<PAGE>

================================================================================


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


      [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
            SECURITIES EXCHANGE ACT OF 1934

            FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2001

                                       OR

      [ ]   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

                 FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                TEXAS                                76-0465087
    (STATE OR OTHER JURISDICTION OF       (I.R.S. EMPLOYER IDENTIFICATION NO.)
     INCORPORATION OR ORGANIZATION)

       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 whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 |X| No |_|.

      Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.


                                            Shares Outstanding At
                Class                         November 30, 2001
    -------------------------------     ------------------------------
     Common Stock-$.001 Par Value                 5,566,669


================================================================================

<PAGE>

                 FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
                                AND SUBSIDIARIES

                                    FORM 10-Q

                                OCTOBER 31, 2001

                                TABLE OF CONTENTS


                                                                        PAGE NO.

PART I    FINANCIAL INFORMATION

          Item 1.   Financial Statements

                    Consolidated Balance Sheets as of April 30, 2001 and
                    October 31, 2001.....................................    3

                    Consolidated Statements of Operations for the
                    Three Months and Six Months Ended October 31, 2000
                    and 2001.............................................    4

                    Consolidated Statement of Shareholders' Equity
                    and Comprehensive Income (Loss) for the Six
                    Months Ended October 31, 2001........................    5

                    Consolidated Statements of Cash Flows for the
                    Six Months Ended October 31, 2000 and 2001...........    6

                    Notes to Consolidated Financial Statements...........    7

          Item 2.   Management's Discussion and Analysis of Financial
                    Condition and Results of Operations..................   16

          Item 3.   Quantitative and Qualitative Disclosures About
                    Market Risk..........................................   25

PART II   OTHER INFORMATION

          Item 6.   Exhibits and Reports On Form 8-K.....................   26

          SIGNATURES.....................................................   26



                                       2
<PAGE>

         FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

       CONSOLIDATED BALANCE SHEETS -- APRIL 30, 2001 AND OCTOBER 31, 2001

<TABLE>
<CAPTION>
                                                                                                     APRIL 30,         OCTOBER 31,
                                                                                                       2001               2001
                                                                                                     (AUDITED)         (UNAUDITED)
                                                                                                   -------------      -------------
<S>                                                                                                <C>                <C>
                               ASSETS

Receivables Held for Investment, net ........................................................      $ 248,185,744      $ 228,956,874
Receivables Acquired for Investment, net ....................................................         26,121,344         16,725,040
Cash and Short-Term Investments, including restricted cash of
     $24,089,763 and $22,846,530, respectively ..............................................         25,101,012         24,035,145
Accrued Interest Receivable .................................................................          3,277,066          3,493,669
Assets Held for Sale ........................................................................          1,501,760          1,561,411
Other Assets:
     Funds held under reinsurance agreement .................................................          3,192,755          3,495,106
     Deferred financing costs and other assets, net of accumulated amortization and
           depreciation of $4,827,936 and $4,956,805, respectively ..........................          4,895,204          3,951,366
     Current income taxes receivable, net ...................................................            594,360            497,382
     Deferred income taxes receivable, net ..................................................                 --            589,586
     Interest rate derivative positions .....................................................                 --          4,809,506
                                                                                                   -------------      -------------
          Total assets ......................................................................      $ 312,869,245      $ 288,115,085
                                                                                                   =============      =============

                        LIABILITIES AND SHAREHOLDERS' EQUITY
Debt:
     Warehouse credit facilities ............................................................      $ 168,249,709      $ 168,747,720
     Term Notes .............................................................................         84,925,871         59,744,447
     Acquisition term facility ..............................................................         11,126,050          7,309,451
     Working capital facility ...............................................................         12,825,000         11,175,000
Other Liabilities:
     Accounts payable and accrued liabilities ...............................................          3,607,677          2,550,162
     Deferred income taxes payable, net .....................................................            195,486                 --
     Interest rate derivative positions .....................................................                 --          8,363,907
                                                                                                   -------------      -------------
          Total liabilities .................................................................        280,929,793        257,890,687
                                                                                                   -------------      -------------

Commitments and Contingencies
Minority Interest ...........................................................................          1,586,959          1,100,197
Shareholders' Equity:
     Common stock, $0.001 par value, 10,000,000 shares  authorized,
          5,566,669 shares issued and outstanding ...........................................              5,567              5,567
     Additional paid-in capital .............................................................         18,639,918         18,678,675
     Retained earnings ......................................................................         11,707,008         12,637,059
     Accumulated other comprehensive income - unrealized derivative
        gains (losses), net of taxes ........................................................                 --         (2,197,100)
                                                                                                   -------------      -------------
          Total shareholders' equity ........................................................         30,352,493         29,124,201
                                                                                                   -------------      -------------
Total liabilities and shareholders' equity ..................................................      $ 312,869,245      $ 288,115,085
                                                                                                   =============      =============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       3
<PAGE>

         FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

       FOR THE THREE MONTHS AND SIX MONTHS ENDED OCTOBER 31, 2000 AND 2001
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 FOR THE THREE MONTHS                   FOR THE SIX MONTHS
                                                                   ENDED OCTOBER 31,                     ENDED OCTOBER 31,
                                                             ------------------------------       ------------------------------
                                                                 2000              2001               2000              2001
                                                             ------------      ------------       ------------      ------------
<S>                                                          <C>               <C>                <C>               <C>
Interest Income .......................................      $ 11,601,863      $  9,819,413       $ 22,591,054      $ 20,082,638
Interest Expense ......................................         5,079,741         3,507,996         10,170,739         7,726,025
                                                             ------------      ------------       ------------      ------------
            Net interest income .......................         6,522,122         6,311,417         12,420,315        12,356,613
Provision for Credit Losses ...........................         2,328,800         1,910,050          4,308,450         3,703,800
                                                             ------------      ------------       ------------      ------------
Net Interest Income After Provision for
   Credit Losses ......................................         4,193,322         4,401,367          8,111,865         8,652,813
Other Income:
         Late fees and other ..........................           819,158           436,071          1,459,393           983,186
         Servicing ....................................           143,016                --            346,844                --
         Unrealized loss on interest rate
            derivative positions ......................                --           (99,936)                --           (99,936)
                                                             ------------      ------------       ------------      ------------
               Total other income .....................           962,174           336,135          1,806,237           883,250
Operating Expenses:
          Salaries and benefits........................         2,322,243         1,977,486          4,715,591         3,990,660
          Other interest expense ......................           346,976           194,555            678,363           432,885
          Other .......................................         1,350,325         1,633,363          2,609,302         3,205,724
                                                             ------------      ------------       ------------      ------------
               Total operating expenses ...............         4,019,544         3,805,404          8,003,256         7,629,269
                                                             ------------      ------------       ------------      ------------
Income Before Provision for Income Taxes
    and Minority Interest .............................         1,135,952           932,098          1,914,846         1,906,794
Provision (Benefit) for Income Taxes:
          Current .....................................           178,678           167,560            585,863            99,685
          Deferred ....................................           235,944           172,803            113,056           596,296
                                                             ------------      ------------       ------------      ------------
               Total provision for income taxes .......           414,622           340,363            698,919           695,981
Minority Interest .....................................           216,367           114,993            216,367           280,762
                                                             ------------      ------------       ------------      ------------
Net Income ............................................      $    504,963      $    476,742       $    999,560      $    930,051
                                                             ============      ============       ============      ============

Basic and Diluted Net Income per
    Common Share ......................................      $       0.09      $       0.09       $       0.18      $       0.17
                                                             ============      ============       ============      ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       4
<PAGE>

                 FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
                                AND SUBSIDIARIES

               CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
                           COMPREHENSIVE INCOME (LOSS)

                    FOR THE SIX MONTHS ENDED OCTOBER 31, 2001
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                        ACCUMULATED
                                                                                           OTHER          OTHER
                                           COMMON        ADDITIONAL       RETAINED     COMPREHENSIVE   COMPREHENSIVE
                                           STOCK       PAID-IN CAPITAL    EARNINGS     INCOME (LOSS)   INCOME (LOSS)      TOTAL
                                        -------------  --------------- ------------   --------------  ---------------  ------------
<S>                                     <C>             <C>            <C>            <C>             <C>             <C>
Balance, April 30, 2001 .............   $      5,567    $ 18,639,918   $ 11,707,008   $         --    $         --    $ 30,352,493

