**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION  13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                           |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                   |
|       | **For the quarterly period ended January 31, 2003**                                                                                                                                                                                                                                                    |
|       |                                                                                                                                                                                                                                                                                                   |
|       | **OR**                                                                                                                                                                                                                                                                                                 |
|       |                                                                                                                                                                                                                                                                                                   |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION  13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                          |
|       |                                                                                                                                                                                                                                                                                                   |
|       | **For the transition period from                         to                       ** |
|       |                                                                                                                                                                                                                                                                                                   |
|       | **Commission File Number 0-26686**                                                                                                                                                                                                                                                                     |

** **

**FirstInvestors Financial Services Group, Inc.**

(Exact Name of Registrant as Specified in itsCharter)

** **
| **Texas**                                                       |   | **76-0465087**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or Other Jurisdiction of Incorporation  or Organization) |   | (I.R.S. Employer Identification No.) |
|                                                            |   |                                 |
| **675 Bering  Drive, Suite 710  Houston, Texas**                |   | **77057**                            |
| (Address of Principal Executive Offices)                        |   | (Zip Code)                           |
|                                                            |   |                                 |
| **(713)  977-2600**                                             |
| (Registrant’s Telephone Number, Including Area  Code)      |

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o.

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).Yes o No ý.

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date.

 
| **Class**                      |   | **Shares Outstanding At  February  28, 2003** | ** ** |
|--------------------------------|--------|----------------------------------------------------|------------|
| Common Stock - $.001 Par Value |   | 5,026,269                                          |       |

 

 

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**FIRST INVESTORSFINANCIAL SERVICES GROUP, INC.**

**ANDSUBSIDIARIES**

 

##### **FORM 10-Q**

 

**JANUARY31, 2003**

 

##### **TABLE OF CONTENTS**

 
| **Part I**         | **Financial Information**                                                                                                 |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|
|               |                                                                                                                      |
|               | Item 1.                                                                                                                   | Financial Statements |
|               |                                                                                                                      |
|               | Consolidated Balance  Sheets as of April 30, 2002 and January 31, 2003                                                    |
|               |                                                                                                                      |
|               | Consolidated  Statements of Operations for the Three Months and Nine Months Ended January  31, 2002 and 2003              |
|               |                                                                                                                      |
|               | Consolidated  Statement of Shareholders’ Equity and Comprehensive Income for the Nine  Months Ended January 31, 2003 |
|               |                                                                                                                      |
|               | Consolidated  Statements of Cash Flows for the Nine Months Ended January 31, 2002 and 2003                                |
|               |                                                                                                                      |
|               | Notes  to Unaudited Consolidated Financial Statements                                                                     |
|               |                                                                                                                      |
|               | Item 2.                                                                                                                   | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |
|               |                                                                                                                      |
|               | Item 3.                                                                                                                   | Quantitative and Qualitative Disclosures About  Market Risk |
|               |                                                                                                                      |
| **Part II**        | **Other Information**                                                                                                     |
|               |                                                                                                                      |
|               | Item 6.                                                                                                                   | Exhibits and Reports On Form 8-K |
|               |                                                                                                                      |
| **Signatures**     |
|               |                                                                                                                      |
| **Certifications** |

 

2

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**FIRST INVESTORSFINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES**

 

##### **CONSOLIDATED BALANCE SHEETS**—APRIL 30, 2002 AND JANUARY 31, 2003

 
|                                                                                                                                                                            |   | **April 30,  2002** |        | **January  31,  2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-------------|------------------------|--------|
|                                                                                                                                                                            |   | **(Audited)**       |        | **(Unaudited)**        |   |
| **ASSETS**                                                                                                                                                                      |   |                |        |                   |   |
| Receivables Held  for Investment, net                                                                                                                                           |   | $                   | 215,242,832 |                   | $      | 229,193,670 |   |
| Receivables  Acquired for Investment, net                                                                                                                                       |   | 9,019,906           |        | 3,725,323              |   |
| Cash and Short-Term  Investments, including restricted cash of $23,409,146 and $23,217,830                                                                                      |   | 23,994,873          |        | 24,559,416             |   |
| Accrued Interest  Receivable                                                                                                                                                    |   | 3,309,916           |        | 3,412,961              |   |
| Assets Held for  Sale                                                                                                                                                           |   | 1,314,919           |        | 1,153,184              |   |
| Other Assets:                                                                                                                                                                   |   |                |        |                   |   |
| Funds held under  reinsurance agreement                                                                                                                                         |   | 3,434,907           |        | 3,951,640              |   |
| Deferred  financing costs and other assets, net of accumulated amortization and  depreciation of $4,468,636 and $5,042,115                                                      |   | 4,543,743           |        | 5,006,822              |   |
| Current income  taxes receivable                                                                                                                                                |   | 1,403,472           |        | 936,312                |   |
| Deferred income  taxes receivable                                                                                                                                               |   | 529,646             |        | 495,907                |   |
| Interest rate  derivative positions                                                                                                                                             |   | 3,119,200           |        | 4,710,552              |   |
| Total assets                                                                                                                                                                    |   | $                   | 265,913,414 |                   | $      | 277,145,787 |   |
|                                                                                                                                                                            |   |                |        |                   |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                  |   |                |        |                   |   |
| Debt:                                                                                                                                                                           |   |                |        |                   |   |
| Warehouse credit  facilities                                                                                                                                                    |   | $                   | 31,213,433  |                   | $      | 131,231,981 |   |
| Term Notes                                                                                                                                                                      |   | 183,259,784         |        | 100,303,596            |   |
| Acquisition term  facility                                                                                                                                                      |   | 3,670,765           |        | 60,487                 |   |
| Working capital  facility                                                                                                                                                       |   | 11,798,520          |        | 9,990,074              |   |
| Other borrowings                                                                                                                                                                |   | 525,000             |        | 746,280                |   |
| Other  Liabilities:                                                                                                                                                             |   |                |        |                   |   |
| Accounts payable  and accrued liabilities                                                                                                                                       |   | 2,041,980           |        | 1,331,870              |   |
| Interest rate  derivative positions                                                                                                                                             |   | 5,885,940           |        | 6,214,682              |   |
| Total  liabilities                                                                                                                                                              |   | 238,395,422         |        | 249,878,970            |   |
|                                                                                                                                                                            |   |                |        |                   |   |
| Commitments and  Contingencies                                                                                                                                                  |   |                |        |                   |   |
| Minority  Interest                                                                                                                                                              |   | 931,558             |        | 1,060,482              |   |
| Shareholders’ Equity:                                                                                                                                                      |   |                |        |                   |   |
| Common stock,  $0.001 par value, 10,000,000 shares authorized, 5,566,669 shares issued;  5,396,669 outstanding at April 30, 2002 and 5,026,269 outstanding at January  31, 2003 |   | 5,567               |        | 5,567                  |   |
| Additional  paid-in capital                                                                                                                                                     |   | 18,678,675          |        | 18,678,675             |   |
| Retained  earnings                                                                                                                                                              |   | 10,149,078          |        | 10,401,693             |   |
| Accumulated  other comprehensive loss – unrealized derivative gains (losses), net of taxes                                                                                 |   | (1,731,886          | )           | (1,103,735             | )      |
| Less, treasury  stock, at cost, 170,000 and 540,400 shares                                                                                                                      |   | (515,000            | )           | (1,775,865             | )      |
| Total  shareholders’ equity                                                                                                                                                |   | 26,586,434          |        | 26,206,335             |   |
| Total  liabilities and shareholders’ equity                                                                                                                                |   | $                   | 265,913,414 |                   | $      | 277,145,787 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

3

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**FIRST INVESTORSFINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**For the ThreeMonths and Nine Months Ended January 31, 2002 and 2003**

**(Unaudited)**

 
|                                                                  |   | **For the Three Months  Ended January 31,** |      | **For the Nine Months  Ended January 31,** |   |
|-----------------------------------------------------------------------|--------|---------------------------------------------|-----------|--------------------------------------------|--------|
|                                                                  |   | **2002**                                    |      | **2003**                                   |   | **2002** |   | **2003** |   |
|                                                                  |   |                                        |      |                                       |   |   |   |   |   |
| Interest Income                                                       |   | $                                           | 9,094,845 |                                       | $      | 8,415,164 |   | $ | 29,177,483 |   | $ | 25,071,690 |   |
| Interest Expense                                                      |   | 2,817,377                                   |      | 2,486,052                                  |   | 10,543,402 |   | 8,061,621 |   |
| Net interest income                                                   |   | 6,277,468                                   |      | 5,929,112                                  |   | 18,634,081 |   | 17,010,069 |   |
| Provision for Credit Losses                                           |   | 2,474,025                                   |      | 2,814,888                                  |   | 6,177,825 |   | 7,453,438 |   |
| Loss on Receivables Acquired for Investment                           |   | 1,260,000                                   |      | —                                     |   | 1,260,000 |   | — |   |
| Net Interest Income After Provision for Credit Losses                 |   | 2,543,443                                   |      | 3,114,224                                  |   | 11,196,256 |   | 9,556,631 |   |
| Other Income:                                                         |   |                                        |      |                                       |   |   |   |   |   |
| Late fees and other                                                   |   | 408,715                                     |      | 499,093                                    |   | 1,391,901 |   | 1,181,523 |   |
| Servicing income                                                      |   | —                                      |      | 222,024                                    |   | — |   | 222,024 |   |
| Unrealized loss on interest rate derivative positions                 |   | (9,981                                      | )         | (40,482                                    | )      | (109,917 | ) | (162,920 | ) |
| Total other income                                                    |   | 398,734                                     |      | 680,635                                    |   | 1,281,984 |   | 1,240,627 |   |
| Operating Expenses:                                                   |   |                                        |      |                                       |   |   |   |   |   |
| Salaries and benefits                                                 |   | 2,063,247                                   |      | 2,101,398                                  |   | 6,053,907 |   | 5,740,231 |   |
| Other interest expense                                                |   | 184,552                                     |      | 157,743                                    |   | 617,437 |   | 497,897 |   |
| Other                                                                 |   | 2,000,005                                   |      | 1,443,945                                  |   | 5,205,729 |   | 4,037,320 |   |
| Total operating expenses                                              |   | 4,247,804                                   |      | 3,703,086                                  |   | 11,877,073 |   | 10,275,448 |   |
| Income (Loss) Before Provision for Income Taxes and Minority Interest |   | (1,305,627                                  | )         | 91,773                                     |   | 601,167 |   | 521,810 |   |
| Provision (Benefit) for Income Taxes:                                 |   |                                        |      |                                       |   |   |   |   |   |
| Current                                                               |   | 264,402                                     |      | 36,092                                     |   | 364,087 |   | 7,528 |   |
| Deferred                                                              |   | (655,928                                    | )         | —                                     |   | (221,014 | ) | 137,676 |   |
| Total provision for income taxes                                      |   | (391,526                                    | )         | 36,092                                     |   | 143,073 |   | 145,204 |   |
| Minority Interest                                                     |   | (232,957                                    | )         | (7,109                                     | )      | 209,187 |   | 123,991 |   |
| Net Income (Loss)                                                     |   | $                                           | (681,144  | )                                          | $      | 62,790 |   | $ | 248,907 |   | $ | 252,615 |   |
|                                                                  |   |                                        |      |                                       |   |   |   |   |   |
| Basic and Diluted Net Income (Loss) per Common Share                  |   | $                                           | (0.12     | )                                          | $      | 0.01 |   | $ | 0.04 |   | $ | 0.05 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

4

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**FIRST INVESTORSFINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENT OF SHAREHOLDERS’ EQUITY AND**

**COMPREHENSIVEINCOME**

 

**For the NineMonths Ended January 31, 2003**

**(Unaudited)**

 
|                                                     |   | **Common  Stock** |   | **Additional  Paid-In  Capital** |   | **Retained  Earnings** |   | **Treasury  Stock, at  cost** |       | **Accumulated  Other  Comprehensive  Income (Loss)** |   | **Total**  |   |
|----------------------------------------------------------|--------|-------------------|--------|----------------------------------|--------|------------------------|--------|-------------------------------|------------|------------------------------------------------------|--------|------------|--------|
|                                                     |   |              |   |                             |   |                   |   |                          |       |                                                 |   |       |   |   |   |   |   |   |   |
| Balance at April 30, 2002                                |   | $                 | 5,567  |                             | $      | 18,678,675             |   | $                             | 10,149,078 |                                                 | $      | (515,000   | )      | $ | (1,731,886 | ) | $ | 26,586,434 |   |
|                                                     |   |              |   |                             |   |                   |   |                          |       |                                                 |   |       |   |   |   |   |   |   |   |
| Comprehensive income:                                    |   |              |   |                             |   |                   |   |                          |       |                                                 |   |       |   |
|                                                     |   |              |   |                             |   |                   |   |                          |       |                                                 |   |       |   |
| Net income                                               |   | —            |   | —                           |   | 252,615                |   | —                        |       | —                                               |   | 252,615    |   |
| Unrealized gains  on derivatives, net of taxes of $4,201 |   | —            |   | —                           |   | —                 |   | —                        |       | 7,303                                                |   | 7,303      |   |
| Reclassification  of earnings, net of taxes of $356,865  |   | —            |   | —                           |   | —                 |   | —                        |       | 620,848                                              |   | 620,848    |   |
|                                                     |   |              |   |                             |   |                   |   |                          |       |                                                 |   |       |   |
| Comprehensive income                                     |   | —            |   | —                           |   | —                 |   | —                        |       | —                                               |   | 880,766    |   |
|                                                     |   |              |   |                             |   |                   |   |                          |       |                                                 |   |       |   |
| Treasury stock  purchases                                |   | —            |   | —                           |   | —                 |   | (1,260,865                    | )          | —                                               |   | (1,260,865 | )      |
|                                                     |   |              |   |                             |   |                   |   |                          |       |                                                 |   |       |   |
| Balance at January  31, 2003                             |   | $                 | 5,567  |                             | $      | 18,678,675             |   | $                             | 10,401,693 |                                                 | $      | (1,775,865 | )      | $ | (1,103,735 | ) | $ | 26,206,335 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

5

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**FIRST INVESTORS FINANCIAL SERVICES GROUP, INC., ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For the Nine Months Ended January 31, 2002 and 2003**

