FirstCity Financial Reports Third Quarter 2005 Earnings

FirstCity Financial highlights of the Quarter:

• FirstCity reports 3rd quarter 2005 earnings of $1,011,419 or $.08 per diluted share

• FirstCity invested $18.1 million in portfolio assets for the quarter.

• FirstCity reports continued earning asset growth of $11 million for the quarter.

Earnings from continuing operations of $692,000 for the quarter were down from $2.8 million in the second quarter primarily due to lower revenues from equity investments, which were impacted by lower collection levels of $47 million down from $63.8 million in the second quarter, as well as provisions of $322,000 recorded on wholly owned portfolios.

James T. Sartain, President and CEO, said, “We remain very positive on the outlook for FirstCity. It is typical for the timing of the cash collections to vary quarter to quarter. Lower collections during the third quarter are due to timing and do not indicate a decline in value of the portfolio investments. Acquisitions remain strong and we continue to grow the earning asset base of the Company. The market for potential equity investments remains robust and we are currently evaluating 22 different transactions representing over $2 billion in face value of assets.”

Discontinued operations impacted the quarter by $319,000. The positive impact of a $600,000 tax benefit, which was the result of the reversal of a state income tax accrual previously recorded upon the Company’s sale of its interest in Drive Financial Services LLP in 2004, was offset by a downward revaluation of the residual interest held in Discontinued Operations of $252,000.

Portfolio Asset Acquisition and Resolution
FirstCity purchased $32.9 million in portfolio assets during the third quarter of 2005. Purchases consisted of eight portfolios — seven in the United States and one in South America. Invested equity of $18.1 million for the quarter advanced total year investments to $36.4 million.

Operating contribution from the Portfolio Asset Acquisition business for the third quarter was $2.0 million. The earnings are comprised of $5.6 million in revenues, $1.8 million in equity in earnings of investments and $5.4 million of expenses, including a provision for loan losses of $322,000. The business generated 64% of the revenues (including equity in earnings of investments) from domestic investments, 28% from investments in Latin America and 8% from investments in Europe. The major components of revenue for the quarter include equity earnings in Acquisition Partnerships and servicing entities of $1.8 million, servicing fees of $2.9 million, gain on resolution of Portfolio Assets of $1.3 million and interest income of $1.2 million.

Operating contribution from the Portfolio Asset Acquisition business for the third quarter includes net foreign currency gains of $234,000, which is comprised of $37,000 in Mexican peso gains and $197,000 of Euro gains. Quarterly results were less impacted by foreign currency fluctuations, as the Company borrowed in Euros to hedge the risk associated with foreign currency exposure.