FirstCity Financial (NASDAQ: FCFC) Reports Second Quarter 2006 Earnings and Restructure of Mexican Investments

Market Wire, August, 2006

FirstCity Financial (NASDAQ: FCFC)

Highlights:

--  FirstCity reports 2nd quarter 2006 earnings of $1,263,000 or $.11 per
    diluted share

--  FirstCity invested $19 million in portfolio assets for the quarter.

--  FirstCity closes restructuring transaction of Mexican investment
    platform, will receive approximately $2 million in consulting fees during
    third quarter.
    

Components of the quarterly results are detailed below (dollars in thousands except per share data):

                                       Three Months Ended  Six Months Ended
                                             June 30,          June 30,
                                          2006     2005     2006     2005
                                        -------  -------  -------  -------
                                          (unaudited)       (unaudited)
Portfolio Asset Acquisition and
 Resolution                             $ 2,549  $ 4,128  $ 5,877  $ 8,243
Corporate overhead                       (1,286)  (1,308)  (2,517)  (2,874)
                                        -------  -------  -------  -------
Earnings from continuing operations       1,263    2,820    3,360    5,369
Loss from discontinued operations net
 of taxes                                    --      (97)     (75)     (97)
                                        -------  -------  -------  -------
Net earnings to common stockholders     $ 1,263  $ 2,723  $ 3,285  $ 5,272
                                        =======  =======  =======  =======
Diluted earnings per common share       $  0.11  $  0.23  $  0.27  $  0.44
                                        =======  =======  =======  =======

James T. Sartain, President and CEO, said, "We were pleased with the strong acquisitions and equity investments in the second quarter. Our pipeline is strong and we are currently evaluating 35 different transactions representing over $4 billion in face value of assets. In addition we are very excited about the restructure of our Mexican investment platform and believe that this new structure with AIG, a highly respected worldwide investor, may further enhance FirstCity's investment opportunities in Mexico as well as other parts of Latin America."

Portfolio Asset Acquisition and Resolution

FirstCity purchased $25.2 million in portfolio assets during the second quarter of 2006 and invested equity in these portfolios of $19 million. These purchases consisted of six portfolios -- five in the United States and one in Europe.

Portfolio purchases are detailed below (in millions):

                                                  Latin            Invested
                               Domestic   Europe  America   Total   Equity
                                =======  =======  =======  ======= =======
                     2006
1st  Quarter                    $  42.4       --       --  $  42.4 $  23.3
2nd Quarter                     $  24.2  $   1.0       --  $  25.2 $  19.0
                                -------  -------  -------  ------- -------
    YTD 2006                    $  66.6  $   1.0       --  $  67.6 $  42.3*
                                =======  =======  =======  ======= =======
                     2005
4th Quarter                     $  32.9  $  37.2  $  12.6  $  82.7 $  35.0
3rd Quarter                        32.3       --      0.6     32.9    18.1
2nd Quarter                        16.1       --       --     16.1    16.1
1st  Quarter                       12.1       --      2.8     14.9     2.2
                                =======  =======  =======  ======= =======
Total Year 2005                 $  93.4  $  37.2  $  16.0  $ 146.6 $  71.4*
                                =======  =======  =======  ======= =======
Total Year 2004                 $  91.2  $   9.8  $  73.1  $ 174.1 $  59.8
                                =======  =======  =======  ======= =======
Total Year 2003                 $  92.6  $  31.2  $   5.4  $ 129.2 $  22.9*
                                =======  =======  =======  ======= =======

* In addition to the portfolio acquisitions above, FirstCity invested $7.7
  million in partnerships during the first six months of 2006, $3.2 million
  during 2005 and $3.4 million during 2003.

Operating contribution from the Portfolio Asset Acquisition business for the second quarter was $2.5 million. The earnings were comprised of $6.7 million in revenues, $1.4 million in equity in earnings of investments and $5.6 million of expenses, including provisions net of recoveries for loan losses of ($58,000). The business generated 75% of the revenues (including equity in earnings of investments) from domestic investments, 6% from investments in Latin America and 19% from investments in Europe. The major components of revenue for the quarter include equity earnings in Acquisition Partnerships and servicing entities of $1.4 million, servicing fees of $2.9 million, gain on resolution of Portfolio Assets of $1.8 million and interest income of $1.6 million.

Operating contribution from the Portfolio Asset Acquisition business for the second quarter includes net foreign currency losses of $1.02 million, which is comprised of $324,400 of Euro gains, $1.33 million in Mexican peso losses. Since quarter end the Mexican peso has rebounded to a level that the Company would recapture all of the loss recorded in the second quarter if marked today. The Company continued to borrow in Euros to hedge the risk associated with foreign currency exposure.