**(Unaudited)**

** **
|                                                                              |   | **2002**     |       | **2003**    |   |
|-----------------------------------------------------------------------------------|--------|--------------|------------|-------------|--------|
|                                                                              |   |         |       |        |   |
| Cash Flows From Operating Activities:                                             |   |         |       |        |   |
| Net income                                                                        |   | $            | 248,907    |        | $      | 252,615 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities |   |         |       |        |   |
| Depreciation and amortization expense                                             |   | 4,060,781    |       | 2,991,483   |   |
| Provision for credit losses                                                       |   | 6,177,825    |       | 7,453,438   |   |
| Minority Interest                                                                 |   | 209,187      |       | 123,991     |   |
| (Increase) decrease in:                                                           |   |         |       |        |   |
| Accrued interest receivable                                                       |   | (243,168     | )          | (103,045    | )      |
| Restricted cash                                                                   |   | (2,772,611   | )          | 191,316     |   |
| Deferred financing costs and other assets                                         |   | (1,648,317   | )          | (239,783    | )      |
| Funds held under reinsurance agreement                                            |   | (424,118     | )          | (516,733    | )      |
| Deferred income taxes receivable                                                  |   | (1,267,479   | )          | 33,739      |   |
| Current income tax receivable                                                     |   | 594,360      |       | 467,160     |   |
| Interest rate derivative positions                                                |   | (3,237,054   | )          | (963,201    | )      |
| Increase (decrease) in:                                                           |   |         |       |        |   |
| Accounts payable and accrued liabilities                                          |   | (1,579,812   | )          | (710,110    | )      |
| Current income taxes payable                                                      |   | 184,338      |       | —      |   |
| Deferred income taxes payable                                                     |   | (195,486     | )          | —      |   |
| Interest rate derivative positions                                                |   | 4,410,957    |       | 328,742     |   |
| Net cash provided by operating activities                                         |   | 4,518,310    |       | 9,309,612   |   |
| Cash Flows From Investing Activities:                                             |   |         |       |        |   |
| Purchase of Receivables Held for Investment                                       |   | (55,063,234  | )          | (87,652,331 | )      |
| Principal payments from Receivables Held for Investment                           |   | 69,397,086   |       | 59,745,176  |   |
| Principal payments from Receivables Acquired for Investment                       |   | 12,992,601   |       | 5,299,516   |   |
| Payments received on Assets Held for Sale                                         |   | 5,508,332    |       | 4,960,503   |   |
| Purchase of investments                                                           |   | —       |       | (1,351,725  | )      |
| Purchase of furniture and equipment                                               |   | (325,793     | )          | (158,943    | )      |
| Net cash provided by (used in) investing activities                               |   | 32,508,992   |       | (19,157,804 | )      |
| Cash Flows From Financing Activities:                                             |   |         |       |        |   |
| Proceeds from advances on—                                                   |   |         |       |        |   |
| Warehouse credit facilities                                                       |   | 54,335,464   |       | 162,744,020 |   |
| Term Notes                                                                        |   | 159,036,000  |       | —      |   |
| Working capital facility                                                          |   | 13,134,233   |       | —      |   |
| Other borrowings                                                                  |   | 525,000      |       | 1,221,280   |   |
| Principal payments made on                                                        |   |         |       |        |   |
| Warehouse credit facilities                                                       |   | (183,590,968 | )          | (62,725,472 | )      |
| Term Notes                                                                        |   | (35,706,479  | )          | (82,956,188 | )      |
| Acquisition term facility                                                         |   | (5,564,682   | )          | (3,610,278  | )      |
| Working capital facility                                                          |   | (12,825,000  | )          | (1,808,446  | )      |
| Other borrowings                                                                  |   | —       |       | (1,000,000  | )      |
| Restricted Cash – Prefunding Account under Term Note                         |   | (25,000,000  | )          | —      |   |
| Treasury stock purchased                                                          |   | (515,000     | )          | (1,260,865  | )      |
| Net cash provided by (used in) financing activities                               |   | (36,171,432  | )          | 10,604,051  |   |
| Increase (Decrease) in Cash and Short-Term Investments                            |   | 855,870      |       | 755,859     |   |
| Cash and Short-Term Investments at Beginning of Period                            |   | 1,011,249    |       | 585,727     |   |
| Cash and Short-Term Investments at End of Period                                  |   | $            | 1,867,119  |        | $      | 1,341,586 |   |
| Supplemental Disclosures of Cash Flow Information:                                |   |         |       |        |   |
| Cash paid during the period for—                                             |   |         |       |        |   |
| Interest                                                                          |   | $            | 10,586,685 |        | $      | 7,249,044 |   |
| Income taxes                                                                      |   | (414,613     | )          | 5,372       |   |
| Non-cash financing activities—                                               |   |         |       |        |   |
| Exchange of warrants for financing fees                                           |   | $            | 38,757     |        | $      | — |   |

 

The accompanying notesare an integral part of these consolidated financial statements

 

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**FIRST INVESTORS FINANCIAL SERVICESGROUP, INC. AND SUBSIDIARIES**

 

##### **NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 

##### **January 31, 2003**

 

**1.     The Company**

 

*Organization*.  First Investors Financial Services Group,Inc. (First Investors) together with its wholly- and majority-ownedsubsidiaries (collectively referred to as the Company) is principally involvedin the business of acquiring and holding for investment retail installmentcontracts and promissory notes secured by new and used automobiles and lighttrucks (receivables) originated by factory authorized franchised dealers. As ofJanuary 31, 2003, approximately 26 percent of Receivables Held for Investmenthad been originated in Texas. The Company currently operates in 28 states.

 

On October 2, 1998, the Company completed theacquisition of First Investors Servicing Corporation (FISC) formerly known asAuto Lenders Acceptance Corporation. Headquartered in Atlanta, Georgia, FISCperforms the servicing and collection functions for the portfolio ofreceivables under management which totaled $418 million as of January 31, 2003.

 

On August 8, 2000, theCompany entered into a partnership agreement whereby a subsidiary of theCompany is the general partner owning 70 percent of the partnership assets andFirst Union Investors, Inc. serves as the limited partner and owns 30 percentof the partnership assets (the “Partnership”). The Partnership consists primarilyof a portfolio of loans previously owned or securitized by FISC and certainother financial assets including charged-off accounts owned by FISC.

 

On December 24, 2002, theCompany purchased a 40% ownership interest and an investment in the juniormezzanine debt of First Auto Receivables Corporation (“FARC”). Additionally,FISC performs ongoing servicing and collection activities for the $197.5million auto loan portfolio of FARC.

 

**2.     InterimFinancial Information**

 

*Basisof Presentation*.  Theconsolidated financial statements include the accounts of First Investors andits wholly- and majority-owned subsidiaries. All significant intercompanyaccounts and transactions have been eliminated.

 

The results for the interim periods are notnecessarily indicative of the results of operations that may be expected forthe fiscal year. In the opinion of management, the information furnishedreflects all adjustments which are of a normal recurring nature and arenecessary for a fair presentation of the Company’s financial position as ofJanuary 31, 2003, and the results of its operations for the three and ninemonths ended January 31, 2002 and 2003, and its cash flows for the nine monthsended January 31, 2002 and 2003.

 

The consolidated financial statements for the interimperiods have been prepared pursuant to the rules and regulations of theSecurities and Exchange Commission. Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith accounting principles generally accepted in the United States of Americahave been condensed or omitted pursuant to such rules and regulations, althoughthe Company believes that the disclosures are adequate to make the informationnot misleading. These financial statements should be read in conjunction withthe audited consolidated financial statements included in the Company’s 2002Annual Report on Form 10-K/A filed November 29, 2002.

 

*TreasuryStock*.  On December14, 2001, the Board of Directors authorized the Company to repurchase up to 5%of the Company’s outstanding common stock. During the quarter ended January 31, 2002, 170,000 shares wererepurchased under this authorization at an average price of $3.03 and duringthe quarter ended July 31, 2002, 370,400 shares were repurchased at an averageprice of $3.40.  There has been no otherrepurchase activity.

 

*Income Recognition*.  The Company accrues interest income monthlybased upon contractual terms using the effective interest method. Interestincome also includes additional amounts received upon early payoffs of certainreceivables attributable to the difference between the principal balance of thereceivables calculated using the

 

7

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Rule of 78’s method and the principal balance of the receivablescalculated using the effective interest method. When a receivable becomes 90days past due, income accrual is suspended until the payments become current.When a loan is charged off or the collateral is repossessed, the remainingincome accrual is written off.  Otherincome includes late charge fees and is recognized as collected.

 

*Allowance for Credit Losses*.  For receivables financed under the FIRCcredit facility, the Company purchases credit enhancement insurance fromthird-party insurers which covers the risk of loss upon default and certainother risks. The Company established a captive insurance subsidiary to reinsurethe credit enhancement insurance coverage. The credit enhancement insurancecoverage for all receivables acquired in March 1994 and thereafter has beenreinsured by FIIC. Beginning in October 1996, all receivables recorded by theCompany were covered by credit enhancement insurance while pledged ascollateral for the FIRC credit facility. Once receivables are transferred tothe FIARC commercial paper facility, credit enhancement insurance is cancelled.In addition, no default insurance is purchased for core receivables originatedand financed under the FIACC commercial paper facility. Accordingly, theCompany is exposed to credit losses for all receivables either reinsured byFIIC or uninsured and provides an allowance for such losses.

 

Efforts to makecustomer contact begin when the customer is three days past due and become moreaggressive as the loan becomes further past due.  Management reviews past due loans and considers various factorsincluding payment history, job status and any events that may have occurredthat prevent the customer from making a payment.  Through the evaluation, if it is determined that the loan isuncollectible, the collateral is repossessed. Generally this occurs at 90 to 120 days past due.   Upon repossession, an impairment isrecorded to write off  Receivables Heldfor Investment and record the fair value as Assets Held for Sale.  Fair value is determined by estimating theproceeds of the collateral which primarily are comprised of auction proceeds onthe sale of the automobile less selling related expenses.   After collection of all proceeds, the Companyrealizes an adjustment, positive or negative, based on the difference betweenthe fair value estimate and the true proceeds received.   In the event the collateral is unable to belocated, the Company will write off the entire balance after exhausting allcollection efforts.

 

For Receivables Acquiredfor Investment, identical collection procedures are followed.  However instead of transferring theestimated fair value to Assets Held for Sale, the estimated loss is chargedagainst nonaccretable difference.

 

The Company calculates the allowance for credit lossesin accordance with SFAS 5, “Accounting for Contingencies”.  SFAS 114, “Accounting for Creditors forImpairment of a Loan” does not apply to the Company since the Receivables Heldfor Investment are comprised of a large group of smaller balance homogenousloans.

 

The Company applies a systematic methodology in orderto determine the amount of the allowance for credit losses.  The specific methodology utilized is asix-month migration analysis whereby the Company compares the aging status of eachloan from six months prior to the aging loan status as of the reportingdate.  These factors are then applied tothe aging status of each loan at the reporting date in order to calculate thenumber of loans that are expected to migrate to impaired status.  The estimated number of impairments is thenmultiplied by estimated loss per loan, which is based on historicalinformation.   The computed reserve isthen compared to the amount recorded for adequacy.  The Company compares the six-month result to prior six-monthperiods to compare trends and evaluate any other internal or external factorsthat may affect collectibility. The allowance for credit losses is based onestimates and qualitative evaluations and ultimate losses will vary fromcurrent estimates. These estimates are reviewed periodically and asadjustments, either positive or negative, become necessary, are reported inearnings in the period they become known.

 

*Reclassifications*.  Certain reclassifications have been made tothe fiscal 2002 amounts to conform with the fiscal 2003 presentation.

 

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**3.     Receivables Heldfor Investment**

 

Net receivables consisted of thefollowing:

 
|                                  |   | **April 30,  2002** |        | **January 31,  2003** | ** ** |
|---------------------------------------|--------|---------------------|-------------|-----------------------|------------|
| Receivables                           |   | $                   | 212,926,747 |                  | $          | 226,533,824 |   |
| Unamortized premium and deferred fees |   | 4,654,710           |        | 5,061,105             |       |
| Allowance for credit losses           |   | (2,338,625          | )           | (2,401,259            | )          |
| Net receivables                       |   | $                   | 215,242,832 |                  | $          | 229,193,670 |   |

 

Activityin the allowance for credit losses was as follows:

 
|                           |   | **For the Nine Months  Ended January 31,** |      |
|--------------------------------|--------|--------------------------------------------|-----------|
|                           |   | **2002**                                   |      | **2003** | ** ** |
| Balance, beginning of period   |   | $                                          | 2,688,777 |   | $ | 2,338,625 |   |
| Provision for credit losses    |   | 6,177,825                                  |      | 7,453,438 |   |
| Charge-offs, net of recoveries |   | (6,478,301                                 | )         | (7,390,804 | ) |
| Balance, end of period         |   | $                                          | 2,388,301 |   | $ | 2,401,259 |   |

 

**4.     ReceivablesAcquired for Investment**

 

Receivables Acquired forInvestment are comprised of loans previously originated by Auto LendersAcceptance Corporation and include a portfolio of warehouse loans and aportfolio of loans that were previously securitized.  The securitized loans were subsequently redeemed and fundedthrough the FIACC credit facility. These loans that were purchased at adiscount relating to credit quality were included in the balance sheet amountsof Receivables Acquired for Investment as follows as of April 30, 2002 andJanuary 31, 2003:

 
|                                                                                                                         |   | **April 30,  2002** |       | **January  31,  2003** |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|------------------------|--------|
| Contractual payments receivable from Receivables Acquired for  Investment purchased at a discount relating to credit quality |   | $                   | 11,912,032 |                   | $      | 4,998,718 |   |
| Nonaccretable difference                                                                                                     |   | (1,733,298          | )          | (366,359               | )      |
| Accretable yield                                                                                                             |   | (1,158,828          | )          | (907,036               | )      |
| Receivables Acquired for Investment purchased at a discount relating to  credit quality, net                                 |   | $                   | 9,019,906  |                   | $      | 3,725,323 |   |

 

The carryingamount of Receivables Acquired for Investment is net of accretable yield andnonaccretable difference. Nonaccretable difference represents contractualprincipal and interest payments that the Company has determined that it wouldbe unable to collect.

 
|                        |   | **Nonaccretable  Difference** |      | **Accretable  Yield** | ** ** |
|-----------------------------|--------|-------------------------------|-----------|-----------------------|------------|
| Balance at April 30, 2002   |   | $                             | 1,733,298 |                  | $          | 1,158,828 |   |
| Accretion                   |   | —                        |      | (298,461              | )          |
| Eliminations                |   | (1,320,270                    | )         | —                |       |
| Reclassifications           |   | (46,669                       | )         | 46,669                |       |
| Balance at January 31, 2003 |   | $                             | 366,359   |                  | $          | 907,036 |   |

### ** **

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Nonaccretable difference eliminations representcontractual principal and interest amounts on loans charged-off for the periodended January 31, 2003.  The increase inaccretable yield results from an increase in the cash flows of the portfolioprimarily due to an oincrease in the remaining term of the underlyingreceivables.  Since the loans areliquidating at a slower pace than anticipated, the cash flow projection modelmust be extended and accretable yield must be provided for the extendedperiods.

