1,655,000	421,000	1,024,000	602,000	974,000	3,702,000
Ownership percentage of subsidiaries for whom the company has noncontrolling interest	80.00%								80.00%
Deferred tax assets (liabilities):
Basis difference in Acquisition Partnership investments	17,509,000				19,533,000				17,509,000	19,533,000
Intangibles, principally due to differences in amortization	264,000				283,000				264,000	283,000
Basis difference in property and equipment	143,000				128,000				143,000	128,000
Foreign non-repatriated earnings	1,215,000				(4,151,000)				1,215,000	(4,151,000)
Federal net operating loss carryforwards	2,725,000				11,749,000				2,725,000	11,749,000
Tax credit carryforwards	5,456,000				4,955,000				5,456,000	4,955,000
Other	640,000				67,000				640,000	67,000
Total deferred tax assets, net	27,952,000				32,564,000				27,952,000	32,564,000
Valuation allowance	(27,952,000)				(32,564,000)				(27,952,000)	(32,564,000)
Net deferred tax assets	0								0
Income Taxes
Net operating loss carryforwards for federal income tax purposes	7,800,000								7,800,000
Number of states in which the entity files tax returns	39								39
Number of consolidated subsidiaries currently subject to income tax examination	1								1
Number of states in which consolidated subsidiaries currently examined	1								1
Foreign
Income Taxes
Deferred foreign tax liabilities	$ 0				$ 100,000				$ 0	$ 100,000

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Notes Payable to Banks and Other Debt Obligations (Tables)

12 Months Ended

Dec. 31, 2012

Notes Payable to Banks and Other Debt Obligations

Schedule of notes payable and other debt obligations

The Company's notes payable and other debt obligations at December 31, 2012 and 2011 consisted of the following (dollars in thousands):

Description	Interest Rate	Other Terms and Conditions	Outstanding Borrowings as of December 31, 2012		Outstanding Borrowings as of December 31, 2011
Bank of Scotland reducing note facility, net of unamortized discount ("BoS Facility A")[1][2]	0.25% fixed	Secured by substantially all assets and subsidiaries of FC Commercial (excluding FH Partners) and guaranteed by FirstCity, matures December 2014	$	29,991	$	86,579
BOS (USA) $25.0 million term note ("BoS Facility B")[1]	None	Secured by all assets of FLBG2, matures December 2014		—		—
Bank of America term note[1]	LIBOR + 2.75%	Secured by all assets of FH Partners, matures December 2014		16,194		49,228
WFCF $25.0 million revolving loan facility[3]	Alternate interest rates based on Wells Fargo base rate plus 4.25%, LIBOR plus 4.25%, or 7.5%	Secured by assets of ABL and guaranteed by FirstCity up to $5.0 million, matures January 2015		15,214		21,405
FNBCT $15.0 million revolving loan facility[4]	Greater of WSJ prime rate or 4.0%	Secured by assets of FC Investment and its subsidiaries, and guaranteed by FirstCity, matures August 2013		2,000		—
Non-recourse bank notes payable of various U.S. Portfolio Entities	Interest rates ranging from 3.0% to 5.0% (weighted average interest rate of 4.3%)	Secured by assets (primarily Portfolio Assets) of the underlying entities, various maturities through August 2014		4,712		18,113
Non-recourse bank notes payable of consolidated railroad subsidiaries:	Prime Rate + margin (0.50-1.50%) or LIBOR + margin (2.25-3.25%)	Secured by assets of the subsidiaries
Term loan		Matures March 2016		3,094		3,531
$1.0 million revolving facility		Matures March 2014		—		—
$5.0 million acquisition facility		Advances mature March 2016; unused commitment matures March 2013		3,950		1,625
Non-recourse bank note payable of real estate investment entity[5]	6.07% fixed	Secured by real estate property owned by the entity		—		7,361
Other notes and debt obligations				1,790		2,094
Total notes payable and other debt obligations			$	76,945	$	189,936

[1]

In December 2011, FirstCity entered into a debt refinancing arrangement with Bank of Scotland that resulted in the amendment and restatement of the Reducing Note Facility ("BoS Facility A") and a new loan agreement with BOS (USA) ("BoS Facility B"). In connection with this debt refinancing arrangement, FirstCity also obtained a new credit facility with Bank of America. This debt refinancing transaction was accounted for as a debt extinguishment and, as such, BoS Facility A and BoS Facility B were initially recorded at their estimated fair values of $91.6 million and $-0-, respectively, in December 2011 (see Note 2).

[2]

The unamortized discount on this loan facility at December 31, 2012 and December 31, 2011 was $1.1 million and $3.1 million, respectively. Also, the carrying value of this loan facility included zero and $13.2 million denominated in Euros at December 31, 2012 and December 31, 2011, respectively (see Note 12).

[3]

This revolving loan facility was amended and restated on January 31, 2012 (Refer to Note 2 for additional information).

[4]

FC Investment, a FirstCity wholly-owned subsidiary, obtained this revolving loan facility in May 2012 (Refer to Note 2 for additional information).

[5]

FirstCity de-recognized this note payable from its consolidated balance sheet in March 2012 upon the acquisition of the underlying real estate property by the creditor in a foreclosure transaction (see Note 5 for additional information). This non-cash activity did not have a material impact on the Company's results of operations for 2012.

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Foreign Currency Exchange Risk Management

12 Months Ended

Dec. 31, 2012

Foreign Currency Exchange Risk Management

Foreign Currency Exchange Risk Management

12. Foreign Currency Exchange Risk Management

        Prior to December 2012, we used Euro-denominated debt as a non-derivative financial instrument to partially offset the Company's business exposure to foreign currency exchange risk attributable to our net investments in Europe. Our focus was to manage the foreign currency exchange risks associated with our European subsidiaries. To help protect the Company's net investment in certain of its European subsidiary operations from adverse changes in foreign currency exchange rates, management denominated a portion of the Euro-denominated debt in the same functional currency used by the European subsidiaries. In December 2012, the Company paid off its remaining balance in the Euro-denominated debt. At December 31, 2011, the Company carried $13.2 million in Euro-denominated debt and designated the debt as a non-derivative hedge of its net investment in certain European subsidiaries. The Company designated the hedging relationship such that changes in the net investments being hedged were expected to be naturally offset by corresponding changes in the value of the Euro-denominated debt.

        The effective portion of the net foreign investment hedge was reported in accumulated other comprehensive income (loss) ("AOCI") as part of the cumulative translation adjustment. Any ineffective portion of the net foreign investment hedge was recognized in earnings as other income (expense) during the period of change. Effectiveness of the hedging relationship was measured and designated at the beginning of each month by comparing the outstanding balance of the Euro-denominated debt to the carrying value of the designated net equity investments.

        At December 31, 2012 and 2011, the carrying value and line item caption of the Company's non-derivative instrument was reported on the consolidated balance sheet as follows (in thousands):

		Carrying Value at:
Non-Derivative Instrument in Net Investment Hedging Relationship	Balance Sheet Location	December 31, 2012		December 31, 2011
Euro-denominated debt	Notes payable to banks	$	—	$	13,240

        The effect of the non-derivative instrument qualifying and designated as a hedging instrument in net foreign investment hedges on the consolidated financial statements for the years ended December 31, 2012 and 2011 was as follows (in thousands):

	Amount of Gain (Loss) Recognized in AOCI (Effective Portion)						Amount of Gain (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Year Ended December 31,						Year Ended December 31,
						Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Non-Derivative Instrument in Net Investment Hedging Relationship
	2012			2011			2012		2011
Euro-denominated debt	$	(256	)	$	251	Other income (expense)	$	—	$	—