   Net income .......................             --              --        930,051             --         930,051         930,051

   Warrants issued ..................             --          38,757             --             --              --          38,757
   Cumulative effect of accounting
   change, net of tax benefit of
   $1,437,925 .......................             --              --             --     (2,501,595)     (2,501,595)     (2,501,595)
   Unrealized gains (losses) on
   derivatives, net of tax benefit of
   $58,466 ..........................             --              --             --       (101,715)       (101,715)       (101,715)
   Reclassification of earnings, net
   of taxes of $233,491 .............             --              --             --        406,210         406,210         406,210
                                                                                                      ------------
    Comprehensive income (loss) .....                                                                 $ (1,267,049)
                                        ------------    ------------   ------------   ------------    ============    ------------
Balance, October 31, 2001 ...........   $      5,567    $ 18,678,675   $ 12,637,059   $ (2,197,100)                   $ 29,124,201
                                        ============    ============   ============   ============                    ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                       5

<PAGE>

         FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

               FOR THE SIX MONTHS ENDED OCTOBER 31, 2000 AND 2001
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     2000            2001
                                                                                 ------------    ------------
<S>                                                                              <C>             <C>
Cash Flows From Operating Activities:
         Net income ..........................................................   $    999,560    $    930,051
         Adjustments to reconcile net income to net cash provided by
             (used in) operating activities--
                  Depreciation and amortization expense ......................      2,913,458       2,341,975
                  Provision for credit losses ................................      4,308,450       3,703,800
                  Charge-offs, net of recoveries .............................     (4,117,504)     (3,910,883)
                  Minority Interest ..........................................        216,367         280,762
                  Other comprehensive income .................................             --      (2,197,100)
         (Increase) decrease in:
                  Accrued interest receivable ................................       (435,861)       (216,603)
                  Restricted cash ............................................     (2,940,812)      1,243,234
                  Deferred financing costs and other assets ..................     (1,275,412)        563,641
                  Funds held under reinsurance agreement .....................        174,422        (302,351)
                  Deferred income taxes receivable, net ......................         64,875        (589,586)
                  Current income tax receivable, net .........................        (39,915)         96,978
                  Interest  rate derivative positions ........................             --      (4,809,506)
         Increase (decrease) in:
                  Accounts payable and accrued liabilities ...................       (645,090)     (1,057,515)
                  Current income taxes payable ...............................       (527,042)             --
                  Deferred income taxes payable, net .........................         48,181        (195,486)
                  Interest rate derivative positions .........................             --       8,363,907
                                                                                 ------------    ------------
                         Net cash provided by (used in) operating activities .     (1,256,323)      4,245,318
                                                                                 ------------    ------------
Cash Flows From Investing Activities:
         Purchase of Receivables Held for Investment .........................    (70,231,827)    (36,749,840)
         Purchase of Receivables Acquired for Investment .....................     (8,110,849)             --
         Principal payments from Receivables Held for Investment .............     47,916,958      51,240,714
         Principal payments from Receivables Acquired for Investment .........      5,112,832       8,628,780
         Principal payments from Trust Investment Certificates ...............      2,561,636              --
         Payments received on Assets Held for Sale ...........................             --       3,442,867
         Purchase of furniture and equipment .................................       (339,125)       (480,461)
                                                                                 ------------    ------------
Net cash provided by (used in) investing activities ..........................    (23,090,375)     26,082,060
                                                                                 ------------    ------------
Cash Flows From Financing Activities:
         Proceeds from advances on--
                  Warehouse credit facilities ................................     70,816,190      37,137,465
         Principal payments made on--
                  Warehouse credit facilities ................................     (4,841,951)    (36,639,454)
                  Term Notes .................................................    (34,877,902)    (25,181,424)
                  Acquisition term facility ..................................    (10,446,339)     (3,816,599)
                  Working capital facility ...................................             --      (1,650,000)
         Minority Interest upon formation of partnership .....................      2,771,890              --
                                                                                 ------------    ------------
                           Net cash provided by (used in) financing activities     23,421,888     (30,150,012)
                                                                                 ------------    ------------
Increase (decrease) in Cash and Short-Term Investments .......................       (924,810)        177,366
Cash and Short-Term Investments at Beginning of Period .......................      2,108,865       1,011,249
                                                                                 ------------    ------------
Cash and Short-Term Investments at End of Period .............................   $  1,184,055    $  1,188,615
                                                                                 ============    ============
Supplemental Disclosures of Cash Flow Information:
       Cash paid during the period for--
                  Interest ...................................................   $  9,367,365    $  7,835,884
                  Income taxes ...............................................      1,028,452           2,706
       Non-cash financing activities--
                  Exchange of 36,986 warrants for financing fees .............   $         --    $     38,757
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       6
<PAGE>

         FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                                OCTOBER 31, 2001



1.  THE COMPANY

      ORGANIZATION. First Investors Financial Services Group, Inc. (First
Investors) together with its wholly- and majority-owned subsidiaries
(collectively referred to as the Company) is principally involved in the
business of acquiring and holding for investment retail installment contracts
and promissory notes secured by new and used automobiles and light trucks
(receivables) originated by factory authorized franchised dealers. As of October
31, 2001, approximately 26 percent of Receivables Held for Investment had been
originated in Texas. The Company currently operates in 26 states.

      On October 2, 1998, the Company completed the acquisition of First
Investors Servicing Corporation (FISC) formerly known as Auto Lenders Acceptance
Corporation. Headquartered in Atlanta, Georgia, FISC was engaged in essentially
the same business as the Company and additionally performs servicing and
collection activities on a portfolio of receivables acquired for investment as
well as on a portfolio of receivables acquired and sold pursuant to two asset
securitizations. As a result of the acquisition, the Company increased the total
dollar value on its balance sheet of receivables, acquired an interest in
certain Trust Certificates related to the asset securitizations and acquired
certain servicing rights along with furniture, fixtures, equipment and
technology to perform the servicing and collection functions for the portfolio
of receivables under management. The Company performs servicing and collection
functions on loans originated from 31 states on a managed receivables portfolio
of $241 million as of October 31, 2001.

      On August 8, 2000, the Company entered into a partnership agreement
whereby a subsidiary of the Company is the general partner owning 70 percent of
the partnership assets and First Union Investors, Inc. serves as the limited
partner and owns 30 percent of the partnership assets (the "Partnership"). The
Partnership consists primarily of (i) a portfolio of loans previously owned by
FISC, (ii) ownership interest in certain Trust Certificates and subordinated
spread or cash reserve accounts related to two asset securitizations previously
conducted by FISC, and (iii) certain other financial assets, including
charged-off accounts owned by FISC.

2.  SIGNIFICANT ACCOUNTING POLICIES

      BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of First Investors and its wholly- and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.

      The results for the interim periods are not necessarily indicative of the
results of operations that may be expected for the fiscal year. In the opinion
of management, the information furnished reflects all adjustments which are of a
normal recurring nature and are necessary for a fair presentation of the
Company's financial position as of October 31, 2001, and the results of its
operations for the three and six months ended October 31, 2000 and 2001, and its
cash flows for the six months ended October 31, 2000 and 2001.

      The consolidated financial statements for the interim periods have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information not misleading. These financial statements should be read
in conjunction with the audited consolidated financial statements included in
the Company's 2001 Annual Report on Form 10-K filed July 24, 2001.

      DERIVATIVES. In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability at its fair value. The Statement requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge

<PAGE>

         FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


accounting criteria are met. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities --
an Amendment of FASB Statement No. 133".