 

**5.     Debt**

 

The Company finances the acquisition of itsreceivables portfolio through two warehouse credit facilities. The Company’scredit facilities provide for one-year terms and have been renewed annually.Management of the Company believes that the credit facilities will continue tobe renewed or extended or that it would be able to secure alternate financingon satisfactory terms; however, there can be no assurance that it will be ableto do so. In January 2000 and January 2002, the Company issued $168 million and$159 million, respectively, in asset-backed notes (“Term Notes”) secured bydiscrete pools of receivables. Proceeds from the two note issuances were usedto repay outstanding borrowings under the various revolving credit facilities.Substantially all receivables retained by the Company are pledged as collateralfor the credit facilities and the Term Notes. The weighted average interestrate for the Company’s secured borrowings including the effect of program fees,dealer fees and other comprehensive income (loss) amortization was 4.5% and4.9% for the three-month and nine-month periods ending January 31, 2003,respectively. The weighted average interest rate for the Company’s securedborrowings including the effect of program fees, dealer fees and othercomprehensive income (loss) amortization was 5.0% and 6.0% for the three-monthand nine-month periods ending January 31, 2002, respectively.

 

*FIRC Credit Facility*.  The primary source of initial acquisitionfinancing for receivables has been provided through a syndicated warehousecredit facility agented by Wachovia Securities. The borrowing base is definedas the sum of the principal balance of the receivables pledged and the amounton deposit with the Company to fund receivables to be acquired. The Company isrequired to maintain a cash reserve account based on a percentage which variesbased on the origination source of the receivables securing the facility.    Borrowings under the FIRC credit facilitybear interest at a rate selected by the Company at the time of the advance ofeither the base rate, defined as the higher of the prime rate or the federalfunds rate plus .5 percent, the LIBOR rate plus .5 percent, or a rate agreed toby the Company and the banks. The facility also provides for the payment of afee of .25 percent per annum based on the total committed amount.

 

On December 7, 2001, the Company entered into anagreement with Wachovia Securities, as agent, to extend the maturity date ofthe facility until December 5, 2002.  Inconjunction with this renewal, Wachovia Securities assumed the role of agentand increased its commitment to $50 million from $20 million. Additionally, thetotal commitment was increased to $75 million on November 15, 2002 toaccommodate higher originations.  OnDecember 5, 2002, the maturity date of the facility was extended to December 4,2003. Under the terms of the renewal, the facility will revert back to $50million on June 30, 2003 based on the anticipated issuance of additional asset-backednotes which will decrease the borrowings below the reduced facility limit.  There were no other material changes to theterms and conditions of the facility. Under the renewal mechanics of the facility, should the lenders electnot to renew the facility beyond December 4, 2003, the facility would convertto a term loan facility which would mature six months thereafter and amortizemonthly in accordance with the borrowing base with any remaining balance due atmaturity.  Borrowings under the FIRC creditfacility were $28,610,000 and $69,730,000 at April 30, 2002 and January 31,2003, respectively.

 

The Company presently intends to seek a renewal of thefacility from its lenders prior to maturity. Management considers its relationship with its lenders to besatisfactory and has no reason to believe that this credit facility will not berenewed.  If the facility is notrenewed, however, or if material changes are made to its terms and conditions,it could have a material adverse effect on the Company.

 

*FIARC Commercial Paper Facility*.  The Company has indirect access to thecommercial paper market through a commercial paper conduit facility provided byVariable Funding Capital Corporation (VFCC), a commercial paper conduitadministered by Wachovia Securities (the “FIARC commercial paper facility”).Receivables are transferred periodically from the FIRC credit facility to FIARCcommercial paper facility

 

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through the assignment ofan undivided interest in a specified group of receivables.  VFCC issues commercial paper (indirectlysecured by the receivables), the proceeds of which are used to repay the FIRCcredit facility.

 

The financing is provided to a special-purpose,wholly-owned subsidiary of the Company, FIARC. Credit enhancement for the $150million facility is provided to the commercial paper investors by a surety bondissued by MBIA Insurance Corporation. The Company is not a guarantor of, orotherwise a party to, such commercial paper. Borrowings under the commercial paper facility bear interest at thecommercial paper rate plus a borrowing spread equal to .30 percent per annum.Additionally, the agreement provides for additional fees based on the unusedamount of the facility and dealer fees associated with the issuance of thecommercial paper. A surety bond premium equal to .35 percent per annum isassessed based on the outstanding borrowings under the facility. A one percentcash reserve must be maintained as additional credit support for thefacility.  At January 31, 2003, theCompany had borrowings of $61,501,981 outstanding under the commercial paperfacility. The Company had no outstanding borrowings under the FIARC facility asof April 30, 2002.

 

The FIARC commercial paper facility expired on January12, 2003 and was renewed until December 4, 2003. No other material changes weremade.  If the facility is not extendedbeyond the maturity date, receivables pledged as collateral would be allowed toamortize; however, no new receivables would be allowed to transfer from theFIRC credit facility.  The Companypresently intends to seek a renewal of the facility from its lenders prior tomaturity.  Management considers itsrelationship with its lenders to be satisfactory and has no reason to believethat this credit facility will not be renewed. If the facility is not renewed, however, or if material changes are madeto its terms and conditions, it could have a material adverse effect on theCompany.

 

*FIACC Commercial Paper Facility*. OnJanuary 1, 1998, FIACC entered into a $25 million commercial paper conduitfacility with Variable Funding Capital Corporation (“VFCC”), a commercial paperconduit administered by Wachovia Securities (“the FIACC commercial paperfacility”) to fund the acquisition of additional receivables generated undercertain of the Company’s financing programs. FIACC acquired receivables fromthe Company and may borrow up to 88% of the face amount of receivables, whichare pledged as collateral for the commercial paper borrowings. VFCC funds theadvance to FIACC through the issuance of commercial paper (indirectly securedby the receivables) to institutional or public investors. The Company is not aguarantor of, or otherwise a party to, such commercial paper.  The Company’s interest cost is based onVFCC’s commercial paper rates for specific maturities plus .55 percent. AtApril 30, 2002, the outstanding borrowings were $2,603,433 under the FIACCcommercial paper facility. There were no borrowings outstanding under the FIACCfacility as of January 31, 2003 and the facility will not be renewed.  The current term of the FIACC commercialpaper facility expires on March 11, 2003.

 

On September 15,2000, the Company elected to exercise its right to repurchase the senior notesissued in connection with the ALAC Automobile Receivables Owner Trust 1997-1(the “ALAC 97-1 Securitization”). Accordingly, the Company acquired $8,110,849in outstanding receivables from the trust and borrowed $6,408,150 under theFIACC facility which, combined with amounts on deposit in the collectionaccount and the outstanding balance in a cash reserve account, was utilized torepay $7,874,689 in senior notes and redeem $1,033,456 of the trustcertificates.  On March 15, 2001, theCompany elected to exercise its right to repurchase the senior notes issued inconnection with the ALAC Automobile Receivables Owner Trust 1998-1 (the “ALAC98-1 Securitization). Accordingly, the Company acquired $9,257,612 inoutstanding receivables from the trust and borrowed $7,174,509 under the FIACCfacility which, combined with amounts on deposit in the collection account andthe outstanding balance in a cash reserve account, was utilized to repay$7,997,615 in senior notes and redeem $1,946,178 of the Trust Certificates. Thereceivables purchased were used as collateral to secure the FIACC borrowingwith any residual cash flow generated by the receivables pledged to thePartnership. As a result of utilizing FIACC to fund the repurchase of the ALACsecuritizations, the Company elected to utilize the FIACC commercial paperfacility solely as the financing source for the repurchases and does not expectto utilize the facility to finance Receivables Held for Investment.  On January 15, 2003, the Company paid offthe outstanding debt and the facility will not be renewed.

 

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*Term Notes*.  On January 29, 2002, the Company, throughits indirect, wholly-owned subsidiary First Investors Auto Owner Trust 2002-A(“2002 Auto Trust”) completed the issuance of $159,036,000 of 3.46% percentClass A asset-backed notes (“2002-A Term Notes”). The initial pool ofautomobile receivables transferred to the 2002 Auto Trust totaled $135,643,109,which were previously owned by FIRC and FIARC, secure the 2002-A TermNotes.  In addition to the issuance ofthe Class A Notes, the 2002 Auto Trust also issued $4,819,000 in Class B Noteswhich were retained by the Company and pledged to secure the Working CapitalFacility as further described below.  Proceeds from the issuance, which totaled $159,033,471 were used to (i)fund a $25,000,000 pre-funding account to be used for future loan originations;(ii) repay all outstanding borrowings under the FIARC commercial paperfacility, (iii) reduce the outstanding borrowings under the FIRC creditfacility, (iv) pay transaction fees related to the 2002-A Term Note issuance,and (v) fund a cash reserve account of 2 percent or $2,712,862 of the initialreceivables pledged which will serve as a portion of the credit enhancement forthe transaction. The Class A Term Notes bear interest at 3.46 percent andrequire monthly principal reductions sufficient to reduce the balance of theClass A Term Notes to 97 percent of the outstanding balance of the underlyingreceivables pool. The final maturity of the 2002-A Term Notes is December 15,2008.  The Class B Notes do not bearinterest but require principal reductions sufficient to reduce the balance ofthe Class B Notes to 3 percent of the outstanding balance of the underlyingreceivables pool.  A surety bond issuedby MBIA Insurance Corporation provides credit enhancement for the Class ANotes.  Additional credit support isprovided by the cash reserve account, which equals 2 percent of the originalbalance of the receivables pool plus 2 percent of the original balance ofreceivables transferred under the pre-funding provision.  Further enhancement is provided through aninitial 1 percent overcollateralization which is required to be increased to 3percent through excess monthly principal and interest collections. In the eventthat certain asset quality covenants are not met, the reserve account targetlevel will increase to 6 percent of the then current principal balance of thereceivables pool.  As of April 30, 2002and January 31, 2003, the outstanding principal balances on the 2002-A TermNotes were $143,096,983 and $100,303,596, respectively.

 

On January 24, 2000, theCompany, through its indirect, wholly-owned subsidiary, First Investors AutoOwner Trust 2000-A (“Auto Trust”), completed the issuance of $167,969,000 of7.174 percent asset-backed notes (“2000-A Term Notes”). A pool of automobilereceivables totaling $174,968,641, which were previously owned by FIRC, FIARCand FIACC, secures the 2000-A Term Notes. Proceeds from the issuance, whichtotaled $167,967,690, were used to repay all outstanding borrowings under theFIARC and FIACC commercial paper facilities, to reduce the outstandingborrowings under the FIRC credit facility, to pay transaction fees related tothe 2000-A Term Note issuance and to fund a cash reserve account of 2 percentor $3,499,373 which will serve as a portion of the credit enhancement for thetransaction. The 2000-A Term Notes bear interest at 7.174 percent and requiremonthly principal reductions sufficient to reduce the balance of the 2000-ATerm Notes to 96 percent of the outstanding balance of the underlyingreceivables pool. A surety bond issued by MBIA Insurance Corporation providescredit enhancement for the Term Note holders. Additional credit support is providedby the cash reserve account, which equals 2 percent of the original balance ofthe receivables pool and a 4 percent over-collateralization requirement. In theevent that certain asset quality covenants are not met, the reserve accounttarget level will increase to 6 percent of the then current principal balanceof the receivables pool. As of April 30, 2002, the outstanding principalbalance on the 2000-A Term Notes was $40,162,801.  On November 15, 2002, the Company exercised its right to prepaythe outstanding debt thus there were no outstanding borrowings on the 2000-ATerm Notes as of January 31, 2003.  Thecollateral was financed through borrowings under the FIARC commercial paperfacility.

 

*Acquisition Facility*.  On October 2, 1998, the Company, through itsindirect, wholly-owned subsidiary, FIFS Acquisition Funding Company LLC (“FIFSAcquisition”), entered into a $75 million non-recourse bridge financingfacility with VFCC, an affiliate of Wachovia Securities, to finance theCompany’s acquisition of FISC. Contemporaneously with the Company’s purchase ofFISC, FISC transferred certain assets to FIFS Acquisition, consisting primarilyof (i) all receivables owned by FISC as of the acquisition date, (ii) FISC’sownership interest in certain Trust Certificates and subordinated spread orcash reserve accounts related to two asset securitizations previously conductedby FISC, and (iii) certain other financial assets, including charged-offaccounts owned by FISC as of the acquisition date. These assets, along with a$1 million cash reserve account funded at closing, served as the collateral forthe bridge facility. The facility bore interest at VFCC’s commercial paper rateplus 2.35 percent and expired on August 14, 2000. Under the terms of thefacility, all cash collections from the receivables

 

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or cash distributions to the certificate holder underthe securitizations were first applied to pay FISC a servicing fee in theamount of 3 percent on the outstanding balance of all owned or managedreceivables and then to pay interest on the facility. Excess cash flowavailable after servicing fees and interest payments was utilized to reduce theoutstanding principal balance on the indebtedness. In addition, one-third ofthe servicing fee paid to FISC was also utilized to reduce principaloutstanding on the indebtedness.

 

On August 8, 2000, theCompany entered into an agreement with Wachovia Securities to refinance theacquisition facility. Under the agreement, a partnership was created in whichFIFS Acquisition serves as the general partner and contributed its assets for a70 percent interest in the partnership and First Union Investors, Inc., anaffiliate of Wachovia Securities, serves as the limited partner with a 30percent interest in the partnership (the “Partnership”). Pursuant to therefinancing, the Partnership issued Class A Notes in the amount of $19,204,362and Class B Notes in the amount of $979,453 to VFCC, the proceeds of which wereused to retire the acquisition debt. The Class A Notes bear interest at VFCC’scommercial paper rate plus 0.95 percent per annum and amortize on a monthlybasis by an amount necessary to reduce the Class A Note balance as of thepayment date to 75 percent of the outstanding principal balance of ReceivablesAcquired for Investment, excluding Receivables Acquired for Investment that areapplicable to FIACC, as of the previous month end. The Class B Notes bearinterest at VFCC’s commercial paper rate plus 5.38 percent per annum andamortize on a monthly basis by an amount which varied based on excess cashflows received from Receivables Acquired for Investment after payment ofservicing fees, trustee and back-up servicer fees, Class A Note interest andClass A Note principal, plus collections received on the Trust Certificates.The outstanding balances of the Class A Notes were $3,670,765 and $60,487 atApril 30, 2002 and January 31, 2003, respectively. The Class B Notes were paidin full on September 15, 2000. After the Class B Notes were paid in full, allcash flows received after payment of Class A Note principal and interest,servicing fees and other costs, are distributed to the Partnership forsubsequent distribution to the partners based upon the respective partnership interests.  During the nine months ended January 31,2002, $866,583 was distributed to the limited partner.  Beginning in November 2001, the partnershipused excess cash flow to retire additional Class A Note principal thus nofurther partnership distributions will be paid until the Class A Notes areretired. On February 20, 2003, the Class A Notes were fully paid and all excesscash flows will flow to the partners. The amount of the partners’ cash flowwill vary depending on the timing and amount of cash flows from the assets. TheCompany is accounting for Wachovia Securities’ limited partnership interest inthe Partnership as a minority interest.

