FirstCity Financial Reports Q4 2004 Earnings of $52.6 Million on Gain From Sale of Drive Financial

WACO, TX – FirstCity Financial Corporation (NasdaqNM: FCFC) today announced net earnings to common stockholders for the quarter ended December 31, 2004 of $52.6 million or $4.41 per share on a diluted basis. For the full year 2004 net earnings to common stockholders were $63.6 million or $5.37 per share on a diluted basis. The earnings were largely impacted by the recognition of a $53.3 million gain ($54.4 million gain, net of $1.1 million in taxes) on the previously announced sale of the Company’s 31% interest in Drive Financial. Earnings from continuing operations for 2004 on a pro forma basis were $.84 per diluted share for the year.

Sale of Drive Interest
FirstCity completed the previously announced sale of its 31% interest in Drive and recognized a net gain of $53.3 million ($54.4 million gain, net of $1.1 million in taxes) in the fourth quarter of 2004. The $86.8 million proceeds from the sale were primarily used to retire debt.

Liquidity
As a result of the Drive sale, FirstCity’s senior lender increased its revolving credit facility to the Company to a maximum borrowing limit of $96 million, as opposed to the prior limit of $50 million. The increased borrowing capacity will enable the Company to increase investments in portfolio assets.

Portfolio Asset Acquisition and Resolution
FirstCity purchased $45.9 million in portfolio assets during the fourth quarter of 2004. Purchases consisted of eight portfolios — seven in the United States and one in South America. Equity invested during the quarter by the Company was $11.1 million, consisting of $8.8 million in the U.S. and $2.3 million in South America.

Operating contribution from the Portfolio Asset Acquisition business for the fourth quarter was $4.3 million. The earnings are comprised of $10.2 million in revenues and $5.9 million of expenses. The business generated 58% of the revenues from domestic investments, 25% from investments in Latin America and 17% from investments in Europe. The major components of revenue for the quarter include equity earnings in Acquisition Partnerships and servicing entities of $4.4 million, servicing fees of $3.7 million, and interest income of $1.1 million.

Operating contribution from the Portfolio Asset Acquisition business for the fourth quarter includes net foreign currency gains of $110,237, which is comprised of $288,388 in Mexican peso gains and $178,151 of Euro losses. Quarterly results were less impacted by foreign currency fluctuations as the Company borrowed in Euros to mitigate the risk associated with foreign currency exposure.

Discontinued Mortgage Operations
The Company elected in the fourth quarter to initiate efforts to liquidate the residual interests from discontinued mortgage operations. As a result, during the quarter FirstCity adjusted the carrying value of the residual interests to fair value, resulting in impairment of $2.6 million for the quarter and reducing the carrying value to $1.8 million.