      Effective May 1, 2001, the Company adopted SFAS No. 133 concurrently with
SFAS No. 138. Accordingly, the Company designated three interest rate swaps and
one interest rate cap having an aggregate notional amount as of May 1, 2001 of
$130,165,759 as cash flow hedges as defined under SFAS 133. In conjunction with
this designation and the adoption of SFAS 133 and SFAS 138, the Company recorded
a transition adjustment in the aggregate amount of $(2,501,595), net of a tax
benefit of $1,437,925, as a reduction to shareholders' equity and recorded a
corresponding liability to reflect the fair market value of the derivatives as
of May 1, 2001. The equity adjustment is classified as other comprehensive
income and the derivative liability is classified in the interest rate
derivative positions liability. Over a period ending in April 2004, the maturity
date of the final swap, the Company will reclassify into earnings substantially
all of the transition adjustment originally recorded. Over the next twelve
months, the Company expects to reclassify into earnings approximately $827,797,
net of taxes of $475,820, of the transition adjustment. In connection with the
decision to enter into the $100 million floating rate swaps on June 1, 2001 (see
Note 5), the Company elected to change the designation of the $100 million fixed
rate swap and not account for the instrument as a hedge under SFAS 133.
Accordingly, subsequent to May 31, 2001, the Company recorded the change in the
fair value of this derivative as an unrealized loss on interest rate derivative
positions in the current period. The Company also established guidelines for
measuring the effectiveness of its hedging positions periodically in accordance
with the enacted policy. For the period beginning May 1, 2001, changes in the
fair value of the Company's open hedging positions, which have been designated
as cash flow hedges, resulting from the mark-to-market process are recorded as
unrealized gains or losses and reflected as an increase or reduction in
stockholders' equity through other comprehensive income, net of taxes, with an
offsetting entry to a interest rate hedging position asset or liability. In
addition, to the extent that all or a portion of the Company's hedging positions
are deemed to be ineffective in accordance with the Company's measurement
policy, the amount of any ineffectiveness is recorded through net income. The
net effect of the mark-to-market adjustments for the six months ending October
31, 2001 was to increase other comprehensive income by $101,715, net of taxes of
$58,466. The Company believes that the extent of any ineffectiveness will be
immaterial to net income. The Company does expect, however, to report material
fluctuations in other comprehensive income and shareholders'equity in periods of
interest rate volatility.

      RECLASSIFICATIONS. Certain reclassifications have been made to the fiscal
2001 amounts to conform with the fiscal 2002 presentation.



3.  RECEIVABLES HELD FOR INVESTMENT

      Net receivables consisted of the following:

<TABLE>
<CAPTION>
                                                 APRIL 30,         OCTOBER 31,
                                                   2001               2001
                                               -------------      -------------
<S>                                            <C>                <C>
Receivables ..............................     $ 244,684,343      $ 225,959,217
Unamortized premium and deferred fees ....         6,190,178          5,479,351
Allowance for credit losses ..............        (2,688,777)        (2,481,694)
                                               -------------      -------------
      Net receivables ....................     $ 248,185,744      $ 228,956,874
                                               =============      =============
</TABLE>


                                       8
<PAGE>

         FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

      Activity in the allowance for credit losses was as follows:

<TABLE>
<CAPTION>
                                                       FOR THE SIX MONTHS
                                                        ENDED OCTOBER 31
                                                 ------------------------------
                                                     2000               2001
                                                 -----------        -----------
<S>                                              <C>                <C>
Balance, beginning of period .............       $ 2,133,994        $ 2,688,777

Provision for credit losses ..............         4,308,450          3,703,800

Charge-offs, net of recoveries ...........        (4,117,504)        (3,910,883)
                                                 -----------        -----------
Balance, end of period ...................       $ 2,324,940        $ 2,481,694
                                                 ===========        ===========
</TABLE>

4.    RECEIVABLES ACQUIRED FOR INVESTMENT

      Loans purchased at a discount relating to credit quality were included in
the balance sheet amounts of Receivables Acquired for Investment as follows as
of April 30, 2001 and October 31, 2001:

<TABLE>
<CAPTION>
                                                                   APRIL 30,        OCTOBER 31,
                                                                     2001              2001
                                                                 ------------      ------------
<S>                                                              <C>               <C>
Contractual payments receivable from Receivables
   Acquired for Investment purchased at a discount
   relating to credit quality .............................      $ 31,892,326      $ 19,828,287
Nonaccretable difference ..................................        (2,735,961)       (1,243,882)
Accretable yield ..........................................        (3,035,021)       (1,859,365)
                                                                 ------------      ------------
Receivables Acquired for Investment purchased
   at a discount relating to credit quality, net ..........      $ 26,121,344      $ 16,725,040
                                                                 ============      ============
</TABLE>

      The carrying amount of Receivables Acquired for Investment are net of
accretable yield and nonaccretable difference. Nonaccretable difference
represents contractual principal and interest payments that the Company has
determined that it would be unable to collect.

<TABLE>
<CAPTION>
                                             NONACCRETABLE        ACCRETABLE
                                               DIFFERENCE           YIELD
                                              -----------        -----------
<S>                                          <C>                <C>
Balance at April 30, 2001 .............       $ 2,735,961        $ 3,035,021
      Accretion .......................                --         (1,687,714)
      Eliminations ....................          (980,021)                --
      Reclassifications ...............          (512,058)           512,058
                                              -----------        -----------
Balance at October 31, 2001 ...........       $ 1,243,882        $ 1,859,365
                                              ===========        ===========
</TABLE>

      Nonaccretable difference eliminations represent contractual principal and
interest amounts on loans charged-off for the period ended October 31, 2001. The
increase in accretable yield includes a reclassification from nonaccretable
difference for cash flows expected to be collected in excess of those previously
expected.

5.  DEBT

      The Company finances the acquisition of its receivables portfolio through
two warehouse credit facilities. The Company's credit facilities provide for
one-year terms and have been renewed annually. Management of the Company
believes that the credit facilities will continue to be renewed or extended or
that it would be able to secure alternate financing on satisfactory terms;
however, there can be no assurance that it will be able to do so. In January
2000, the Company issued $168 million in asset-backed notes ("Term Notes")
secured by a pool of receivables. Proceeds from the note issuance were used to
repay outstanding borrowings under the various revolving credit facilities.
Substantially all receivables retained by the Company are pledged as collateral
for the credit facilities and the Term Notes.


                                       9
<PAGE>

         FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


      FIRC CREDIT FACILITY. The primary source of initial acquisition financing
for receivables has been provided through a syndicated warehouse credit facility
agented by Bank of America. The borrowing base is defined as the sum of the
principal balance of the receivables pledged and the amount on deposit with the
Company to fund receivables to be acquired. The Company is required to maintain
a reserve account equal to the greater of one percent of the principal amount of
receivables financed or $250,000. The term of the FIRC credit facility expired
on November 14, 2001. Under the terms of the renewal, the maximum facility limit
was reduced from $65 million to $50 million effective December 31, 2000 to
coincide with the increase in the FIARC commercial paper facility. Further,
under the renewal mechanics of the facility, should the lenders elect not to
renew the facility beyond November 14, 2001, the facility would convert to a
term loan facility which would mature six months thereafter and amortize monthly
in accordance with the borrowing base with any remaining balance due at
maturity. No other material changes were made to the existing terms and
conditions of the facility in connection with the renewal. Borrowings under the
FIRC credit facility bear interest at a rate selected by the Company at the time
of the advance of either the base rate, defined as the higher of the prime rate
or the federal funds rate plus .5 percent, the LIBOR rate plus .5 percent, or a
rate agreed to by the Company and the banks. The facility also provides for the
payment of a fee of .25 percent per annum based on the total committed amount.

      On November 14, 2001, the facility was renewed to December 7, 2001. On
December 7, 2001, the Company entered into an agreement with First Union
National Bank to extend the maturity date of the facility until December 5,
2002. In conjunction with this renewal, First Union assumed the role of agent
and increased its commitment to $50 million from $20 million. The total
commitment remains at $50 million and there were no other material changes to
the terms and conditions of the facility.

      Borrowings under the FIRC credit facility were $36,040,000 and $36,810,000
at April 30, 2001 and October 31, 2001, respectively, and had weighted average
interest rates, including the effect of facility fees and derivative
instruments, as applicable, of 6.91 percent and 4.52 percent as of such dates.

      The Company presently intends to seek a renewal of the facility from its
lenders prior to maturity. Management considers its relationship with its
lenders to be satisfactory and has no reason to believe that this credit
facility will not be renewed. If the facility were not renewed however, or if
material changes were 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 the
commercial paper market through a commercial paper conduit facility through
Enterprise Funding Corporation (Enterprise), a commercial paper conduit
administered by Bank of America, (the "FIARC commercial paper facility").
Receivables are transferred periodically from the FIRC credit facility to
Enterprise through the assignment of an undivided interest in a specified group
of receivables. Enterprise issues commercial paper (indirectly secured by the
receivables), the proceeds of which are used to repay the FIRC credit facility.