 

*Working Capital Facility*.  On December 6, 2001, the Company enteredinto an agreement with Wachovia Securities to refinance the $11,175,000outstanding balance of the working capital term loan previously provided byBank of America and Wachovia and increase the size of the facility to $13.5million.  The renewal facility was providedto a special-purpose, wholly-owned subsidiary of the Company, First InvestorsResidual Funding LP.  The facilityoriginally consisted of a $9 million revolving tranche and a $4.5 million termloan tranche which amortizes monthly. The term loan tranche of this working capital facility will be evidencedby the Class B Notes issued in conjunction with the 2002 Auto Trust financing.The remaining $9 million of the $13.5 million working capital facility revolvesmonthly in accordance with a borrowing base consisting of theovercollateralization amount and reserve accounts for each of the Company’sother credit facilities.  The facilityis secured solely by the residual cash flow and cash reserve accounts relatedto the Company’s warehouse credit facilities, the acquisition facility and theexisting and future term note facilities. Pricing under the facility is basedon the LIBOR rate plus 1.5% plus another 1.5% on the facility limit.  On December 5, 2002, the maturity of thefacility was extended to December 4, 2003. Under the terms of the renewal, the interest rate was increased to LIBORplus 2.25%.  In addition, the monthlyprincipal amortization under the term loan tranche was increased to the greaterof $250,000 or the principal distributions made under the Class B Notes issuedunder the 2002 Auto Trust financing. This amortization schedule will continue until the term loan tranche isrepaid, leaving the remaining facility consisting of the $9 million revolvingtranche. In the event that the facility is not renewed at maturity, residualcash flows from the various receivables financing transactions will be appliedto amortize the debt over the remaining life of the underlying receivables. AtApril 30, 2002 and January 31, 2003, there was $11,798,520 and $9,990,074,respectively, outstanding under this facility.

 

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The Company presently intends to seek a renewal of theworking capital facility from its lender prior to maturity.  Should the facility not be renewed, theoutstanding balance of the receivables would be amortized in accordance withthe borrowing base.  Managementconsiders its relationship with its lenders to be satisfactory and has noreason to believe that this credit facility will not be renewed.  If the facility is not renewed, however, orif material changes are made to its terms and conditions, it could have amaterial adverse effect on the Company.

 

*Shareholder Loans –*On December 3, 2001the Company entered into an agreement with one of its  shareholders who is a member of its Board of Directors underwhich the Company may, from time to time, borrow up to $2.5 million.  The proceeds of the borrowings will beutilized to fund certain private and open market purchases of the Company’scommon stock pursuant to a Stock Repurchase Plan authorized by the Board ofDirectors and for general corporate purposes. Borrowings under the facility bear interest at a fixed rate of 10percent per annum.  The facility isunsecured and expressly subordinated to the Company’s senior credit facilities.The facility matures on December 3, 2008 but may be repaid at any time unlessthe Company is in default on one of its other credit facilities.   At April 30, 2002 and January 31, 2003,there was $525,000 and $746,280, respectively, outstanding under this facility.

 

*Interest Rate Management*.  The Company’s warehouse credit facilitiesbear interest at floating interest rates which are reset on a short-term basiswhile the secured Term Notes bear interest at a fixed rate of interest. TheCompany’s receivables bear interest at fixed rates that do not generally varywith a change in market interest rates. Since a primary contributor to theCompany’s profitability is its ability to manage its net interest spread, theCompany seeks to maximize the net interest spread while minimizing exposure tochanges in interest rates. In connection with managing the net interest spread,the Company may periodically enter into interest rate swaps or caps to minimizethe effects of market interest rate fluctuations on the net interest spread. Tothe extent that the Company has outstanding floating rate borrowings or haselected to convert a portion of its borrowings from fixed rates to floatingrates, the Company will be exposed to fluctuations in short-term interestrates.

 

In connection with theissuance of the 2000-A Term Notes, the Company entered into a swap agreementwith Bank of America pursuant to which the Company pays a floating rate equalto the prevailing one month LIBOR rate plus 0.505 percent and receives a fixedrate of 7.174 percent from the counterparty. The initial notional amount of theswap was $167,969,000, which amortized in accordance with the expectedamortization of the Term Notes. Final maturity of the swap was August 15, 2002.

 

OnSeptember 27, 2000, the Company elected to terminate the aforementioned swap atno material gain or loss and enter into a new swap under which the Companywould pay a fixed rate of 6.30 percent and receive the prevailing one monthLIBOR rate plus 0.505 percent on a notional amount of $100 million.  Under the terms of the swap, thecounterparty had the option of extending the swap for an additional three yearsto mature on April 15, 2004 at a fixed rate of 6.42 percent.  On April 15, 2001, the counterpartyexercised its extension option.

 

On June 1, 2001, the Companyentered into interest rate swaps with an aggregate notional amount of $100million and a maturity date of April 15, 2004. Under the terms of these swaps, the Company will pay a floating ratebased on one month LIBOR and receive a fixed rate of 5.025 percent.  Management elected to enter into these swapagreements to offset the uneconomical position of the existing pay fixed swapcreated by rapidly declining market interest rates.

 

During the nine months endedJanuary 31, 2003 and as a requirement of the FIARC commercial paper facility,the Company entered into six interest rate cap transactions at cap ratesranging from 6.5% to 7.5% with an amortizing notional balance that is expectedto coincide with the outstanding balance of the FIARC commercial paperfacility. The interest rate caps were not designated as hedges and,accordingly, changes in the fair value of the interest rate caps are recordedas unrealized gains or losses and reflected in net earnings.  Hedge accounting was not adopted for thesepositions due to mark-to-market movements being deemed ineffective since theyrelate to time value and would be required to flow through net earnings thuseliminating any benefits of hedge accounting.

 

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In connection with the repurchase of the ALAC 97-1Securitization and the financing of that repurchase through the FIACCsubsidiary on September 15, 2000, FIACC entered into an interest rate swapagreement with Wachovia Securities under which FIACC paid a fixed rate of 6.76percent as compared to the one month commercial paper index rate. The initialnotional amount of the swap was $6,408,150, which amortized monthly inaccordance with the expected amortization of the FIACC borrowings. The finalmaturity of the swap was December 15, 2001. On March 15, 2001, in connectionwith the repurchase of the ALAC 1998-1 Securitization and the financing of thatpurchase through the FIACC subsidiary, the Company and the counterparty modifiedthe existing interest rate swap increasing the notional amount initially to$11,238,710 and reducing the fixed rate from 6.76 percent to 5.12 percent.  The new notional amount was scheduled toamortize monthly in accordance with the expected principal amortization of theunderlying borrowings.  The expirationdate of the swap was changed from December 15, 2001 to September 1, 2002.

 

On October 2, 1998, in connection with the $75 millionacquisition facility, the Company, through FIFS Acquisition, entered into aseries of hedging instruments with Wachovia Securities designed to hedgefloating rate borrowings under the acquisition facility against changes inmarket rates.  Accordingly, the Companyentered into two interest rate swap agreements, the first in the initialnotional amount of $50.1 million (“Class A swap”) pursuant to which theCompany’s interest rate is fixed at 4.81 percent; and, the second in theinitial notional amount of $24.9 million (“Class B swap”) pursuant to which theCompany’s interest rate was fixed at 5.50 percent. The notional amountoutstanding under each swap agreement amortized based on an impliedamortization of the hedged indebtedness. The Class A swap had a final maturityof December 20, 2002, while the Class B swap matured on February 20, 2000. TheCompany also purchased two interest rate caps, which protect the Company andthe lender against any material increases in interest rates that may adverselyaffect any outstanding indebtedness that is not fully covered by the aggregatenotional amount outstanding under the swaps. The first cap agreement (“Class Acap”) enabled the Company to receive payments from the counterparty in theevent that the one-month commercial paper rate exceeded 4.81 percent on anotional amount that increased initially and then amortized based on theexpected difference between the outstanding notional amount under Class A swapand the underlying indebtedness. The interest rate cap expired December 20,2002 and the cost of the cap was amortized in interest expense for the period.The second cap agreement (“Class B cap”) enabled the Company to receivepayments from the counterparty in the event that the one-month commercial paperrate exceeded 6 percent on a notional amount that increased initially and thenamortized based on the expected difference between the outstanding notionalamount under Class B swap and the underlying indebtedness. The interest ratecap expired December 20, 2002 and the cost of the cap was imbedded in the fixedrate applicable to Class B swap. Pursuant to the refinance of the acquisitionfacility on August 8, 2000, the Class B cap was terminated and the notionalamounts of the Class A swap and Class A cap were adjusted downward to reflectthe lower outstanding balance of the Class A Notes. The amendment orcancellation of these instruments resulted in a gain of $418,609. Thisderivative net gain was amortized over the life of the initial derivativeinstrument. In addition, the two remaining hedge instruments were assigned byFIFS Acquisition to the Partnership.

 

As of May 1, 2001 the Companyhad designated the three interest rate swaps and one interest rate cap with anaggregate notional value of $130,165,759 as cash flow hedges as defined underSFAS No. 133.  Accordingly, any changesin the fair value of these instruments resulting from the mark-to-marketprocess are recorded as unrealized gains or losses and reflected as an increaseor reduction in shareholders’ equity through other accumulated comprehensiveincome (loss).  In connection with thedecision to enter into the $100 million floating rate swaps on June 1, 2001,the Company elected to change the designation of the $100 million fixed rateswap and not account for the instrument as a hedge under SFAS No. 133.   As a result, the change in fair value ofboth swaps is reflected in net earnings for the period subsequent to May 31,2001.  The interest rate caps enteredinto as a requirement of the FIARC commercial paper facility are not designatedas hedges and, accordingly, changes in the fair value are recorded asunrealized gains or losses and reflected in net earnings. Hedge accounting wasnot adopted for these positions due to mark-to-market movements being deemedineffective since they relate to time value and would be required to flowthrough net earnings thus eliminating any benefits of hedge accounting.

 

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**6.     Earnings PerShare**

 

Earnings per share amounts are based on the weightedaverage number of shares of common stock and potential dilutive common sharesoutstanding during the period. The weighted average number of shares used tocompute basic and diluted earnings per share for the three months and ninemonths ended January 31, 2002 and 2003, are as follows: 

 
|                                                               |   | **For the Three Months Ended   January 31,** |   | **For the Nine Months Ended  January 31,** |   |
|--------------------------------------------------------------------|--------|----------------------------------------------|--------|--------------------------------------------|--------|
|                                                               |   | **2002**                                     |   | **2003**                                   |   | **2002** |   | **2003** |   |
| Weighted average shares:                                           |   |                                         |   |                                       |   |   |   |   |   |
| Weighted average shares outstanding for basic earnings per share   |   | 5,506,604                                    |   | 5,026,269                                  |   | 5,546,503 |   | 5,129,737 |   |
| Effect of dilutive stock options and warrants                      |   | —                                       |   | 8,331                                      |   | — |   | 4,044 |   |
| Weighted average shares outstanding for diluted earnings per share |   | 5,506,604                                    |   | 5,034,600                                  |   | 5,546,503 |   | 5,133,781 |   |

 

For the three months and nine months ended January 31,2002 and 2003, the Company had 544,487; 697,656; 544,487 and 701,943,respectively, of stock options and stock warrants which were not included inthe computation of diluted earnings per share because to do so would have beenantidilutive for the period presented. As discussed in the proxy statement on August 5, 2002, the number ofshares of common stock available for issuance under the 1995 Employee StockOption plan was increased to 500,000 shares. Under the plan, 72,500 options were granted on September 11, 2002.  Additionally, the 2002 Non-employee DirectorStock Option plan was established with a total of 500,000 shares of commonstock available for issuance.  Under theplan, 100,000 options were granted.

 

**7.     Investmentin First Auto Receivables Corporation**

 

OnDecember 24, 2002, the Company invested $475,061 for a 40% ownership interestin First Auto Receivables Corporation (“FARC”) and $712,591 for juniormezzanine investments of FARC.  FARCpurchased a $197.5 million automobile loan portfolio from UAFC-2 Corporation, asubsidiary of Union Acceptance Corporation, with proceeds from $186 million insenior bridge debt, $8.9 million of senior mezzanine debt, $1.8 million ofjunior mezzanine debt and $1.2 million of equity.   The bridge debt interest rate is LIBOR plus 1%, the seniormezzanine interest rate is 22.5% and the junior mezzanine interest rate is 25%.

 

The Company accounts forits equity investment in FARC in accordance with APB Opinion 18.  In addition to the equity and debtinvestments, the Company will also perform loan servicing and collectionactivities on the portfolio.  For thethree and nine months ended January 31, 2003, the Company recognized $222,024of servicing income and $145,078 of other income related to the FARCinvestments. Other income is included in Late Fees and Other Income on theincome statement and is primarily comprised of servicing income from FARC thatis reclassified as income from the equity investment.  This reclassification is necessary due to the Company owning 40%of the equity in FARC. The equity investment and junior mezzanine investmentare included in Deferred Financing Costs and Other Assets on the balance sheet.

 

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**8.     New Accounting Pronouncements**

 

The Financial AccountingStandards Board (“FASB”) has issued Statement of Financial Accounting Standards(“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, addressing accountingfor the acquisition of intangible assets and accounting for goodwill and otherintangible assets after they have been initially recognized in the financialstatements. The Company does not currently have goodwill or other similarintangible assets; therefore, the adoption of the new standard on May 1, 2002,has had no effect on the Company’s consolidated financial statements.

 

The FASB has issued SFAS No. 143, “Accounting forAsset Retirement Obligations”, addressing accounting and reporting forobligations associated with the retirement of tangible long-lived assets andthe associated asset retirement costs. SFAS No. 143 will be effective May 1,2003 for the Company and early adoption is encouraged. SFAS No. 143 requiresthat the fair value of a liability for an asset’s retirement obligation berecorded in the period in which it is incurred and the corresponding costcapitalized by increasing the carrying amount of the related long-lived asset.The liability is accreted to its then present value each period, and thecapitalized cost is depreciated over the useful life of the related asset. Ifthe liability is settled for an amount other than the recorded amount, a gainor loss is recognized. The Company does not anticipate that the adoption of thenew standard will have a significant effect on its consolidated financialstatements.

 

The FASB has issued SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets”, which was adopted by the Companyeffective May 1, 2002, and addresses accounting and reporting for theimpairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto Be Disposed Of” and APB Opinion No. 30, “Reporting the Results ofOperations-Reporting the Effects of Disposal of a Segment of a Business.” SFASNo. 144 retains the fundamental provisions of SFAS No. 121 and expands thereporting of discontinued operations to include all components of an entitywith operations that can be distinguished from the rest of the entity and thatwill be eliminated from the ongoing operations of the entity in a disposaltransaction. Adoption of the new standard did not have a material impact on theCompany’s consolidated financial statements.

