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FirstCity Completes Sale of 49% of Its Auto-Lending Unit

28 August 2000

FirstCity Completes Sale of 49% of Its Auto-Lending Unit; Completes Corporate Debt Restructure

    WACO, Texas, Aug. 28 FirstCity Financial Corporation announced today that
it has successfully completed the previously announced sale of 49% of its
auto-lending unit, as well as a corporate debt restructure.  The multi phase
transaction that closed on Friday, August 25, 2000 provides FirstCity
significant cash flow and liquidity to allow the company to return to its
emphasis in the Portfolio Asset Acquisition and Resolution business.
    The sale of the 49% equity interest to IFA, a wholly owned subsidiary of
Bank Of Scotland for $15 million, together with the repayment of a $60 million
loan owed to FirstCity by its auto-lending unit, generated a total of
$75 million in cash flow.  The sale also resulted in a net profit from the
consumer division of approximately $6 million, which will be reflected in the
Company's third quarter results.  Additionally, this transaction brings
FirstCity into full compliance under each of its lending covenants and cures
any and all defaults that may have existed prior to the restructure.

    Sale of Interest in Auto-Lending Unit
    The new entity formed to facilitate the sale is Drive Financial Services
LP ("Drive").  The entity, which assumed the entire operations of the former
FirstCity Funding platform created and developed by FirstCity and the Auto
Finance management group in September of 1997, will continue to be
headquartered in Dallas, Texas.  Drive will be owned 49% by IFA, 31% by
FirstCity, and 20% by the management group that developed the platform.  Bank
of Scotland has provided additional warehouse capacity to Drive, and this
together with improved capital market execution will provide the needed
liquidity to allow this proven business model to mature with planned,
controlled growth.

    Corporate Debt Restructure
    As a result of this sale FirstCity outstanding corporate debt, was reduced
from $121 million to $46 million.  The remaining debt was restructured into a
new facility provided by Bank of Scotland and IFA that provides for a maximum
loan amount of $53 million.  Such debt is comprised of a $10 million revolving
Line of Credit, a $31 million Term Loan A and a $12 million Term Loan B, with
reduced interest rates and fees and a maturity date of December 31, 2003.
    IFA, which provided the $25 million subordinated debt facility to
FirstCity Financial at year-end, will retain its option to acquire warrants
for 1,975,000 shares of the Company's common stock.  The strike price of $2.31
will remain the same, but the initial date upon which the option can be
exercised has been extended to August 31, 2001.  In the event that prior to
August 31, 2000 the Company either (a) refinances the $12 million Term Loan B
with subordinated debt, or (b) pays off the balance of Term Loan B from
proceeds of an equity offering, then the option to acquire 1,975,000 warrants
will terminate.
    Dividends on outstanding Preferred Stock of FirstCity will be restricted
until Term Loan B is paid in full.  As previously announced, management of
FirstCity intends to seek shareholder approval prior to year-end 2000 for the
replacement of Term Loan B with a private placement of subordinated debt
provided by certain insiders and other interested investors.  If completed,
the elimination of Term Loan B would clear the way for the Company to begin
paying preferred dividends.
    James T. Sartain, President and Chief Operating Officer of FirstCity
Financial said, "This transaction is truly a win win situation for FirstCity
Financial and Bank of Scotland.  The combination of a proven business model,
generating quality assets, with the financial strength and funding base
provided by Bank of Scotland creates an entity poised to grow and prosper.
The transaction satisfies FirstCity's short term need to reduce its debt load
while allowing the Company to benefit in the long term by the retention of a
31% interest in a growing, proven business platform."
    Tom Brower, President and CEO of Drive added, "The platform we developed
with FirstCity in 1997 has excellent growth potential.  The renewed capital
strength of Drive will allow us to successfully implement our business plan --
a plan which utilizes our strong competitive position to produce controlled
growth and increased profitability.  The cooperative effort of FirstCity, Bank
of Scotland and this management team has resulted in the creation of an entity
positioned to do very well."