      The financing is provided to a special-purpose, wholly-owned subsidiary of
the Company, FIARC. Credit enhancement for the $150 million facility is provided
to the commercial paper investors by a surety bond issued by MBIA Insurance
Corporation. The Company is not a guarantor of, or otherwise a party to, such
commercial paper. Borrowings under the commercial paper facility bear interest
at the commercial paper rate plus a borrowing spread equal to .30 percent per
annum. Additionally, the agreement provides for additional fees based on the
unused amount of the facility and dealer fees associated with the issuance of
the commercial paper. A surety bond premium equal to .35 percent per annum is
assessed based on the outstanding borrowings under the facility. A one percent
cash reserve must be maintained as additional credit support for the facility.
At April 30, 2001 and October 31, 2001, the Company had borrowings of
$121,808,808 and $125,716,177, respectively, outstanding under the commercial
paper facility at weighted average interest rates, including the effect of
program fees, dealer fees and derivative instruments, as applicable, of 6.60
percent and 3.12 percent, respectively.

      The current term of the FIARC commercial paper facility expires on January
12, 2002. Pursuant to a renewal effective November 29, 2000, the maximum
facility amount was increased from $135 million to $150 million and the
overcollateralization which serves as the primary credit enhancement for the
facility was reduced from 10 percent to 6 percent allowing the Company to now
borrow up to 94 percent against the receivables pledged as


                                       10

<PAGE>

         FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


collateral for the FIARC commercial paper facility. No other material changes
were made to the terms and conditions of the facility in connection with the
renewal. If the facility was not extended beyond the maturity date, receivables
pledged, as collateral would be allowed to amortize; however, no new receivables
would be allowed to be transferred from the FIRC credit facility. The Company
presently intends to seek a renewal of the facility from its lenders prior to
maturity. Management considers its relationship with its lenders to be
satisfactory and has no reason to believe that this credit facility will not be
renewed. If the facility were not renewed however, or if material changes were
made to its terms and conditions, it could have a material adverse effect on the
Company.

      FIACC COMMERCIAL PAPER FACILITY. On January 1, 1998, FIACC entered into a
$25 million commercial paper conduit facility with Variable Funding Capital
Corporation ("VFCC"), a commercial paper conduit administered by First Union
National Bank, (the FIACC commercial paper facility"), to fund the acquisition
of additional receivables generated under certain of the Company's financing
programs. FIACC acquired receivables from the Company and may borrow up to 88%
of the face amount of receivables, which are pledged as collateral for the
commercial paper borrowings. VFCC funds the advance to FIACC through the
issuance of commercial paper (indirectly secured by the receivables) to
institutional or public investors. The Company is not a guarantor of, or
otherwise a party to, such commercial paper. The Company's interest cost is
based on VFCC's commercial paper rates for specific maturities plus .30 percent.
At April 30, 2001 and October 31, 2001, borrowings were $10,400,901 and
$6,221,543, respectively, under the FIACC commercial paper facility, at weighted
average interest rates of 5.56 percent and 5.35 percent, respectively, including
the effects of program fees and derivative instruments. The current term of the
FIACC commercial paper facility expires on March 12, 2002. If the facility were
not renewed on or prior to the maturity date, the outstanding balance under the
facility would continue to amortize utilizing cash collections from the
receivables pledged as collateral. The Company presently intends to seek a
renewal of the facility from its lenders prior to maturity. Management considers
its relationship with its lenders to be satisfactory and has no reason to
believe that this credit facility will not be renewed. If the facility were not
renewed however, or if material changes were made to its terms and conditions,
it could have a material adverse effect on the Company.

      On September 15, 2000, the Company elected to exercise its right to
repurchase the senior notes issued in connection with the ALAC Automobile
Receivables Owner Trust 1997-1, (the "ALAC 97-1 Securitization"). Accordingly,
the Company acquired $8,110,849 in outstanding receivables from the trust and
borrowed $6,408,150 under the FIACC facility which, combined with amounts on
deposit in the collection account and the outstanding balance in a cash reserve
account, was utilized to repay $7,874,689 in senior notes and redeem $1,033,456
of the trust certificates. On March 15, 2001, the Company elected to exercise
its right to repurchase the senior notes issued in connection with the ALAC
Automobile Receivables Owner Trust 1998-1, (the "ALAC 98-1 Securitization).
Accordingly, the Company acquired $9,257,612 in outstanding receivables from the
trust and borrowed $7,174,509 under the FIACC facility which, combined with
amounts on deposit in the collection account and the 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. The receivables purchased were used
as collateral to secure the FIACC borrowing with any residual cash flow
generated by the receivables pledged to the Partnership. As a result of
utilizing FIACC to fund the repurchase of the ALAC securitizations, the Company
has elected to utilize the FIACC commercial paper facility solely as the
financing source for the repurchases and does not expect to utilize the facility
to finance Receivables Held for Investment.

      TERM NOTES. On January 24, 2000, the Company, through its indirect,
wholly-owned subsidiary First Investors Auto Owner Trust 2000-A ("Auto Trust")
completed the issuance of $167,969,000 of 7.174 percent asset-backed notes
("Term Notes"). A pool of automobile receivables totaling $174,968,641, which
were previously owned by FIRC, FIARC and FIACC, secures the Term Notes. Proceeds
from the issuance, which totaled $167,967,690 were used to repay all outstanding
borrowings under the FIARC and FIACC commercial paper facilities, to reduce the
outstanding borrowings under the FIRC credit facility, to pay transaction fees
related to the Term Note issuance and to fund a cash reserve account of 2
percent or $3,499,373 which will serve as a portion of the credit enhancement
for the transaction. The Term Notes bear interest at 7.174 percent and require
monthly principal reductions sufficient to reduce the balance of the Term Notes
to 96 percent of the outstanding balance of the underlying receivables pool. The
final maturity of the Term Notes is February 15, 2006. As of April 30, 2001 and
October 31, 2001, the outstanding principal balances on the Term Notes were
$84,925,871 and $59,744,447, respectively. A surety bond issued by MBIA
Insurance Corporation provides credit enhancement


                                       11
<PAGE>

         FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


for the Term Note holders. Additional credit support is provided by the cash
reserve account, which equals 2 percent of the original balance of the
receivables pool and a 4 percent over-collateralization requirement. In the
event that certain asset quality covenants are not met, the reserve account
target level will increase to 6 percent of the then current principal balance of
the receivables pool.

      ACQUISITION FACILITY. On October 2, 1998, the Company, through its
indirect, wholly-owned subsidiary, FIFS Acquisition Funding Company LLC (FIFS
Acquisition), entered into a $75 million non-recourse bridge financing facility
with VFCC, an affiliate of First Union National Bank, to finance the Company's
acquisition of FISC. Contemporaneously with the Company's purchase of FISC, FISC
transferred certain assets to FIFS Acquisition, consisting primarily of (i) all
receivables owned by FISC as of the acquisition date, (ii) FISC's ownership
interest in certain Trust Certificates and subordinated spread or cash reserve
accounts related to two asset securitizations previously conducted by FISC, and
(iii) certain other financial assets, including charged-off accounts owned by
FISC as of the acquisition date. These assets, along with a $1 million cash
reserve account funded at closing serve as the collateral for the bridge
facility. The facility bore interest at VFCC's commercial paper rate plus 2.35
percent and expired on August 14, 2000. Under the terms of the facility, all
cash collections from the receivables or cash distributions to the certificate
holder under the securitizations are first applied to pay FISC a servicing fee
in the amount of 3 percent on the outstanding balance of all owned or managed
receivables and then to pay interest on the facility. Excess cash flow available
after servicing fees and interest payments are utilized to reduce the
outstanding principal balance on the indebtedness. In addition, one-third of the
servicing fee paid to FISC is also utilized to reduce principal outstanding on
the indebtedness.