 

In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44, and 64, Amendment of SFAS No. 13, andTechnical Corrections (“SFAS 145”). This statement rescinds the requirement inSFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, thatmaterial gains and losses on the extinguishment of debt be treated asextraordinary items. The statement also amends SFAS No. 13, “Accounting forLeases”, to eliminate an inconsistency between the accounting forsale-leaseback transactions and the accounting for certain lease modificationsthat have economic effects that are similar to sale-leaseback transactions.Finally the standard makes a number of consequential and other technicalcorrections to other standards. The provisions of the statement relating to therescission of SFAS 4 are effective for fiscal years beginning after May 15, 2002.Provisions of the statement relating to the amendment of SFAS 13 are effectivefor transactions occurring after May 15, 2002 and the other provisions of thestatement are effective for financial statements issued on or after May 15,2002. The Company has reviewed SFAS 145 and its adoption is not expected tohave a material effect on its consolidated financial statements.

 

In July 2002, the FASB issued SFAS No. 146, Accountingfor Exit or Disposal Activities (“SFAS 146”). SFAS 146 applies to costs associatedwith an exit activity (including restructuring) or with a disposal oflong-lived assets. Those activities can include eliminating or reducing productlines, terminating employees and contracts, and relocating plant facilities orpersonnel. SFAS 146 will require a Company to disclose information about itsexit and disposal activities, the related costs, and changes in those costs inthe notes to the interim and annual financial statements that include theperiod in which an exit activity is initiated and in any subsequent perioduntil the activity is completed. SFAS 146 is effective prospectively for exitor disposal activities initiated after December 31, 2002, with earlier adoptionencouraged. SFAS 146 supersedes Emerging Issues Task Force Issue No. 94-3,Liability Recognition for Certain Employee Termination Benefits and Other Coststo Exit an Activity (including Certain Costs Incurred in a Restructuring), andrequires liabilities associated with exit and

 

17

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disposal activities to be expensed as incurred and can be measured atfair value. SFAS 146 is effective for exit or disposal activities that areinitiated after December 31, 2002.

 

In November 2002, FASB Interpretation 45, “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others” (FIN 45) was issued.  FIN 45 requires a guarantor entity, at theinception of a guarantee covered by the measurement provisions of theinterpretation, to record a liability for the fair value of the obligationundertaken in issuing the guarantee. The Company previously did not record a liability when guaranteeingobligations.  Interpretation 45 appliesprospectively to guarantees the Company issues or modifies subsequent toDecember 31, 2002.  FIN 45 did not havea material effect on the Company’s financial statements.  The Company has historically issuedguarantees only on a limited basis and does not anticipate FIN 45 will have amaterial effect on its financial statements in the future.

 

In December2002, the FASB issued Statement 148 (SFAS 148), “Accounting for Stock-BasedCompensation Transition and Disclosure — an Amendment of FASB StatementNo. 123”, to provide alternative transition methods for a voluntary changeto the fair value based method of accounting for stock-based employeecompensation. In addition, SFAS 148 amends the disclosure requirements of SFAS123 to require prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based employee compensationand the pro-forma effect on reported results of applying the fair value basedmethod for entities which use the intrinsic value method of accounting.  This statement is effective for financialstatements for fiscal years ending after December 15, 2002 and iseffective for financial reports containing condensed financial statements forinterim periods beginning after December 15, 2002 with earlier applicationpermitted.  The Company does not plan a changeto the fair-value based method of accounting for stock-based employeecompensation.

 

In January 2003,the FASB issued FASB Interpretation No. 46 (FIN 46), “Consolidation ofVariable Interest Entities”. FIN 46 clarifies the application of Accounting ResearchBulletin No. 51, Consolidated Financial Statements, for certain entitieswhich do not have sufficient equity at risk for the entity to finance itsactivities without additional subordinated financial support from other partiesor in which equity investors do not have the characteristics of a controllingfinancial interest (“variable interest entities”).  Variable interest entities will be required to be consolidated bytheir primary beneficiary.  The primarybeneficiary of a variable interest entity is determined to be the party thatabsorbs a majority of the entity’s expected losses, receives a majority of itsexpected returns, or both, as a result of holding variable interests, which areownership, contractual, or other pecuniary interests in an entity.  FIN 46 applies immediately to variableinterest entities created after January 31, 2003, and to variable interestentities in which an enterprise obtains an interest after that date.  It applies in the first fiscal year orinterim period beginning after June 15, 2003, to variable interestentities in which an enterprise holds a variable interest that it acquiredbefore February 1, 2003. FIN 46 applies to the Company as of the beginningof the applicable interim or annual period. The Company does notanticipate FIN 46 will have a material effect on its financial statements.

 

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**ITEM 2.****                             *MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS***

 

**General**

 

Net income for the three months ended January 31, 2003was $62,790 compared to a net loss of $(681,144) for the three months endedJanuary 31, 2002. Net income for the nine months ended January 31, 2003 was$252,615, which is flat as compared to the nine months ended January 31, 2002net income of $248,907.  Earnings (loss)per common share were $0.01 and $(0.12) for the three months ended January 31,2003 and January 31, 2002, respectively. Earnings per common share were $0.05 for the nine months ended January31, 2003, compared to $0.04 per common share for the prior year period.

 

**Managed Receivables**

 

The Company’s managedreceivables are (dollars in thousands):

 
|                                                                                |   | **As of or for the  Nine Months Ended  January  31,** |    |
|-------------------------------------------------------------------------------------|--------|------------------------------------------------------------|---------|
|                                                                                |   | **2002**                                                   |    | **2003** |   |
| Receivables Held for Investment:                                                    |   |                                                       |    |   |   |
| Number                                                                              |   | 18,519                                                     |    | 18,605 |   |
| Principal balance                                                                   |   | $                                                          | 217,179 |   | $ | 226,534 |   |
| Average principal balance of receivables outstanding  during the nine-month period  |   | $                                                          | 230,706 |   | $ | 214,478 |   |
| Average principal balance of receivables outstanding  during the three-month period |   | $                                                          | 221,112 |   | $ | 219,111 |   |
| Receivables Acquired for Investment:                                                |   |                                                       |    |   |   |
| Number                                                                              |   | 2,963                                                      |    | 877 |   |
| Principal balance                                                                   |   | $                                                          | 11,555  |   | $ | 2,171 |   |
| Other Servicing:                                                                    |   |                                                       |    |   |   |
| Number                                                                              |   | —                                                     |    | 11,055 |   |
| Principal balance                                                                   |   | —                                                     |    | $ | 189,189 |   |
| Total Managed Receivables Portfolio:                                                |   |                                                       |    |   |   |
| Number                                                                              |   | 21,482                                                     |    | 30,537 |   |
| Principal balance                                                                   |   | $                                                          | 228,734 |   | $ | 417,894 |   |

 

**Net Interest Income**

 

The following tablessummarize the Company’s net interest income (dollars in thousands):

 
|                                                                         |   | **Three  Months Ended  January  31,** |   | **Nine  Months Ended  January  31,** |   |
|------------------------------------------------------------------------------|--------|--------------------------------------------|--------|-------------------------------------------|--------|
|                                                                         |   | **2002**                                   |   | **2003**                                  |   | **2002** |   | **2003** |   |
| Interest income(1):                                                          |   |                                       |   |                                      |   |   |   |   |   |
| Receivables Held for Investment                                              |   | $                                          | 8,540  |                                      | $      | 8,430 |   | $ | 26,926 |   | $ | 24,606 |   |
| Receivables Acquired for Investment and Investment in Trust  Certificates(2) |   | 555                                        |   | (15                                       | )      | 2,251 |   | 466 |   |
|                                                                         |   | 9,095                                      |   | 8,415                                     |   | 29,177 |   | 25,072 |   |
| Interest expense:                                                            |   |                                       |   |                                      |   |   |   |   |   |
| Receivables Held for Investment(3)                                           |   | 2,711                                      |   | 2,485                                     |   | 10,043 |   | 8,033 |   |
| Receivables Acquired for Investment and Investment in Trust  Certificates    |   | 107                                        |   | 1                                         |   | 500 |   | 29 |   |
|                                                                         |   | 2,818                                      |   | 2,486                                     |   | 10,543 |   | 8,062 |   |
| Net interest income                                                          |   | $                                          | 6,277  |                                      | $      | 5,929 |   | $ | 18,634 |   | $ | 17,010 |   |

 

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| (1)    | Amounts shown are net of  amortization of premium and deferred fees.                                                                                                                                                                                                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                        |
| (2)    | Amounts shown for the three  and nine months ended January 31, 2002 reflect $175 and $695, respectively,  in net interest income related to minority interest. Amounts shown for the  three and nine months ended January 31, 2003 reflect $5 and $172,  respectively, in net interest income related to minority interest. |
|   |                                                                                                                                                                                                                                                                                                                        |
| (3)    | Includes facility fees and  fees on the unused portion of the credit facilities.                                                                                                                                                                                                                                            |

 

The following table sets forthinformation with regard to the Company’s net interest spread, which representsthe difference between the effective yield on Receivables Held for Investmentand the Company’s average cost of debt utilized to fund these receivables, andits net interest margin (averages based on month-end balances):

 
|                                                   |   | **Three Months Ended  January 31,** |   | **Nine Months Ended  January 31,** |   |
|--------------------------------------------------------|--------|-------------------------------------|--------|------------------------------------|--------|
|                                                   |   | **2002**                            |   | **2003**                           |   | **2002** |   | **2003** |   |
| Receivables Held for Investment:                       |   |                                |   |                               |   |   |   |   |   |
| Effective yield on Receivables Held  for Investment(1) |   | 15.5                                | %      | 15.4                               | %      | 15.6 | % | 15.3 | % |
| Average cost of debt(2)                                |   | 5.0                                 | %      | 4.5                                | %      | 6.0 | % | 4.9 | % |
| Net interest spread(3)                                 |   | 10.5                                | %      | 10.9                               | %      | 9.6 | % | 10.4 | % |
| Net interest margin(4)                                 |   | 10.6                                | %      | 10.9                               | %      | 9.8 | % | 10.3 | % |

 

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| (1) | Represents interest income as  a percentage of average Receivables Held for Investment outstanding.     |
|-----|---------------------------------------------------------------------------------------------------------|
| (2) | Represents interest expense as  a percentage of average debt outstanding.                               |
| (3) | Represents yield on  Receivables Held for Investment less average cost of debt.                         |
| (4) | Represents net interest income  as a percentage of average Receivables Held for Investment outstanding. |

 

Net interest income is the difference between interestearned from the receivables portfolio and interest expense incurred on thecredit facilities used to acquire the receivables. Net interest incomedecreased 6% for the three months ended January 31, 2003 to $5.9 million from$6.3 million for the three months ended January 31, 2002.  Net interest income decreased 9% for thenine months ended January 31, 2003 to $17.0 million from $18.6 million for thenine months ended January 31, 2002.

 

Changes in the principal amount and rate componentsassociated with the Receivables Held for Investment and debt can be segregatedto analyze the periodic changes in net interest income on such receivables. Thefollowing table analyzes the changes attributable to the principal amount andrate components of net interest income (dollars in thousands):

 
|                             |   | **Three  Months Ended  January 31, 2002 to 2003** |   | **Nine  Months Ended  January 31, 2002 to 2003** |   |
|----------------------------------|--------|---------------------------------------------------|--------|--------------------------------------------------|--------|
|                             |   | **Increase  (Decrease)  Due to  Change in**       |   |                                             |   | **Increase  (Decrease)  Due to  Change in** |   |   |   |
|                             |   | **Average  Principal  Amount**                    |   | **Average  Rate**                                |   | **Total  Net  Increase  (Decrease)** |   | **Average  Principal  Amount** |   | **Average  Rate** |   | **Total Net  Increase  (Decrease)** |   |
|                             |   |                                              |   |                                             |   |   |   |   |   |   |   |   |   |
| Receivables Held for Investment: |   |                                              |   |                                             |   |   |   |   |   |   |   |   |   |
| Interest income                  |   | $                                                 | (77    | )                                                | $      | (33 | ) | $ | (110 | ) | $ | (1,894 | ) | $ | (426 | ) | $ | (2,320 | ) |
| Interest expense                 |   | 18                                                |   | (244                                             | )      | (226 | ) | (370 | ) | (1,640 | ) | (2,010 | ) |
| Net interest income              |   | $                                                 | (95    | )                                                | $      | 211 |   | $ | 116 |   | $ | (1,524 | ) | $ | 1,214 |   | $ | (310 | ) |

 

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**Results of Operations**

 

*Three Months and Nine Months Ended January 31, 2003 and 2002(dollars in thousands)*

 

*Interest Income*.  Interest income for the 2003periods decreased to $8,415 and $25,072 compared with $9,095 and $29,177 forthe comparable periods in 2002. Interest income on Receivables Held forInvestment decreased 1% for the three-month period and 9% for the nine-monthperiod in 2003 compared to the comparable periods in 2002. This is due to a 1%and 7% decline in the average Receivables Held for Investment outstanding overthe three-month and nine-month periods and to a reduction of 10 basis points,or a 1% decrease, in the yield on the Receivables Held for Investment for thethree-month period and 30 basis points, or a 2% decrease, in the yield for thenine-month period ended January 31, 2003 compared to the same periods for 2002.The decrease in interest income on Receivables Acquired for Investment is primarily attributable to a 78% and 72% reduction inthe average principal balances of the Receivables Acquired for Investment forthe comparable three-month and nine-month periods.  This trend will continue as the Receivables Acquired forInvestment portfolio liquidates.

 

*Interest Expense*.  Interest expense in 2003decreased for both the three-month and nine-month periods to $2,486 and $8,062as compared to $2,817 and $10,543 in 2002. Interest expense on Receivables Heldfor Investment decreased 8% and 20% for their respective periods.  This is primarily due to a reduction of 50basis points, or a 10% decrease, in the interest rate on the outstandingborrowings in the three-month period and a reduction of 110 basis points, or a18% decrease, in the interest rate for the nine-month periods in 2003 comparedto 2002. The decrease in interest expense on Receivables Acquired forInvestment for the three and nine month periods is attributable to a netreduction in the weighted average borrowings under the acquisition term andFIACC facilities.

 

*Net Interest Income*.  Net interest income decreasedto $5,929 and $17,010, a decrease of 6% and 9% over the comparable three-monthand nine-month periods in the prior year. The decreases resulted from loweraverage outstandings and lower yields on the Receivables Held for Investmentand Receivables Acquired for Investment offset by lower cost of funds andoutstanding borrowings to finance the Receivables Held for Investment andReceivables Acquired for Investment.

 

*Provision for Credit Losses*. The provision for credit losses for 2003 increased to $2,815 and $7,453as compared to $2,474 and $6,178 in 2002. The increase in provision for creditlosses is primarily due to higher net charge offs for the 2003 periods coupledwith an increase in the portfolio size. Charge offs for the three-month period ended January 31, 2003 increasedto $2,633 from $2,567 in the prior year period.  Charge offs for the nine-month period ended January 31, 2003increased to $7,391 from $6,478 in the prior year period.  Both frequency and severity of repossessionlosses increased due toweakened economic conditions and the ability of customers to maintaincomparable employment.  Recovery rateson repossessions have suffered due to decreasing prices and increasedincentives for new vehicles which decreased the demand and price for usedvehicles.

