Filed by FirstCity Financial Corporation
                           Pursuant to Rule 425 under the Securities Act of 1933
                                      and deemed filed pursuant to Rule 13e-4(c)
                                      under the Securities Exchange Act of 1934.

                                Subject Company: FirstCity Financial Corporation
                                                   Commission File No. 033-19694


On September 30, 2002, FirstCity Financial Corporation issued the following
press release:

contact: Suzy W. Taylor
         (866) 652-1810


     FIRSTCITY FINANCIAL ANNOUNCES MODIFICATION TO TERMS OF RECAPITALIZATION


         WACO, TEXAS, SEPTEMBER 30, 2002...FirstCity Financial Corporation
(Nasdaq: FCFC) today announced that it has amended its registration statement
filed with the Securities and Exchange Commission to reflect modifications in
the structure of its proposed recapitalization.

FirstCity has not modified the terms of the previously announced exchange offer
to holders of FirstCity's New Preferred Stock. As before, upon commencement,
FirstCity will offer to exchange each share of its New Preferred Stock for, at
the holder's election, either:

     (1) $10.00 cash and 2 shares of FirstCity's common stock, or
     (2) $ 8.00 cash and 3 shares of FirstCity's common stock.

The most significant modification to the proposed recapitalization relates to
the source of funds for the cash portion of the consideration to be paid in the
exchange offer. Formerly, the recapitalization contemplated that FirstCity would
sell a 20% interest in Drive Financial Services LP to BoS (USA) Inc., a
wholly-owned subsidiary of Bank of Scotland, for $16 million. The
recapitalization now contemplates that BoS (USA) would provide a non-recourse
loan in the amount of $16 million to FirstCity to be secured by a 20% interest
in Drive and the stock in, and other assets of, FirstCity Consumer Lending
Corporation. FirstCity will not grant a security interest in (and the lenders
will not have any recourse to) any of FirstCity's assets to secure the $16
million non-recourse loan other than the stock and assets of FirstCity Consumer
Lending Corporation. The recapitalization was restructured because of the
difficulty in obtaining certain approvals and consents from certain persons
(other than FirstCity, BoS (USA) Inc. and their affiliates) to the sale of the
20% interest in Drive, which was a condition to the sale of the Drive interest.

In connection with the $16 million non-recourse loan, FirstCity will be
obligated to pay an arrangement fee to BoS (USA) equal to 20% of all proceeds
and other amounts paid to FirstCity from any sale or disposition of, and of all
dividends or other distributions paid to FirstCity by Drive or its general
partner on, its 20% interest in Drive, in each case in excess of $16 million in
the aggregate.

Also in connection with the recapitalization, Bank of Scotland has agreed to
increase the maximum available commitment under the refinancing of existing loan
facilities provided to FirstCity from a maximum of up to $47 million to a
maximum of up to $49 million. In the event FirstCity increases the amount
refinanced, the new term acquisition facility to be provided to FirstCity will
decrease by a corresponding amount. The actual amount of the increase in the
refinancing of the existing debt and

corresponding decrease in the new loan facility will be determined by the cash
needs of FirstCity on the date of closing of the recapitalization.

With the retention of the 20% ownership, FirstCity will continue to own 31% of
Drive.

The proposed recapitalization, as restructured, consists of the following:

     o   the exchange offer,

     o   a non-recourse loan in the amount of $16 million by BoS(USA) to
         FirstCity, secured by (among other things) a 20% interest in Drive
         which will provide the cash portion of the consideration for the
         exchange offer,

     o   the use of the remainder of the cash proceeds from the $16 million loan
         by BoS(USA) to reduce FirstCity's debt owed to Bank of Scotland and
         BoS(USA),

     o   FirstCity's payment of the arrangement fee described above,

     o   FirstCity's purchase of the 20% interest in FirstCity's indirect
         subsidiary, FirstCity Holdings Corporation, held by Terry R. DeWitt, G.
         Stephen Fillip and James C. Holmes,

     o   the refinancing of the remainder of FirstCity's debt facilities with
         Bank of Scotland and BoS(USA), with a total commitment by Bank of
         Scotland and BoS(USA) of up to a maximum of $47 million to $49 million,
         consisting of (a) a cash flow note of up to a maximum of up to $35
         million to $37 million and (b) a $12 million term note,

     o   Bank of Scotland's providing new financing to FirstCity, with a total
         commitment by Bank of Scotland of up to a maximum of $58 million to $60
         million. The new financing will consist of (a) a $5 million revolving
         credit loan and (b) an acquisition term loan in a maximum amount of up
         to $53 million to $55 million. The total commitment by Bank of Scotland
         and BoS(USA) for the refinancing combined with the new financing will
         not exceed $77 million,

     o   the release of FirstCity from its guaranty of $4 million of Drive's
         indebtedness to BoS(USA), and

     o   the cancellation of BoS(USA) existing option to acquire a warrant to
         purchase 1,975,000 shares of FirstCity's non-voting common stock.

The successful completion of the exchange offer is a condition to all of the
items listed above.