      On August 8, 2000, the Company entered into an agreement with First Union
to refinance the acquisition facility. Under the agreement, a partnership was
created in which FIFS Acquisition serves as the general partner and contributed
its assets for a 70 percent interest in the partnership and First Union
Investors, Inc., an affiliate of First Union, serves as the limited partner with
a 30 percent interest in the partnership (the "Partnership"). Pursuant to the
refinancing, the Partnership issued Class A Notes in the amount of $19,204,362
and Class B Notes in the amount of $979,453 to VFCC, the proceeds of which were
used to retire the acquisition debt. The Class A Notes bear interest at VFCC's
commercial paper rate plus 0.95 percent per annum and amortize on a monthly
basis by an amount necessary to reduce the Class A Note balance as of the
payment date to 75 percent of the outstanding principal balance of Receivables
Acquired for Investment, excluding Receivables Acquired for Investment that are
applicable to FIACC, as of the previous month end. The Class B Notes bear
interest at VFCC's commercial paper rate plus 5.38 percent per annum and
amortize on a monthly basis by an amount which varied based on excess cash flows
received from Receivables Acquired for Investment after payment of servicing
fees, trustee and back-up servicer fees, Class A Note interest and Class A Note
principal, plus collections received on the Trust Certificates. The outstanding
balance of the Class A Notes was $11,126,050 and $7,309,451 at April 30, 2001
and October 31, 2001, respectively, and had weighted average interest rates of
6.26 percent and 5.78 percent, including the effects of program fees and
derivative instruments, as of such dates. The Class B Notes were paid in full on
September 15, 2000. After the Class B Notes were paid in full, all cash flows
received after payment of Class A Note principal and interest, servicing fees
and other costs, are distributed to the Partnership for subsequent distribution
to the partners based upon the respective partnership interests. During the
period ended October 31, 2001, $866,583 was distributed to the limited partner.
The amount of the partners' cash flow will vary depending on the timing and
amount of residual cash flows. The Company is accounting for First Union's
limited partnership interest in the Partnership as a minority interest.

      The Class A Notes mature on July 31, 2002. If the Class A Notes are not
renewed on or prior to the maturity date, the outstanding balance under the
notes would continue to amortize utilizing cash collections from the receivables
pledged as collateral. The Company presently intends to seek a renewal of the
notes from the lender prior to maturity. Management considers its relationship
with the lender to be satisfactory and has no reason to believe that the notes
will not be renewed. If the notes were not renewed however, or if material
changes were made to the terms and conditions, it could have a material adverse
effect on the Company.


                                       12
<PAGE>

         FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


      WORKING CAPITAL FACILITY. The Company has maintained a $13.5 million
working capital line of credit with Bank of America and First Union National
Bank that was utilized for working capital and general corporate purposes. The
facility was increased from $10 million to $13.5 million in December 1999 and
was scheduled to mature on December 22, 2000. Effective December 22, 2000, the
$13.5 million in outstandings were refinanced through the issuance of a $13.5
million term loan. Under the terms of the facility, provided by Bank of America
and First Union, the term loan would be repaid in quarterly installments of
$675,000 beginning on March 31, 2001. In addition to the scheduled principal
payments, the term loan also requires an additional principal payment of
$300,000 on June 30, 2001 under certain conditions relating to the size of Bank
of America's portion of the outstanding balance. Pursuant to this requirement,
the Company paid $300,000 to Bank of America effective June 30, 2001. The
remaining unpaid balance of the term loan is due at maturity on December 22,
2002. Pricing under the facility is based on the LIBOR rate plus 3 percent. The
term loan is secured by all unencumbered assets of the Company, excluding
receivables owned and financed by wholly-owned, special purpose subsidiaries of
the Company and is guaranteed by First Investors Financial Services Group, Inc.
and all subsidiaries that are not special purpose subsidiaries. In consideration
for refinancing the working capital facility, the Company paid each lender an
upfront fee and issued warrants to each lender to purchase, in aggregate,
167,001 shares of the Company's common stock at a strike price of $3.81 per
share. The warrants expire on December 22, 2010. On December 22, 2000, the
warrant value of $175,000 was estimated based on the expected difference between
financing costs with and without the warrants. These costs are included as
deferred financing costs and will be amortized through the maturity date of the
debt. In addition, if certain conditions were met, the Company agreed to issue
additional warrants to Bank of America to acquire up to a maximum of 47,945
additional shares of stock at a price equal to the average closing price for the
immediately preceding 30 trading days prior to each grant date which is June 30,
2001 and December 31, 2001. Pursuant to this requirement, the Company issued
36,986 warrants to Bank of America at a strike price of $3.56 per share on June
30, 2001. All other terms and conditions of the warrants were identical to the
warrants issued in December 2000. The amount of warrants, if any, to be issued
on December 31, 2001 will be determined by the outstanding balance owed to Bank
of America under the term loan. In no event, however, can the additional
warrants issued on December 31, 2001 exceed 10,959. The fair value of the
warrants issued on June 30, 2001 of $38,757 is included as deferred financing
costs and amortized through the maturity date of the debt. At April 30, 2001 and
October 31, 2001, there was $12,825,000 and $11,175,000, respectively,
outstanding under this facility.

      On December 6, 2001, the Company entered into an agreement with First
Union National Bank to refinance the $11,175,000 outstanding balance of the
working capital term loan and increase the size of the facility to $13.5
million. The renewal facility was provided to a special-purpose, wholly-owned
subsidiary of the Company, First Investors Residual Funding LP. Under the terms
of the refinancing, a portion of principal collections on a pool of receivables
collateralizing the expected issuance of approximately $150 million in Senior
Notes will be utilized to repay up to $4.5 million in outstandings under the
facility. This principal repayment requirement replaces the current $675,000 per
quarter and the additional $600,000 per annum required under the previous
facility. Additionally, the new facility is secured solely by the residual cash
flow and cash reserve accounts related to the Company's warehouse credit
facilities, the acquisition facility and the existing and future term note
facilities. This compares to the previous requirement that all assets of the
Company, excluding receivables owned and financed by special purpose
subsidiaries, secure the indebtedness. Pricing under the facility was not
changed. The maturity of the facility was extended to December 5, 2002. In the
event that the facility is not renewed at maturity, residual cash flows from the
various receivables financing transactions will be applied to amortize the debt
over the remaining life of the underlying receivables. Further, as a result of
the refinancing, the Company is not obligated to issue additional warrants
covering 10,959 shares of the Company's common stock to Bank of America on
December 31, 2001.

      INTEREST RATE MANAGEMENT. The Company's warehouse credit facilities bear
interest at floating interest rates which are reset on a short-term basis while
the secured Term Notes bear interest at a fixed rate of interest. The Company's
receivables bear interest at fixed rates that do not generally vary with the
change in interest rates. Since a primary contributor to the Company's
profitability is its ability to manage its net interest spread, the Company
seeks to maximize the net interest spread while minimizing exposure to changes
in interest rates. In connection with managing the net interest spread, the
Company may periodically enter into interest rate swaps or caps to minimize the
effects of market interest rate fluctuations on the net interest spread. To the
extent that the


                                       13
<PAGE>

         FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


Company has outstanding floating rate borrowings or has elected to convert a
portion of its borrowings from fixed rates to floating rates, the Company will
be exposed to fluctuations in short-term interest rates.

      In connection with the issuance of the Term Notes, the Company entered
into a swap agreement with Bank of America pursuant to which the Company pays a
floating rate equal to the prevailing one month LIBOR rate plus 0.505 percent
and receives a fixed rate of 7.174 percent from the counterparty. The initial
notional amount of the swap was $167,969,000, which amortizes in accordance with
the expected amortization of the Term Notes. Final maturity of the swap was
August 15, 2002.

      On September 27, 2000, the Company elected to terminate the floating swap
at no material gain or loss and enter into a new swap under which the Company
would pay a fixed rate of 6.30 percent on a notional amount of $100 million.
Under the terms of the swap, the counterparty had the option of extending the
swap for an additional three years to mature on April 15, 2004 at a fixed rate
of 6.42 percent. On April 15, 2001, the counterparty exercised its extension
option.

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

       In connection with the repurchase of the ALAC 97-1 Securitization and the
financing of that repurchase through the FIACC subsidiary on September 15, 2000,
FIACC entered into an interest rate swap agreement with First Union under which
FIACC pays a fixed rate of 6.76 percent as compared to the one month commercial
paper index rate. The initial notional amount of the swap is $6,408,150, which
amortizes monthly in accordance with the expected amortization of the FIACC
borrowings. The final maturity of the swap is December 15, 2001. On March 15,
2001, in connection with the repurchase of the ALAC 1998-1 Securitization and
the financing of that purchase through the FIACC subsidiary, the Company and the
counterparty modified the 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 is scheduled to amortize monthly in
accordance with the expected principal amortization of the underlying
borrowings. The expiration date of the swap was changed from December 15, 2001
to September 1, 2002.