 

*Loss on Receivables Acquired for Investment*. During the quarter ended January 31, 2002, a loss of $1,260 was recordedon the Receivables Acquired for Investment in order to provide for additionalreserves due to higher losses than were originally anticipated. ReceivablesAcquired for Investment are comprised of loans previously originated by AutoLenders Acceptance Corporation and include a portfolio of warehouse loans and aportfolio of loans that were previously securitized. The securitized loans weresubsequently redeemed and funded through the FIACC credit facility. During theprior three-month and nine-month period in fiscal 2003, no loss wasincurred.  The loss in the prior yearperiods was due to a .42%, or$334,052, and 1.44%, or $954,833, increase in the cumulative loss rate for theFIACC and warehouse portfolios, respectively.

 

*Servicing Income*.  On December 24, 2002, theCompany entered into an agreement to provide loan servicing and collectionactivities on behalf of First Auto Receivables Corporation (“FARC”).  FARC,which is 40% owned by the Company,purchased a portfolio of approximately $200 million of installment loan receivables.  Servicing income was $222 for the currentyear periods.  There was no servicingincome in the prior year as no third party servicing was performed.

 

*Late Fees and Other Income*. Late fees and other income increased to $499 for the three months endedJanuary 31, 2003 compared to $409 for the comparable period in the prioryear.  The increase is due to $145 ofincome from the equity investment in FARC in December 2002 offset by lowerinterest income earned on short-term marketable securities and money market instruments. The decrease isprincipally attributable to a decrease in the reinvestment rates on the cashcollections. Late fees and other income decreased to $1,182 for the nine months

 

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ended January 31, 2003 compared to $1,392 for thecomparable period in the prior year. The decrease is primarily due to lower reinvestment income offset by theincome from the equity investment in FARC.

 

*UnrealizedLoss on Interest Rate Derivative Positions*.  In conjunction with the adoption of SFAS133, the Company is required to report the fair value of interest ratederivative positions.  Unrealized lossesare related to mark to market movements in the $100 million 6.42% pay fixedswap versus movements in the $100 million 5.025% receive floating swap and tothe market movements on various interest rate caps the Company maintains as acredit facility requirement.

 

*Salariesand Benefit Expenses*. Salaries and benefit costs were $2,101 and $2,063 for the three-monthperiods ended January 31, 2003 and 2002, respectively.  The slight increase is primarily due tohigher benefits costs and slightly higher salary related expenses due to theincrease in the managed portfolio from the addition of the FARC assets.  Salary and benefit costs decreased from$6,054 for the nine-month period ended January 31, 2002 to $5,740 for the sameperiod in 2003. The 5% decrease is primarily due to lower incentive pay.

 

*OtherInterest Expense*. Other interest expense in 2003 decreased to $158 for the three-monthperiod and $498 for the nine-month period as compared to $185 and $617,respectively, in 2002. The decrease was primarily due to a 19% reduction in theaverage outstanding borrowings and a 12% reduction in the average interest rateon this facility for the three months ended January 31, 2003 compared to 2002and a 12% reduction in the average outstanding borrowings and a 22% reductionin the average interest rate for the nine months ended January 31, 2003compared to 2002.

 

*OtherExpenses*.  Otherexpenses decreased to $1,444 and $4,037 in 2003 from $2,000 and $5,206 in 2002.For the comparable three-month periods ended January 31, the decrease isprimarily attributable to a reduction in amortization of deferred financingcosts and stock warrants.  The 2002periods included $555 of amortization related to the termination of the termloan working capital facility on December 6, 2001. A new term loan facilitywith First Union National Bank was entered into on December 6, 2001 in order torefinance the outstanding borrowings and increase the size of thefacility.  Additionally, depreciationexpense decreased due to completion of a capital lease in November 2001. Thecapital lease was initiated in December 1998 to purchase the assets of FISC. Lastly,telephone expense decreased due to favorable rates and efficient callingefforts.  These decreases are offset byan increase in postage and printing expense related to direct mail campaignsduring the 2003 period that were not yet in operation for the 2002 period. Forthe nine months ended January 31, 2003 as compared to the nine months endedJanuary 31, 2002, in addition to the decrease in amortization expense of $683,lower depreciation expense of $281, and lower telephone expense of $256, the Companyrealized savings from lower expenses related to operating leases that expiredfor various equipment and assets in the corporate offices.  These decreases are offset by higher postageand printing of $215 primarily due to the direct mail campaigns in the 2003period.

 

*IncomeBefore Provision for Income Taxes and Minority Interest*.  For the three months ended January 31, 2003,income before provision for income taxes and minority interest increased to $92compared to a loss of $1,306 for the comparable prior year period.  The loss on Receivables Acquired forInvestment in 2002 and higher fee income and lower operating expenses for 2003were offset by lower net interest margin and higher losses. For the nine monthsended January 31, 2003, income before provision for income taxes and minorityinterest decreased to $522 as compared to $601 for the 2002 period.  Lower net interest margin and higher losseswere partially offset by the nonrecurring loss on Receivables Acquired forInvestment and lower expenses.

 

**Liquidity and Capital Resources**

 

*Sourcesand Uses of Cash Flows*. The Company’s business requires significant cash flow to support itsoperating activities.  The principalcash requirements include (i) amounts necessary to acquire receivables fromdealers and fund required reserve accounts, (ii) amounts necessary to fundpremiums for credit enhancement insurance, and (iii) amounts necessary to fundcosts to retain receivables, primarily interest expense.  The Company also requires a significantamount of cash flow for working capital to fund fixed operating expenses,primarily salaries and benefits.

 

 

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The Company’s most significantcash flow requirement is the acquisition of receivables from dealers. The Companypaid $41.3 million and $87.6 million for receivables acquired for the threemonths and nine months ended January 31, 2003 compared to $18.3 million and$55.1 million paid in the comparable 2002 period.

 

The Company funds the purchase price of the receivablesthrough the use of a $75 million warehouse credit facility provided toF.I.R.C., Inc. (“FIRC”) a wholly-owned special purpose financing subsidiary ofthe Company. The current FIRC credit facility generally permits the Company todraw advances up to the outstanding principal balance of qualified receivables.Receivables that have accumulated in the FIRC credit facility may betransferred to a commercial paper conduit facility at the option of theCompany. Credit enhancement for the warehouse lenders is provided by an AutoLoan Protection Insurance (“ALPI”) policy issued by National Union FireInsurance Company of Pittsburgh and reinsured by the Company’s captiveinsurance subsidiary.

 

To provide additional liquidity to fund thereceivables portfolio, the Company utilized a $150 million commercial paperconduit financing through Variable Funding Capital Corporation (VFCC), acommercial paper conduit administered by Wachovia Securities as an additionalsource of warehouse financing for Receivables Held for Investment. Thefinancing was provided to a special-purpose, wholly-owned subsidiary of theCompany, First Investors Auto Receivables Corporation (“FIARC”). Creditenhancements for the $150 million facility are provided to the commercial paperinvestors by a surety bond issued by MBIA Insurance Corporation. At January 31,2003, the Company had borrowings of $61,501,981 outstanding under thecommercial paper facility. The Company had no outstanding borrowings under theFIARC facility as of April 30, 2002. The FIARC commercial paper facilityexpires on December 4, 2003.

 

Receivables originally purchasedby the Company are financed with borrowings under the FIRC credit facility.Once a sufficient amount of receivables have been accumulated, the receivablesare transferred from FIRC to FIARC with advances under the FIARC commercialpaper facility used to repay borrowings under the FIRC credit facility. Oncereceivables are transferred to the FIARC subsidiary and pledged as collateralfor commercial paper borrowings, the ALPI policy with respect to thetransferred receivables is cancelled with any unearned premiums returned toFIRC. FIARC may borrow up to 94 percent of the face amount of the receivablesbeing transferred. In addition, a cash reserve equal to 1 percent of theoutstanding borrowings under the FIARC commercial paper facility must bemaintained in a reserve account for the benefit of the creditors and suretybond provider.

 

The current term of the FIRC credit facility expiredon December 4, 2002 and was renewed until December 5, 2003. Under the renewalmechanics of the facility, should the lenders elect not to renew the facilitybeyond December 5, 2003, the facility would convert to a term loan facilitywhich would mature six months thereafter and amortize monthly in accordancewith the borrowing base with any remaining balance due at maturity. If thefacility is terminated, receivables pledged as collateral would be allowed toamortize; however, no new receivables would be allowed to be transferred fromthe FIRC credit facility. Borrowings under the FIRC credit facility were$28,610,000 and $69,730,000 at April 30, 2002 and January 31, 2003,respectively.

 

The Company also maintains a commercial paper conduitfinancing through Variable Funding Capital Corporation (“VFCC”), a commercialpaper conduit administered by Wachovia Securities. The financing was providedto a special-purpose, wholly-owned subsidiary of the Company, First InvestorsAuto Capital Corporation (“FIACC”) to fund the acquisition of receivablespreviously securitized by FISC.

 

FIACC acquires receivables from the Company inconjunction with the Company’s repurchase of previously securitized receivablesacquired for investment and may borrow up to 88 percent of the face amount ofreceivables which are pledged as collateral for the commercial paperborrowings. In addition, a cash reserve equal to 2 percent of the outstandingborrowings under the FIACC commercial paper facility must be maintained in areserve account for the benefit of the creditors.

 

The current term of the FIACCcommercial paper facility expires on March 11, 2003, however the facility waspaid off on January 15, 2003. The facility will not be renewed. At April 30,2002, borrowings were $2,603,433 under the FIACC commercial paper facility.

 

In addition to the $225 million in credit facilitiesutilized to fund the acquisition of new receivables, the Company also has aworking capital facility utilized to fund working capital requirements of theCompany. On December 6, 2001, the Company entered into an agreement withWachovia Securities to refinance the

 

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$11,175,000 outstanding balance of the working capital term loanpreviously provided by Bank of America and Wachovia and increase the size ofthe facility to $13.5 million.  Therenewal facility was provided to a special-purpose, wholly-owned subsidiary ofthe Company, First Investors Residual Funding LP.  The facility originally consisted of a $9 million revolvingtranche and a $4.5 million term loan tranche which amortizes monthly.  The term loan tranche of this workingcapital facility will be evidenced by the Class B Notes issued in conjunctionwith the 2002 Auto Trust financing. The remaining $9 million of the $13.5 millionworking capital facility revolves monthly in accordance with a borrowing baseconsisting of the overcollateralization amount and reserve accounts for each ofthe Company’s other credit facilities. The facility is secured solely by the residual cash flow and cashreserve accounts related to the Company’s warehouse credit facilities, theacquisition facility and the existing and future term note facilities. Pricingunder the facility is based on the LIBOR rate plus 1.5% plus another 1.5% onthe facility limit.  On December 5,2002, the maturity of the facility was extended to December 4, 2003.  Under the terms of the renewal, the interestrate was increased to LIBOR plus 2.25%. In addition, the monthly principal amortization under the term loantranche was increased to the greater of $250,000 or the principal distributionsmade under the Class B Notes issued under the 2002 Auto Trust financing.  This amortization schedule will continueuntil the term loan tranche is repaid, leaving the remaining facility consistingof the $9 million revolving tranche. In the event that the facility is notrenewed at maturity, residual cash flows from the various receivables financingtransactions will be applied to amortize the debt over the remaining life ofthe underlying receivables. At April 30, 2002 and January 31, 2003, there was$11,798,520 and $9,990,074, respectively, outstanding under this facility.

 

The Company presently intends to seek a renewal of theworking capital facility from its lender prior to maturity.  Should the facility not be renewed, theoutstanding balance of the receivables would be amortized in accordance withthe borrowing base.  Managementconsiders its relationship with its lenders to be satisfactory and has noreason to believe that this credit facility will not be renewed.  If the facility is not renewed, however, orif material changes are made to its terms and conditions, it could have amaterial adverse effect on the Company.

 

The Company expects to initiate discussions with itslenders regarding the renewal and extension of the warehouse credit facilitiesprior to maturity. Management considers its relationship with the lenders underthese facilities to be satisfactory and has no reason to believe that thesefacilities will not be renewed. If these facilities are not renewed, however,or if material changes are made to the terms and conditions, it could have amaterial adverse effect on the Company.   As of January 31, 2003, the Company had available unused creditfacilities of $93,768,019. As of January 31, 2002, the Company had$190,360,000, including the $25,000,000 prefunding of Term Notes.  The prefunding is classified as restrictedcash as of January 31, 2002.

 

On January 29, 2002, theCompany, through its indirect, wholly-owned subsidiary First Investors AutoOwner Trust 2002-A (“2002 Auto Trust”), completed the issuance of $159,036,000of 3.46 percent Class A asset-backed notes (“2002-A Term Notes”). The initialpool of automobile receivables transferred to the 2002 Auto Trust totaled$135,643,109, which was previously owned by FIRC and FIARC, secures the 2002-ATerm Notes.  In addition to the issuanceof the Class A Notes, the 2002 Auto Trust also issued $4,819,000 in Class BNotes which were retained by the Company and pledged to secure the WorkingCapital Facility as further described below.  Proceeds from the issuance, which totaled $159,033,471, were used to (i)fund a $25,000,000 pre-funding account to be used for future loan originations;(ii) repay all outstanding borrowings under the FIARC commercial paperfacility, (iii) reduce the outstanding borrowings under the FIRC creditfacility, (iv) pay transaction fees related to the 2002-A Term Note issuance,and (v) fund a cash reserve account of 2 percent or $2,712,862 of the initialreceivables pledged which will serve as a portion of the credit enhancement forthe transaction.  The Class A Term Notesbear interest at 3.46 percent and require monthly principal reductionssufficient to reduce the balance of the Class A Term Notes to 97 percent of theoutstanding balance of the underlying receivables pool. The final maturity ofthe 2002-A Term Notes is December 15, 2008. The Class B Notes do not bear interest but require principal reductionssufficient to reduce the balance of the Class B Notes to 3 percent of theoutstanding balance of the underlying receivables pool.  A surety bond issued by MBIA InsuranceCorporation provides credit enhancement for the Class A Notes.  Additional credit support is provided by thecash reserve account, which equals 2 percent of the original balance of thereceivables pool plus 2 percent of the original balance of receivablestransferred under the pre-funding provision. Further enhancement is provided through an initial 1 percentovercollateralization which is required to be increased to 3 percent throughexcess monthly principal and interest collections. In the event that certainasset quality covenants are not met, the reserve account target level willincrease to 6 percent of the then current principal balance of the receivablespool. As of April 30, 2002 and January 31, 2003, the outstanding principalbalances on the 2002-A Term Notes were $143,096,983 and $100,303,596,respectively.