The exchange offer is subject to several conditions. The most significant
conditions include:

     (1) the closing of the $16 million loan from BoS(USA) described above,

     (2) the tender of at least 80% of the outstanding shares of New Preferred
         Stock,

     (3) the effectiveness of the registration statement relating to the shares
         of common stock of FirstCity to be issued in connection with the
         exchange offer, and

     (4) the lack of any change or development involving a prospective change in
         or affecting FirstCity's

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         business or financial affairs that, in the reasonable judgment of
         FirstCity's board of directors, would or might prohibit, restrict or
         delay consummation of the exchange offer or materially impair the
         contemplated benefits to FirstCity of the exchange offer.

Because there are multiple conditions to the closing of the transactions
contemplated by the recapitalization that are beyond the control of FirstCity,
FirstCity cannot provide any assurances that these conditions will be satisfied
and that the exchange offer and the recapitalization will close.

The board of directors of FirstCity believes that, if successfully completed,
the recapitalization will:

     o   provide additional financing to FirstCity, enhance FirstCity's
         liquidity and permit it to pursue the acquisition of additional
         Portfolio Assets,

     o   enhance FirstCity's financial position through the refinancing of
         FirstCity's debt facilities with Bank of Scotland and BoS(USA),

     o   increase the equity of FirstCity through the elimination (or
         substantial reduction) of the New Preferred Stock, including accrued
         dividends, from FirstCity's financial statements and the release of
         FirstCity's guaranty of Drive's indebtedness to BoS(USA),

     o   substantially eliminate FirstCity's obligation to redeem the New
         Preferred Stock at maturity and permit existing holders of the New
         Preferred Stock the opportunity to participate in the future growth of
         FirstCity through ownership of FirstCity's common stock,

     o   align the FCHC Group's interests more closely with those of the holders
         of FirstCity's common stock and permit FirstCity to retain all of the
         returns associated with FirstCity Holdings, and

     o   preserve the net operating loss carryforwards of FirstCity.

The registration statement relating to the shares of common stock of FirstCity
to be issued in connection with the exchange offer has not yet been declared
effective by the Securities and Exchange Commission. Once the registration
statement is declared effective the exchange offer will commence and appropriate
documents will be mailed to holders of the New Preferred Stock.

FirstCity has filed a tender offer statement and other related documents with
the Securities and Exchange Commission. Upon the effectiveness of the
registration statement and commencement of the exchange offer, copies of the
exchange offer materials may be obtained from Suzy Taylor, toll free, at (866)
652-1810. HOLDERS OF NEW PREFERRED STOCK ARE STRONGLY ADVISED TO READ THESE
DOCUMENTS WHEN THEY ARE AVAILABLE BECAUSE THEY CONTAIN IMPORTANT INFORMATION.
Stockholders may obtain a free copy of these documents, when they are available,
from FirstCity or at the SEC's website, www.sec.gov.

These securities may not be exchanged or sold nor may offers to exchange or buy
be accepted prior to the time the registration statement becomes effective. This
news release shall not constitute an offer to exchange or sell, or the
solicitation of an offer to exchange or buy, nor shall there be any exchange or
sale of these securities in any State in which such offer, exchange,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.

Certain statements in this press release, which are not historical in fact,
including, but not limited to, statements relating to the proposed
recapitalization and future performance, may be deemed to be forward-

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looking statements under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, any statement that may
project, indicate or imply future results, performance or achievements, and may
contain the words "expect", "intend", "plan", "estimate", "believe", "will be",
"will continue", "will likely result", and similar expressions. Such statements
inherently are subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those projected. There are many
important factors that could cause FirstCity's actual results to differ
materially from those indicated in the forward-looking statements. These factors
include, but are not limited to, the consummation of the exchange offer and the
other transactions of the recapitalization; the effects of the exchange offer
and the recapitalization in general; the performance of FirstCity's subsidiaries
and affiliates; availability of portfolio assets; assumptions underlying
portfolio asset performance, the degree to which the FirstCity is leveraged;
FirstCity's continued need for financing; availability of FirstCity's credit
facilities; the impact of certain covenants in loan agreements of FirstCity and
its subsidiaries, general economic conditions; interest rate risk; changes
(legislative and otherwise) in the asset securitization industry; fluctuation in
residential and commercial real estate values; capital markets conditions,
including the markets for asset-backed securities; risks of declining value of
loans, collateral or assets; risks associated with foreign operations; currency
exchange rate fluctuations and foreign social and economic conditions; the
ability of FirstCity to utilize net operating loss carryforwards; uncertainties
of any litigation arising from discontinued operations; factors more fully
discussed and identified under Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations," risk factors and other risks
identified in FirstCity's Annual Report on Form 10-K, filed with the SEC on
April 1, 2002, as well as in FirstCity's other filings with the SEC, including
the registration statement described above. Many of these factors are beyond
FirstCity's control. In addition, it should be noted that past financial and
operational performance of FirstCity is not necessarily indicative of future
financial and operational performance. Given these risks and uncertainties,
investors should not place undue reliance on forward-looking statements.

The forward-looking statements in this release speak only as of the date of this
release. FirstCity expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statement to reflect
any change in FirstCity's expectations with regard thereto or any change in
events, conditions or circumstances on which any forward-looking statement is
based.

FirstCity is a diversified financial services company with operations dedicated
to portfolio asset acquisition and resolution and consumer lending with offices
in the U.S. and with affiliate organizations in France and Mexico. Its common
(FCFC) and preferred (FCFCO) stocks are listed on the Nasdaq National Market
System.




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