      On October 2, 1998, in connection with the $75 million acquisition
facility, the Company, through FIFS Acquisition, entered into a series of
hedging instruments with First Union National Bank designed to hedge floating
rate borrowings under the acquisition facility 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. The notional amount
outstanding under each swap agreement amortizes based on an implied amortization
of the hedged indebtedness. Class A swap has a final maturity of December 20,
2002 while Class B swap matured on February 20, 2000. The Company also purchased
two interest rate caps, which protect the Company, and the lender against any
material increases in interest rates that may adversely affect any outstanding
indebtedness that is not fully covered by the aggregate notional amount
outstanding under the swaps. The first cap agreement ("Class A cap") enables the
Company to receive payments from the counterparty in the event that the
one-month commercial paper rate exceeds 4.81 percent on a notional amount that
increases initially and then amortizes based on the expected difference between
the outstanding notional amount under Class A swap and the underlying
indebtedness. The interest rate cap expires December 20, 2002 and the cost of
the cap is amortized in interest expense for the period. The second cap
agreement ("Class B cap") enables the Company to receive payments from the
counterparty in the event that the one-month commercial paper rate exceeds 6
percent on a notional amount that increases initially and then amortizes based
on the expected difference between the outstanding notional amount under Class B
swap and the underlying indebtedness. The interest rate cap expires February 20,
2002 and the cost of the cap is imbedded in the fixed rate applicable to Class B
swap. Pursuant to the refinance of



                                       14
<PAGE>

         FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


the acquisition facility on August 8, 2000, the Class B cap was terminated and
the notional amounts of the Class A swap and Class A cap were adjusted downward
to reflect the lower outstanding balance of the Class A Notes. The amendment or
cancellation of these instruments resulted in a gain of $418,609. This
derivative net gain is being amortized over the life of the initial derivative
instrument. In addition, the two remaining hedge instruments were assigned by
FIFS Acquisition to the Partnership.

      As of May 1, 2001 the Company had designated the three interest rate swaps
and one interest rate cap with an aggregate notional value of $130,165,759 as
cash flow hedges as defined under SFAS No. 133. Accordingly, any changes in the
fair value of these instruments resulting from the mark-to-market process are
recorded as unrealized gains or losses and reflected as an increase or reduction
in stockholders'equity through other comprehensive income. In connection with
the decision 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 rate
swap and not account for the instrument as a hedge under SFAS No. 133. As a
result, the change in fair value of both swaps is reflected in net income for
the period subsequent to May 31, 2001.


6. EARNINGS PER SHARE

      Earnings per share amounts are based on the weighted average number of
shares of common stock and potential dilutive common shares outstanding during
the period. The weighted average number of shares used to compute basic and
diluted earnings per share for the three months and six months ended October 31,
2000 and 2001, are as follows:

<TABLE>
<CAPTION>
                                                             For the Three Months Ended        For the Six Months Ended
                                                                     October 31,                      October 31,
                                                              -------------------------       -------------------------
                                                                2000             2001            2000           2001
                                                              ---------       ---------       ---------       ---------
<S>                                                           <C>             <C>             <C>             <C>
Weighted average shares:
      Weighted average shares outstanding for
      basic earnings per share                                5,566,669       5,566,669       5,566,669       5,566,669
      Effect of dilutive stock options and warrants                  --              --              28              --
                                                              ---------       ---------       ---------       ---------
      Weighted average shares outstanding for
      diluted earnings per share                              5,566,669       5,566,669       5,566,697       5,566,669

</TABLE>

      For the three months ended October 31, 2000 and 2001 and the six months
ended October 31, 2000 and October 31, 2001, the Company had 293,600; 564,487;
293,572 and 564,487, respectively, of stock options and stock warrants which
were not included in the computation of diluted earnings per share because to do
so would have been antidilutive for the period presented.



                                       15

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

GENERAL

      Net income for the three months ended October 31, 2001 was $476,742, a
decrease of 6% from that reported for the comparable period in the preceding
year of $504,963. Net income for the six months ended October 31, 2001 was
$930,051 a decrease of 7% from that reported for the comparable period in the
preceding year of $999,560. Earnings per common share were $0.09 for the three
months ended October 31, 2001 and October 31, 2000. Earnings per common share
were $0.17 for the six months ended October 31, 2001, compared to $0.18 per
common share for the prior year period.

NET INTEREST INCOME

      The following tables summarize the Company's receivables and net interest
income (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                 AS OF OR FOR THE
                                                                                 SIX MONTHS ENDED
                                                                                    OCTOBER 31,
                                                                            ---------------------------
                                                                              2000               2001
                                                                            --------           --------
<S>                                                                           <C>                <C>
Receivables Held for Investment:
      Number ........................................................         20,638             19,119
      Principal balance .............................................       $252,115           $225,959
      Average principal balance of receivables outstanding
           During the six-month period ..............................       $245,221           $235,510
      Average principal balance of receivables outstanding
           During the three-month period ............................       $251,002           $231,017
Receivables Acquired for Investment:
      Number ........................................................          4,075              3,486
      Principal balance .............................................       $ 26,855           $ 15,294
Securitized Receivables(1):
      Number ........................................................          1,948                 --
      Principal balance .............................................       $ 12,216                 --
Total Managed Receivables Portfolio:
      Number ........................................................         26,661             22,605
      Principal balance .............................................       $291,186           $241,253

</TABLE>

(1)   Represents receivables previously owned by FISC which were sold in
      connection with two asset securitizations and on which the Company retains
      the servicing rights to those receivables. Both securitizations were
      liquidated during the year ended April 30, 2001 and the receivables were
      repurchased. Subsequent to the repurchase, these receivables are included
      in Receivables Acquired for Investment.

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                              OCTOBER 31,                  OCTOBER 31,
                                                                         ---------------------       ---------------------
                                                                           2000          2001          2000          2001
                                                                         -------       -------       -------       -------
<S>                                                                      <C>           <C>           <C>           <C>
Interest income (1):
     Receivables Held for Investment ..............................      $10,464       $ 9,114       $20,213       $18,395
     Receivables Acquired for Investment and Investment in
     Trust Certificates (2) .......................................        1,138           705         2,378         1,688
                                                                         -------       -------       -------       -------
                                                                          11,602         9,819        22,591        20,083
Interest expense:
      Receivables Held for Investment (3) .........................        4,910         3,341         9,654         7,333
     Receivables Acquired for Investment and Investment in
     Trust Certificates ...........................................          170           167           517           393
                                                                         -------       -------       -------       -------
                                                                           5,080         3,508        10,171         7,726
                                                                         -------       -------       -------       -------
Net interest income ...............................................      $ 6,522       $ 6,311       $12,420       $12,357
                                                                         =======       =======       =======       =======
</TABLE>

(1)   Amounts shown are net of amortization of premium and deferred fees.


                                       16
<PAGE>
(2)   Amounts shown for the three and six months ended October 31, 2000 reflect
      $341 in interest income related to minority interest. Amounts shown for
      the three and six months ended October 31, 2001 reflect $181 and $442,
      respectively, in interest income related to minority interest.

(3)   Includes facility fees and fees on the unused portion of the
      credit facilities.

      The following table sets forth information with regard to the Company's
net interest spread, which represents the difference between the effective yield
on Receivables Held for Investment and the Company's average cost of debt
utilized to fund these receivables, and its net interest margin (averages based
on month-end balances):

<TABLE>
<CAPTION>
                                                          Three Months Ended               Six Months Ended
                                                              October 31,                      October 31,
                                                      --------------------------      ---------------------------
                                                         2000            2001             2000            2001
                                                      ----------      ----------      ------------     ----------
<S>                                                      <C>            <C>               <C>             <C>
Receivables Held for Investment:
         Effective yield on Receivables Held
             for investment (1)                          16.7%          15.8%            16.5%            15.6%
         Average cost of debt (2)                         7.7%           5.9%             8.1%             6.3%

         Net interest spread (3)                          9.0%           9.9%             8.4%             9.3%
         Net interest margin (4)                          8.9%           9.9%             8.6%             9.4%
</TABLE>

(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 interest earned from the
receivables portfolio and interest expense incurred on the credit facilities
used to acquire the receivables. Net interest income decreased 3% for the three
months ended October 31, 2001 to $6.3 million from $6.5 million. Net interest
income was $12.4 million for the six months ended October 31, 2001 and October
31, 2000.