 

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On January 24, 2000, theCompany, through its indirect, wholly-owned subsidiary, First Investors AutoOwner Trust 2000-A (“Auto Trust”), completed the issuance of $167,969,000 of7.174 percent asset-backed notes (“2000-A Notes”). The Notes are secured by apool of automobile receivables totaling $174,968,641 which were previouslyowned by FIRC, FIARC and FIACC. Proceeds from the issuance, which totaled$167,967,690 were used to repay all outstanding borrowings under the FIARC andFIACC commercial paper facilities, to reduce the outstanding borrowings underthe FIRC credit facility, to pay transaction fees related to the 2000-A Noteissuance and to fund a cash reserve account of 2 percent or $3,499,373 whichwill serve as a portion of the credit enhancement for the transaction.  The 2000-A Notes bear interest at 7.174percent and require monthly principal reductions sufficient to reduce thebalance of the Notes to 96 percent of the outstanding balance of the underlyingreceivables pool. The final maturity of the Notes is February 15, 2006. Creditenhancement for the 2000-A Noteholders is provided by a surety bond issued byMBIA Insurance Corporation. Additional credit support is provided by a cashreserve account which is equal to 2 percent of the original balance of the receivablespool and a 4 percent over-collateralization requirement amount. In the eventthat certain asset quality covenants are not met, the reserve account targetlevel will increase to 6 percent of the then current principal balance of thereceivables pool. As of April 30, 2002, the outstanding principal balance onthe 2000-A Notes was $40,162,801. On November 15, 2002, the Company exercisedits right to prepay the outstanding debt. The collateral was financed through borrowings under the FIARC commercialpaper facility.

 

On October 2, 1998, the Company, through its indirect,wholly-owned subsidiary, FIFS Acquisition Funding Company LLC (“FIFSAcquisition”), entered into a $75 million non-recourse bridge financingfacility with VFCC, an affiliate of Wachovia Securities, to finance theCompany’s acquisition of FISC. Contemporaneously with the Company’s purchase ofFISC, FISC transferred certain assets to FIFS Acquisition, consisting primarilyof (i) all receivables owned by FISC as of the acquisition date, (ii) FISC’sownership interest in certain Trust Certificates and subordinated spread orcash reserve accounts related to two asset securitizations previously conductedby FISC, and (iii) certain other financial assets, including charged-offaccounts owned by FISC as of the acquisition date. These assets, along with a$1 million cash reserve account funded at closing, served as the collateral forthe bridge facility. The facility bears interest at VFCC’s commercial paperrate plus 2.35 percent. Under the terms of the facility, all cash collectionsfrom the receivables or cash distributions to the certificate holder under thesecuritizations were first applied to pay FISC a servicing fee in the amount of3 percent on the outstanding balance of all owned or managed receivables andthen to pay interest on the facility. Excess cash flow available afterservicing fees and interest payments was utilized to reduce the outstandingprincipal balance on the indebtedness. In addition, one-third of the servicingfee paid to FISC was also utilized to reduce principal outstanding on theindebtedness. The bridge facility expired on August 14, 2000.

 

On August 8, 2000, the Company entered into anagreement with Wachovia Securities to refinance the acquisition facility. Underthe agreement, a partnership was created in which FIFS Acquisition serves asthe general partner owning 70 percent of the partnership assets and First UnionInvestors, Inc., an affiliate of Wachovia Securities, serves as the limitedpartner owning 30 percent of the partnership assets (the “Partnership”).Pursuant to the refinancing, the Partnership issued Class A Notes in the amountof $19,204,362 and Class B Notes in the amount of $979,453 to VFCC, theproceeds of which were used to retire the acquisition debt. The Class A Noteswill bear interest at VFCC’s commercial paper rate plus 0.95 percent per annumand will amortize on a monthly basis by an amount necessary to reduce the ClassA Note balance as of the payment date to 75 percent of the outstanding principalbalance of Receivables Acquired for Investment as of the previous month end.The Class B Notes will bear interest at VFCC’s commercial paper rate plus 5.38percent per annum and will amortize on a monthly basis by an amount which willvary based on excess cash flows received from Receivables Acquired forInvestment after payment of servicing fees, trustee and back-up servicer fees,Class A Note interest and Class A Note principal, plus collections received onthe Trust Certificates. The outstanding balances of the Class A Notes were$3,670,765 and $60,487 at April 30, 2002 and January 31, 2003, respectively.The Class B Notes were paid in full on September 15, 2000. After the Class BNotes were paid in full, all cash flows received after payment of Class A Noteprincipal and interest, servicing fees and other costs, are distributed to thePartnership for subsequent distribution to the partners based upon therespective partnership interests. During the nine months ended January 31, 2002, $866,583 was distributedto the limited partner.  Beginning inNovember 2001, the partnership used excess cash flow to retire additional ClassA Note principal thus no further partnership distributions will be paid untilthe Class A Notes are retired. On February 20, 2003, the Class A Notes werefully paid and all excess cash flows will flow to the partners. The amount ofthe partners’ cash flow will vary depending on the timing and amount of cashflows on the assets. The Company is accounting for Wachovia Securities’ limitedpartnership interest in the Partnership as a minority interest.

 

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On December 3, 2001 the Company entered into anagreement with one of its shareholders who is a member of its Board ofDirectors under which the Company may, from time to time, borrow up to $2.5million.  The proceeds of the borrowingswill be utilized to fund certain private and open market purchases of theCompany’s common stock and for general corporate purposes.  Borrowings under the facility bear interestat a fixed rate of 10 percent per annum. The facility is unsecured and expressly subordinated to the Company’ssenior credit facilities.  The facilitymatures on December 3, 2008 but may be repaid at any time unless the Company isin default on one of its other credit facilities. At April 30, 2002 and January31, 2003, there was $525,000 and $746,280, respectively, outstanding under thisfacility.

 

Substantially all of the Company’s receivables arepledged to collateralize the credit facilities. Management considers itsrelationship with all of the Company’s lenders and the Noteholders to besatisfactory and has no reason to believe that the credit facilities will notbe renewed.

 

The Company’s most significantsource of cash flow is the principal and interest payments from the receivablesportfolio. The Company received such payments in the amount of $84.2 millionand $96.1 million for the nine months ended January 31, 2003 and 2002,respectively. Such cash flow funds repayment of amounts borrowed under the FIRCcredit and commercial paper facilities and other holding costs, primarilyinterest expense and custodian fees and excess cash flow is used to fundoperations.  During the nine monthsended January 31, 2003, the Company required net cash of $27.9 million as thereceivable purchases exceeded the portfolio collections.  During the nine months ended January 31,2002, the Company generated net cash flow of $14.3 million as principal collectionson Receivables Held for Investment exceeded cash required for purchases.

 

In addition to the excess cashflow generated from the principal and interest collections on the receivablesportfolio, the Company collects servicing fees funded from each of the creditfacilities.  Servicing fees range from2% to 2.5% of the outstanding principal balance of the loans.  Excess cash flows and servicing fees arereceived after month end but relate to the prior month activity.  Thus upon filing of the monthly servicingstatements, a portion of the restricted cash is converted to cash available tofund operations.   At January 31, 2003and 2002, the Company’s unencumbered cash was $1,341,586 and $1,867,119,respectively.   Excess cash andservicing fees collected after month end but related to the prior monthactivity totaled $1,890,646 and $1,039,921 as of January 31, 2003 and 2002,respectively. Management believes the unencumbered cash and cash inflows areadequate to fund cash requirements for operations.

 

*Interest Rate Management*.  The Company’s warehouse credit facilitiesbear interest at floating interest rates which are reset on a short-term basiswhile the secured Term Notes bear interest at a fixed rate of interest. TheCompany’s receivables bear interest at fixed rates that do not generally vary withthe change in interest rates. Since a primary contributor to the Company’sprofitability is its ability to manage its net interest spread, the Companyseeks to maximize the net interest spread while minimizing exposure to changesin interest rates. In connection with managing the net interest spread, theCompany may periodically enter into interest rate swaps or caps to minimize theeffects of market interest rate fluctuations on the net interest spread. To theextent that the Company has outstanding floating rate borrowings or has electedto convert a portion of its borrowings from fixed rates to floating rates, theCompany will be exposed to fluctuations in short-term interest rates.

 

The Company waspreviously a party to a swap agreement with Bank of America pursuant to whichthe Company’s interest rate was fixed at 5.565 percent on a notional amount of$120 million. The swap agreement expired on January 12, 2000. In connectionwith the issuance of the Term Notes, the Company entered into a swap agreementwith Bank of America pursuant to which the Company pays a floating rate equalto the prevailing one month LIBOR rate plus 0.505 percent and receives a fixedrate of 7.174 percent from the counterparty. The initial notional amount of theswap was $167,969,000, which amortized in accordance with the expectedamortization of the Term Notes. Final maturity of the swap was August 15, 2002.

 

OnSeptember 27, 2000, the Company elected to terminate the aforementioned swap atno material gain or loss and enter into a new swap under which the Companywould pay a fixed rate of 6.30 percent and receive the prevailing one monthLIBOR rate plus 0.505 percent on a notional amount of $100 million.  Under the terms of the swap, thecounterparty had the option of extending the swap for an additional three yearsto mature on April 15, 2004 at a fixed rate of 6.42 percent.  On April 15, 2001, the counterpartyexercised its extension option.

 

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On June 1, 2001, the Company enteredinto interest rate swaps with an aggregate notional amount of $100 million anda maturity date of April 15, 2004. Under the terms of these swaps, the Company will pay a floating ratebased on one-month LIBOR and receive a fixed rate of 5.025 percent.  Management elected to enter into these swapagreements to offset the uneconomical position of the existing pay fixed swapcreated by rapidly declining market interest rates.

 

In connection with the repurchase of the ALAC 97-1Securitization and the financing of that repurchase through the FIACCsubsidiary on September 15, 2000, FIACC entered into an interest rate swapagreement with Wachovia Securities under which FIACC pays a fixed rate of 6.76percent as compared to the one month commercial paper index rate. The initialnotional amount of the swap is $6,408,150, which amortizes monthly inaccordance with the expected amortization of the FIACC borrowings. The finalmaturity of the swap was December 15, 2001. On March 15, 2001, in connectionwith the repurchase of the ALAC 1998-1 Securitization and the financing of thatpurchase through the FIACC subsidiary, the Company and the counterpartymodified the existing interest rate swap increasing the notional amountinitially to $11,238,710 and reducing the fixed rate from 6.76 percent to 5.12percent.  The new notional amountamortized monthly in accordance with the expected principal amortization of theunderlying borrowings.  The expirationdate of the swap was changed from December 15, 2001 to September 1, 2002.

 

On October 2, 1998, inconnection with the $75 million acquisition facility, the Company, through FIFSAcquisition, entered into a series of hedging instruments with WachoviaSecurities designed to hedge floating rate borrowings under the acquisitionfacility against changes in market rates. Accordingly, the Company entered into two interest rate swap agreements,the first in the initial notional amount of $50.1 million (“Class A swap”)pursuant to which the Company’s interest rate is fixed at 4.81 percent; and,the second in the initial notional amount of $24.9 million (“Class B swap”)pursuant to which the Company’s interest rate is fixed at 5.50 percent. Thenotional amount outstanding under each swap agreement amortized based on animplied amortization of the hedged indebtedness. The final maturity of theClass A swap  was December 20, 2002while the Class B swap matured on February 20, 2000. The Company also purchasedtwo interest rate caps, which protected the Company, and the lender against anymaterial increases in interest rates that may adversely affect any outstandingindebtedness that is not fully covered by the aggregate notional amountoutstanding under the swaps. The first cap agreement (“Class A cap”) enabledthe Company to receive payments from the counterparty in the event that theone-month commercial paper rate exceeded 4.81 percent on a notional amount thatincreased initially and then amortized based on the expected difference betweenthe outstanding notional amount under Class A swap and the underlyingindebtedness. The interest rate cap expired December 20, 2002 and the cost ofthe cap was amortized in interest expense for the period. The second capagreement (“Class B cap”) enabled the Company to receive payments from thecounterparty in the event that the one-month commercial paper rate exceeded 6percent on a notional amount that increased initially and then amortized basedon the expected difference between the outstanding notional amount under ClassB swap and the underlying indebtedness. The interest rate cap expiredDecember  20, 2002  and the cost of the cap was imbedded in thefixed rate applicable to Class B swap. Pursuant to the refinance of theacquisition facility on August 8, 2000, the Class B cap was terminated and thenotional amounts of the Class A swap and Class A cap were adjusted downward toreflect the lower outstanding balance of the Class A Notes. The amendment orcancellation of these instruments resulted in a gain of $418,609. Thisderivative net gain was amortized over the life of the initial derivativeinstrument. In addition, the two remaining hedge instruments were assigned byFIFS Acquisition to the Partnership.

 

As of May 1, 2001 the Companyhad designated the three interest rate swaps and one interest rate cap with anaggregate notional value of $130,165,759 as cash flow hedges as defined underSFAS No. 133.  Accordingly, any changesin the fair value of these instruments resulting from the mark-to-marketprocess are recorded as unrealized gains or losses and reflected as an increaseor reduction in stockholders’ equity through other comprehensive income.  In connection with the decision to enterinto the $100 million floating rate swaps on June 1, 2001, the Company electedto change the designation of the $100 million fixed rate swap and not accountfor the instrument as a hedge under SFAS No. 133.   As a result, the change in fair value of both swaps is reflectedin net earnings  for period subsequentto May 31, 2001. In conjunction with this designation and the adoption of SFAS133 and SFAS 138, the Company recorded a transition adjustment in the aggregateamount of $(2,501,595), net of a tax benefit of $1,437,925, as a reduction toshareholders’ equity and recorded a corresponding liability to reflect the fairmarket value of the derivatives as of May 1, 2001. The equity adjustment isclassified as accumulated other comprehensive income (loss) and the derivativeliability is classified in the interest rate derivative positions liability.  Over a period ending in April 2004, thematurity date of the final swap, the Company will reclassify into earningssubstantially all of the transition adjustment originally recorded.

 

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During the nine months endedJanuary 31, 2003 and as a requirement of the FIARC commercial paper facility,the Company entered into six interest rate cap transactions at cap ratesranging from 6.5% to 7.5% with an amortizing notional balance that is expectedto coincide with the outstanding balance of the FIARC commercial paperfacility. The interest rate caps were not designated as hedges and,accordingly, changes in the fair value of the interest rate caps are recordedas unrealized gains or losses and reflected in net earnings.  Hedge accounting was not adopted for thesepositions due to mark-to-market movements being deemed ineffective since theyrelate to time value and would be required to flow through net earnings thuseliminating any benefits of hedge accounting.

 

**Delinquency and Credit Loss Experience**

 

The Company’s results of operations, financialcondition and liquidity may be adversely affected by nonperforming receivables.The Company seeks to manage its risk of credit loss through (i) prudent creditevaluations, (ii) risk management activities, (iii) effective collectionprocedures, and (iv) by maximizing recoveries on defaulted loans. An allowancefor credit losses of $2,401,259 as of January 31, 2003 and $2,338,625 as ofApril 30, 2002 as a percentage of the Receivables Held for Investment of$226,533,824 as of January 31, 2003 and $212,926,747 as of April 30, 2002 was1.1% at January 31, 2003 and April 30, 2002.