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

<TABLE>
<CAPTION>
                                                   Three Months Ended                          Six Months Ended
                                               October 31, 2000 to 2001                    October 31, 2000 to 2001
                                        ---------------------------------------  ------------------------------------------
                                           Increase (Decrease)                      Increase (Decrease)
                                                Due to                                    Due to
                                              Change in                                 Change in
                                        -------------------------                -------------------------
                                                                      Total
                                          Average                      Net         Average                    Total Net
                                         Principal      Average      Increase     Principal      Average       Increase
                                          Amount         Rate       (Decrease)     Amount         Rate        (Decrease)
                                        -----------   -----------  ------------  ------------   ----------   -------------
<S>                                      <C>           <C>           <C>           <C>           <C>           <C>
Receivables Held for Investment:
      Interest income .............      $  (828)      $  (522)      $(1,350)      $  (794)      $(1,024)      $(1,818)
      Interest expense ............         (546)       (1,023)       (1,569)         (247)       (2,074)       (2,321)
                                         -------       -------       -------       -------       -------       -------
      Net interest income .........      $  (282)      $   501       $   219       $  (547)      $ 1,050       $   503
                                         =======       =======       =======       =======       =======       =======
</TABLE>
                                       17
<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS AND SIX MONTHS ENDED OCTOBER 31, 2001 AND 2000 (DOLLARS IN
THOUSANDS)

      INTEREST INCOME. Interest income for the 2001 periods decreased to $9,819
and $20,083 compared with $11,602 and $22,591 for the comparable periods in
2000. Interest income on Receivables Held for Investment decreased 15% and 11%
from the 2000 periods. This is due to a 4% and 8% decline in the average
Receivables Held for Investment outstanding over the three-month and six month
period and to a reduction of 90 basis points, which is a 5% decrease, in the
yield on the Receivables Held for Investment for the three months and six months
ended October 31, 2001 compared to the same period for 2000. Interest income on
Receivables Acquired for Investment and Investment in Trust Certificates
decreased by 37% for the comparable three-month period and 29% for the
comparable six-month period. The decreases are primarily attributable to a 59%
and 58% reduction in the average principal balances of the Receivables Acquired
for Investment and Investment in Trust Certificates for the comparable
three-month and six-month periods.

      INTEREST EXPENSE. Interest expense in 2001 decreased for both the
three-month and six-month periods to $3,508 and $7,726 as compared to $5,080 and
$10,171 in 2000. Interest expense on Receivables Held for Investment decreased
31% and 24% for their respective periods. This is primarily due to a reduction
of 180 basis points, which is a 23% and 22% decrease, in the interest rate on
the outstanding borrowings in the three-month and six-months periods in 2001
compared to 2000. Interest expense on Receivables Acquired for Investment and
Investment in Trust Certificates decreased by 2% for the comparable three-month
period and 24% for the comparable six-month period. The decrease is attributable
to a net reduction in the weighted average borrowings under the acquisition term
and FIACC facilities.

      NET INTEREST INCOME. Net interest income decreased to $6,311 and $12,357,
a decrease of 3% and 1% over the comparable three-month and six-month periods in
the prior year. The decreases resulted from lower average outstandings and lower
yields on the Receivables Held for Investment offset by lower cost of funds to
finance the Receivables Held for Investment.

      PROVISION FOR CREDIT LOSSES. The provision for credit losses for 2001
decreased to $1,910 and $3,704 as compared to $2,329 and $4,308 in 2000. The
decrease was the result of a 4% and 8% reduction in the Receivables Held for
Investment over the three month and six month periods compared to an 2% and 9%
increase over the same periods in the prior year. This decrease is offset by an
increase in the allowance for credit losses to 1.1% of receivables for the three
and six month periods ended October 31, 2001 compared to .9% of receivables for
the same period in 2000.

      SERVICING INCOME. Servicing income represents amounts received on loan
receivables previously sold by FISC in connection with two asset securitization
transactions. Under these transactions, FISC, as servicer, is entitled to
receive a fee of 3 percent on the outstanding principal balance of the
securitized receivables plus reimbursement for certain costs and expenses
incurred as a result of its collection activities. Both securitizations were
liquidated and the underlying receivables were repurchased during the year ended
April 30, 2001. Subsequent to the call date, no further servicing income is
earned.

      LATE FEES AND OTHER INCOME. Late fees and other income decreased to $436
and $983 in 2001 from $819 and $1,459 in 2000 which primarily represents fees
collected from customers for late fees, extension fees and other payment related
fees and additionally includes interest income earned on short-term marketable
securities and money market instruments. The decrease is primarily attributable
to a decrease in the reinvestment rates on the cash collections. Additionally,
the quarter ended October 31, 2000 included a legal settlement of $160.

      SALARIES AND BENEFIT EXPENSES. Salaries and benefit costs decreased to
$1,977 and $3,991 in 2001 from $2,322 and $4,716 in 2000. The decrease is
primarily due to reduced headcount needs related to lower originations and a
lower managed portfolio coupled with headcount reductions from improved
efficiencies.

      OTHER INTEREST EXPENSE. Other interest expense in 2001 decreased to $195
for the three-month period and $433 for the six-month period as compared to $347
and $678, respectively, in 2000. The decrease was primarily due to a 14%
reduction in the average outstanding borrowings and a 33% reduction in the
average interest rate on this facility for the three months ended October 31,
2001 compared to 2000 and a 11% reduction in the average outstanding borrowings
and a 29% reduction in the average interest rate for the six months ended
October 31, 2001 compared to 2000.

      OTHER EXPENSES. Other expenses increased to $1,633 and $3,206 in 2001 from
$1,350 and $2,609 in 2000. The increase is attributable to third party service
bureau expenses and amortization of bank fees and warrants


                                       18
<PAGE>

related to the restructure of the working capital facilities. The use of a third
party service bureau and restructure of the working capital facility were
incurred in December 2000 thus no expenses were reflected in the three-month
period or six month period ended October 31, 2000.

      INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST. During
2001, income before provision for income taxes and minority interest decreased
to $932 and $1,907 from $1,136 and $1,915 for the comparable periods in 2000.
This change was a result of decreases to other income offset by increases in net
interest income after provision and lower expenses.

LIQUIDITY AND CAPITAL RESOURCES

      SOURCES AND USES OF CASH FLOWS. The Company's business requires
significant cash flow to support its operating activities. The principal cash
requirements include (i) amounts necessary to acquire receivables from dealers
and fund required reserve accounts, (ii) amounts necessary to fund premiums for
credit enhancement insurance, and (iii) amounts necessary to fund costs to
retain receivables, primarily interest expense. The Company also requires a
significant amount of cash flow for working capital to fund fixed operating
expenses, primarily salaries and benefits.

      The Company's most significant cash flow requirement is the acquisition of
receivables from dealers. The Company paid $17.1 million and $36.7 million for
receivables acquired for the three months and six months ended October 31, 2001
compared to $31.2 million and $70.2 million paid in the comparable 2000 period.

      The Company funds the purchase price of the receivables through the use of
a $50 million warehouse credit facility provided to F.I.R.C., Inc. ("FIRC") a
wholly-owned special purpose financing subsidiary of the Company. The current
FIRC credit facility generally permits the Company to draw advances up to the
outstanding principal balance of qualified receivables. Receivables that have
accumulated in the FIRC credit facility may be transferred to a commercial paper
conduit facility at the option of the Company. Credit enhancement for the
warehouse lenders is provided by an Auto Loan Protection Insurance ("ALPI")
policy issued by National Union Fire Insurance Company of Pittsburgh and
reinsured by the Company's captive insurance subsidiary.

      To provide additional liquidity to fund the receivables portfolio, the
Company utilized a $150 million commercial paper conduit financing through
Enterprise Funding Corporation, a commercial paper conduit administered by Bank
of America as an additional source of warehouse financing for Receivables Held
for Investment. The financing was provided to a special-purpose, wholly-owned
subsidiary of the Company, First Investors Auto Receivables Corporation
("FIARC"). Credit enhancements for the $150 million facility are provided to the
commercial paper investors by a surety bond issued by MBIA Insurance
Corporation. At April 30, 2001 and October 31, 2001, the Company had borrowings
of $121,808,808 and $125,716,177, respectively, outstanding under the FIARC
commercial paper facility.