 

With respect to Receivables Acquired for Investment,the Company has established a nonaccretable loss reserve to cover expectedlosses over the remaining life of the receivables. As of January 31, 2003 andApril 30, 2002, the nonaccretable loss reserve as a percentage of ReceivablesAcquired for Investment was 7.3% and 14.6%, respectively. The nonaccretableportion represents the excess of a loan’s scheduled contractual principal andinterest payments over its expected cash flows.

 

The Company considers a loan to be delinquent when theborrower fails to make a scheduled payment of principal and interest. Accrualof interest is suspended when the payment from the borrower is over 90 dayspast due. Generally, repossession procedures are initiated 60 to 90 days afterthe payment default.

 

The Company retains the credit risk associated withthe receivables acquired. The Company purchases credit enhancement insurancefrom third party insurers which covers the risk of loss upon default andcertain other risks. Until March 1994, such insurance absorbed substantiallyall credit losses. In April 1994, the Company established a captive insurancesubsidiary to reinsure certain risks under the credit enhancement insurancecoverage for all receivables acquired in March 1994 and thereafter. Inaddition, receivables financed under the Auto Trust, FIARC and FIACC commercialpaper facilities do not carry default insurance. Provisions for credit lossesof $2,814,888 and $2,474,025 have been recorded for the three months endedJanuary 31, 2003 and January 31, 2002, respectively, for losses on receivableswhich are either uninsured or which are reinsured by the Company’s captiveinsurance subsidiary.  Provisions forcredit losses of $7,453,438 and $6,177,825 have been recorded for the ninemonths ended January 31, 2003 and January 31, 2002, respectively.

 

The Company calculates the allowance for credit lossesin accordance with SFAS 5, “Accounting for Contingencies”.  SFAS 114, “Accounting for Creditors forImpairment of a Loan”, does not apply to the Company since the Receivables Heldfor Investment are comprised of a large group of smaller balance homogenousloans.

 

The Company applies a systematic methodology in orderto determine the amount of the allowance for credit losses.  The specific methodology utilized is asix-month migration analysis whereby the Company compares the aging status of eachloan from six months prior to the aging loan status as of the reportingdate.  These factors are then applied tothe aging status of each loan at the reporting date in order to calculate thenumber of loans that are expected to migrate to impaired status in the next sixmonths.  The estimated number ofimpairments is then multiplied by estimated loss per loan, which is based onhistorical information.  The computedreserve is then compared to the amount recorded for adequacy.  The Company compares the six-month result toprior six-month periods to compare trends and evaluate any other internal orexternal factors that may affect collectibility. The allowance for creditlosses is based on estimates and qualitative evaluations and ultimate losseswill vary from current estimates. These estimates are reviewed periodically andas adjustments, either positive or negative, become necessary, are reported inearnings in the period they become known.

 

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For Receivables Acquired for Investment, nonaccretabledifference represents contractual principal and interest payments the Companywill be unable to collect.  The Companyanalyzes the composition of these liquidating portfolios in order to estimate afuture loss rate.  Criteria evaluatedinclude delinquencies, historical charge offs, recovery rates, portfolioseasoning and economic conditions.  Acash flow model that considers term, interest rate, loss rate, prepayment rateand recovery rate is consistently applied to project expected cash flows.  The difference between expected cash flowsand total contractual principal and interest payments is the nonaccretabledifference.

 

The following tablesummarizes the status and collection experience of receivables by the Company(dollars in thousands):

 
|                                                                                      |   | **As of or for the Nine Months Ended January 31,** |   |
|-------------------------------------------------------------------------------------------|--------|----------------------------------------------------|--------|
|                                                                                      |   | **2002**                                           |   | **2003** |   |
|                                                                                      |   | **Number**                                         |   | **Amount** |   | **Number** |   | **Amount** |   |
| Receivables Held for Investment:                                                          |   |                                               |   |   |   |   |   |   |   |
| Delinquent amount outstanding(1):                                                         |   |                                               |   |   |   |   |   |   |   |
| 30 – 59 days                                                                         |   | 149                                                |   | $ | 1,795 |   | 373 |   | $ | 3,865 |   |
| 60 – 89 days                                                                         |   | 80                                                 |   | 1,038 |   | 181 |   | 2,004 |   |
| 90 days or more                                                                           |   | 279                                                |   | 3,392 |   | 526 |   | 5,442 |   |
| Total delinquencies                                                                       |   | 508                                                |   | $ | 6,225 |   | 1,080 |   | $ | 11,311 |   |
| Total delinquencies as a percentage of  outstanding receivables                           |   | 2.7                                                | %      | 2.9 | % | 5.8 | % | 5.0 | % |
| Net charge-offs as a percentage of average  receivables outstanding during the  period(2) |   |                                               |   | 3.7 | % |   |   | 4.6 | % |

 

----

| (1)    | Delinquent amounts outstanding  do not include loans in bankruptcy status since collection activity is  limited and highly regulated for bankrupt accounts. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                        |
| (2)    | The percentages have been  annualized and are not necessarily indicative of the results for a full year.                                                    |

 

The increase in the delinquency rate reflects thecontinued economic weakness and the impact of a further aging of the Company’sportfolio.  The higher annualizedcharge-off rate results from a higher number of repossessions coupled withlower recovery rates on the repossessed collateral.

 

As of January 31, 2003, there were 483 accountstotaling $5,583,256 that were in bankruptcy status and were more than 30 dayspast due.  As of January 31, 2002, therewere 594 accounts totaling $5,981,186 that were in bankruptcy status and weremore than 30 days past due.  As ofJanuary 31, 2003 and January 31, 2002, 86% and 84%, respectively, of the bankruptcydelinquencies filed for protection under Chapter 13.

 

The total number of delinquent accounts (30 days ormore) as a percentage of the number of outstanding receivables for theCompany’s portfolio of Receivables Acquired for Investment was 37.4% and 11.3%as of January 31, 2003 and April 30, 2002, respectively.  Delinquencies are increasing principally dueto the aging of the portfolio and relatively small number of loans remaining inthese portfolios.  The loans that areremaining have higher delinquencies and this trend is expected to continueuntil all loans are collected.

 

**Forward Looking Information**

 

Statements and financial discussion and analysisincluded in this report that are not historical are considered to beforward-looking in nature. Forward-looking statements involve a number of risksand uncertainties that may cause actual results to differ materially fromanticipated results. Specific factors that could cause such differences includeunexpected fluctuations in market interest rates; changes in economicconditions; or increases or changes in the competition for loans. Although theCompany believes that the expectations reflected in the forward-lookingstatements presented herein are reasonable, it can give no assurance that suchexpectations will prove to be correct.

 

29

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**ITEM 3.****    *QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK***

 

The market risk discussion and the estimated amountsgenerated from the analysis that follows are forward-looking statements ofmarket risk assuming certain adverse market conditions occur. Actual results inthe future may differ materially due to changes in the Company’s product anddebt mix, developments in the financial markets, and further utilization by theCompany of risk-mitigating strategies such as hedging.

 

The Company’s operating revenues are derived almostentirely from the collection of interest on the receivables it retains and itsprimary expense is the interest that it pays on borrowings incurred to purchaseand retain such receivables. The Company’s credit facilities bear interest atfloating rates which are reset on a short-term basis, whereas its receivablesbear interest at fixed rates which do not generally vary with changes in interestrates. The Company is therefore exposed primarily to market risks associatedwith movements in interest rates on its credit facilities. The Company believesthat it takes the necessary steps to appropriately reduce the potential impactof interest rate increases on the Company’s financial position and operatingperformance.

 

The Company relies almost exclusively on revolvingcredit facilities to fund its origination of receivables. Periodically, theCompany will transfer receivables from a revolving to a term credit facility.Currently, all of the Company’s credit facilities in combination with variousswaps bear interest at floating rates tied to either a commercial paper indexor LIBOR.

 

As of January 31, 2003, the Company had $115.4 millionof floating rate secured debt outstanding considering the effect of swap andcap agreements. For every 1% increase in commercial paper rates or LIBOR,annual after-tax earnings would decrease by approximately $733,000, assumingthe Company maintains a level amount of floating rate debt and assuming animmediate increase in rates. As of January 31, 2002, the Company had $45.5million of floating rate secured debt outstanding considering the effect ofswap and cap agreements. For every 1% increase in commercial paper rates orLIBOR, annual after-tax earnings would decrease by approximately $289,000,assuming the Company maintains a level amount of floating rate debt andassuming an immediate increase in rates.

 

30

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###### **PART II**

 

##### **OTHERINFORMATION**

 

**ITEM 6.****     *EXHIBITS ANDREPORTS ON FORM 8-K***

 
| (a)    | Exhibits            |   |                                                                                                                                                |
|--------|---------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                |   |                                                                                                                                                |
|   | 99.1                | — | Certification by Chief  Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
|   | 99.2                | — | Certification by Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |                |   |                                                                                                                                                |
| (b)    | Reports on Form 8-K |

 

None.

 

**SIGNATURES**

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 
|                      | First  Investors Financial Services Group, Inc.   |
|---------------------------|---------------------------------------------------|
|                      | (Registrant)                                      |
|                      |                                              |
| Date:  March 7, 2003 | By:  /s/ TOMMY A. MOORE, JR.                      |
|                      | Tommy  A. Moore, Jr.                              |
|                      | President  and Chief Executive Officer            |
|                      |                                              |
| Date:  March 7, 2003 | By:  /s/ BENNIE H. DUCK                           |
|                      | Bennie  H. Duck                                   |
|                      | Secretary,  Treasurer and Chief Financial Officer |

 

31

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**Certification Required**

**by Rules13a-14 and 15d-14 under the Securities Exchange Act of 1934**

 

I, Tommy A. Moore, Jr., certify that:

 
| 1.     | I have reviewed this quarterly report on Form 10-Q  of First Investors Financial Services Group, Inc. (the “Company”);                                                                                                                                                                                                                                                                 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.     | Based on my knowledge, this quarterly report does  not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the  circumstances under which such statements were made, not misleading with  respect to the period covered by this quarterly report;                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.     | Based on my knowledge, the financial statements, and  other financial information included in this quarterly report, fairly present  in all material respects the financial condition, results of operations and  cash flows of the Company as of, and for, the periods presented in this  quarterly report;                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.     | The Company’s other certifying officers and I are  responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the  Company and we have:                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
|   | a)                                                                                                                                                                                                                                                                                                                                                                                               | designed such disclosure controls and procedures to  ensure that material information relating to the Company, including its  consolidated subsidiaries, is made known to us by others within those  entities, particularly during the period in which this quarterly report is  being prepared; |
|   | b)                                                                                                                                                                                                                                                                                                                                                                                               | evaluated the effectiveness of the Company’s  disclosure controls and procedures as of a date within 90 days prior to the  filing date of this quarterly report (the “Evaluation Date”); and |
|   | c)                                                                                                                                                                                                                                                                                                                                                                                               | presented in this quarterly report our conclusions  and about the effectiveness of the disclosure controls and procedures based  on our evaluation as of the Evaluation Date; |
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 5.     | The Company’s other certifying officers and I have  disclosed, based on our most recent evaluation, to the Company’s auditors and  the audit committee of Company’s board of directors (or persons performing  the equivalent function):                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
|   | a)                                                                                                                                                                                                                                                                                                                                                                                               | all significant deficiencies in the design or  operation of internal controls, which could adversely affect the Company’s  ability to record, process, summarize and report financial data and have  identified for the Company’s auditors any material weaknesses in internal  controls; and |
|   | b)                                                                                                                                                                                                                                                                                                                                                                                               | any fraud, whether or not material, that involves  management or other employees who have a significant role in the Company’s  internal controls; and |
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 6.     | The Company’s other certifying officers and I have  indicated in this quarterly report whether or not there were significant  changes in internal controls or in other factors that could significantly  affect internal controls subsequent to the date of our most recent  evaluation, including any corrective actions with regard to significant  deficiencies and material weaknesses. |

 

 
| Date: March 7, 2003 |                        |
|---------------------|-----------------------------|
|                |                        |
|                | By: /s/ TOMMY A. MOORE, JR. |   |
|                | Tommy A. Moore, Jr.         |
|                | Chief Executive Officer     |

 

32

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I, Bennie H. Duck, certify that:

 
| 1.     | I have reviewed this quarterly report on Form 10-Q  of First Investors Financial Services Group, Inc. (the “Company”);                                                                                                                                                                                                                                                                 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.     | Based on my knowledge, this quarterly report does  not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the  circumstances under which such statements were made, not misleading with  respect to the period covered by this quarterly report;                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.     | Based on my knowledge, the financial statements, and  other financial information included in this quarterly report, fairly present  in all material respects the financial condition, results of operations and  cash flows of the Company as of, and for, the periods presented in this  quarterly report;                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.     | The Company’s other certifying officers and I are  responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the  Company and we have:                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
|   | a)                                                                                                                                                                                                                                                                                                                                                                                               | designed such disclosure controls and procedures to  ensure that material information relating to the Company, including its  consolidated subsidiaries, is made known to us by others within those  entities, particularly during the period in which this quarterly report is  being prepared; |
|   | b)                                                                                                                                                                                                                                                                                                                                                                                               | evaluated the effectiveness of the Company’s  disclosure controls and procedures as of a date within 90 days prior to the  filing date of this quarterly report (the “Evaluation Date”); and |
|   | c)                                                                                                                                                                                                                                                                                                                                                                                               | presented in this quarterly report our conclusions  and about the effectiveness of the disclosure controls and procedures based  on our evaluation as of the Evaluation Date; |
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 5.     | The Company’s other certifying officers and I have  disclosed, based on our most recent evaluation, to the Company’s auditors and  the audit committee of Company’s board of directors (or persons performing  the equivalent function):                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
|   | a)                                                                                                                                                                                                                                                                                                                                                                                               | all significant deficiencies in the design or  operation of internal controls, which could adversely affect the Company’s  ability to record, process, summarize and report financial data and have  identified for the Company’s auditors any material weaknesses in internal  controls; and |
|   | b)                                                                                                                                                                                                                                                                                                                                                                                               | any fraud, whether or not material, that involves  management or other employees who have a significant role in the Company’s  internal controls; and |
|   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 6.     | The Company’s other certifying officers and I have  indicated in this quarterly report whether or not there were significant  changes in internal controls or in other factors that could significantly  affect internal controls subsequent to the date of our most recent  evaluation, including any corrective actions with regard to significant  deficiencies and material weaknesses. |

 

 
| Date:  March  7, 2003 |                    |
|----------------------------|-------------------------|
|                       |                    |
|                       | By: /s/ BENNIE H. DUCK  |   |
|                       | Bennie H. Duck          |
|                       | Chief Financial Officer |

 

33

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