      Receivables originally purchased by the Company are financed with
borrowings under the FIRC credit facility. Once a sufficient amount of
receivables have been accumulated, the receivables are transferred from FIRC to
FIARC with advances under the FIARC commercial paper facility used to repay
borrowings under the FIRC credit facility. Once receivables are transferred to
the FIARC subsidiary and pledged as collateral for commercial paper borrowings,
the ALPI policy with respect to the transferred receivables is cancelled with
any unearned premiums returned to FIRC. FIARC may borrow up to 94% of the face
amount of the receivables being transferred. In addition, a cash reserve equal
to 1% of the outstanding borrowings under the FIARC commercial paper facility
must be maintained in a reserve account for the benefit of the creditors and
surety bond provider.

      The current term of the FIRC credit facility expires on December 5, 2002.
In the event that the facility is not renewed prior to its maturity date, the
facility will automatically convert to a term loan which will amortize in
accordance with the borrowing base over a six month period when the outstanding
balance will be due and payable. The FIARC commercial paper facility expires on
January 12, 2002. If the facility was terminated, receivables pledged as
collateral would be allowed to amortize; however, no new receivables would be
allowed to be transferred from the FIRC credit facility. Borrowings under the
FIRC credit facility were $36,040,000 and $36,810,000 at April 30, 2001 and
October 31, 2001, respectively.

      The Company also maintains a commercial paper conduit financing through
Variable Funding Capital Corporation ("VFCC"), a commercial paper conduit
administered by First Union National Bank. The financing was provided to a
special-purpose, wholly-owned subsidiary of the Company, First Investors Auto
Capital Corporation ("FIACC") to fund the acquisition of receivables previously
securitized by FISC.

      FIACC acquires receivables from the Company in conjunction with the
Company's repurchase of previously securitized receivables acquired for
investment and may borrow up to 88% of the face amount of receivables



                                       19

<PAGE>

which are pledged as collateral for the commercial paper borrowings. In
addition, a cash reserve equal to 2% of the outstanding borrowings under the
FIACC commercial paper facility must be maintained in a reserve account for the
benefit of the creditors.

      The current term of the FIACC commercial paper facility expires on March
12, 2002. As a result of utilizing FIACC to fund the repurchase of the ALAC
securitizations, the Company does not expect to use the facility to finance
Receivables Held for Investment. If the facility was terminated, receivables
pledged as collateral would be allowed to amortize; however, no new receivables
could be transferred to the facility. At April 30, 2001 and October 31, 2001,
borrowings were $10,400,901 and $6,221,543, respectively, under the FIACC
commercial paper facility.

      In addition to the $200 million in credit facilities utilized to fund the
acquisition of new receivables, the Company also has a term loan facility
initially utilized to fund working capital requirements of the Company. This
facility was converted to a term loan on December 22, 2000. Under the terms of
the facility, provided by Bank of America and First Union, the term loan would
be repaid in quarterly installments of $675,000 beginning on March 31, 2001. In
addition to the scheduled principal payments, the term loan also requires an
additional principal payment of $300,000 on June 30, 2001 under certain
conditions relating to the size of Bank of America's portion of the outstanding
balance. The remaining unpaid balance of the term loan is due at maturity on
December 22, 2002. Pricing under the facility is based on the LIBOR rate plus
3%. The term loan is secured by all unencumbered assets of the Company,
excluding receivables owned and financed by wholly-owned, special purpose
subsidiaries of the Company and is guaranteed by First Investors Financial
Services Group, Inc. and all subsidiaries that are not special purpose
subsidiaries. In consideration for refinancing the working capital facility, the
Company paid each lender an upfront fee and issued warrants to each lender to
purchase, in aggregate, 167,001 shares of the Company's common stock at a strike
price of $3.81 per share. The warrants expire on December 22, 2010. The warrant
value of $175,000 was estimated based on the expected difference between
financing costs with and without the warrants. These costs are included as
deferred financing costs and will be amortized through the maturity date of the
debt. In addition, the Company agreed to issue additional warrants to Bank of
America to acquire up to a maximum of 47,945 additional shares of stock at a
price equal to the average closing price for the immediately preceding 30
trading days prior to each grant date which is June 30, 2001 and December 31,
2001. Pursuant to this requirement, the Company issued 36,986 warrants to Bank
of America at a strike price of $3.56 per share on June 30, 2001. All other
terms and conditions of the warrants were identical to the warrants issued in
December 2000. The amount of warrants, if any, to be issued on December 31, 2001
will be determined by the outstanding balance owed to Bank of America under the
term loan. In no event, however, can the additional warrants issued on December
31, 2001 exceed 10,959. The fair value of the warrants issued on June 30, 2001
of $38,757 is included as deferred financing costs and amortized through the
maturity date of the debt. At April 30, 2001 and October 31, 2001, there was
$12,825,000 and $11,175,000, respectively, outstanding under this facility.

      On December 6, 2001, the Company entered into an agreement with First
Union National Bank to refinance the $11,175,000 outstanding balance of the
working capital term loan and increase the size of the facility to $13.5
million. The renewal facility was provided to a special-purpose, wholly-owned
subsidiary of the Company, First Investors Residual Funding LP. Under the terms
of the refinancing, a portion of principal collections on a pool of receivables
collateralizing the expected issuance of approximately $150 million in Senior
Notes will be utilized to repay up to $4.5 million in outstandings under the
facility. This principal repayment requirement replaces the current $675,000 per
quarter and the additional $600,000 per annum required under the previous
facility. Additionally, the new facility is secured solely by the residual cash
flow and cash reserve accounts related to the Company's warehouse credit
facilities, the acquisition facility and the existing and future term note
facilities. This compares to the previous requirement that all assets of the
Company, excluding receivables owned and financed by special purpose
subsidiaries, secure the indebtedness. Pricing under the facility was not
changed. The maturity of the facility was extended to December 5, 2002. In the
event that the facility is not renewed at maturity, residual cash flows from the
various receivables financing transactions will be applied to amortize the debt
over the remaining life of the underlying receivables. Further, as a result of
the refinancing, the Company is not obligated to issue additional warrants
covering 10,959 shares of the Company's common stock to Bank of America on
December 31, 2001.

      The Company expects to initiate discussions with its lenders regarding the
renewal and extension of the warehouse credit facilities prior to maturity.
Management considers its relationship with the lenders under these facilities to
be satisfactory and has no reason to believe that these facilities will not be
renewed. If these facilities



                                       20
<PAGE>

were not renewed however, or if material changes were made to the terms and
conditions, it could have a material adverse effect on the Company.

      On January 24, 2000, the Company, through its indirect, wholly-owned
subsidiary First Investors Auto Owner Trust 2000-A ("Auto Trust") completed the
issuance of $167,969,000 of 7.174% asset-backed notes ("Notes"). The Notes are
secured by a pool of automobile receivables totaling $174,968,641 which were
previously owned by FIRC, FIARC and FIACC. Proceeds from the issuance, which
totaled $167,967,690 were used to repay all outstanding borrowings under the
FIARC and FIACC commercial paper facilities, to reduce the outstanding
borrowings under the FIRC credit facility, to pay transaction fees related to
the Note issuance and to fund a cash reserve account of 2% or $3,499,373 which
will serve as a portion of the credit enhancement for the transaction. The Notes
bear interest at 7.174% and require monthly principal reductions sufficient to
reduce the balance of the Notes to 96% of the outstanding balance of the
underlying receivables pool. The final maturity of the Notes is February 15,
2006. Credit enhancement for the Noteholders is provided by a surety bond issued
by MBIA Insurance Corporation. Additional credit support is provided by a cash
reserve account which is equal to 2% of the original balance of the receivables
pool and a 4% over-collateralization requirement amount. In the event that
certain asset quality covenants are not met, the reserve account target level
will increase to 6% of the then current principal balance of the receivables
pool. As of April 30, 2001 and October 31, 2001, the outstanding principal
balance on the Notes was $84,925,871 and $59,744,447, respectively.

      On October 2, 1998, the Company, through its indirect, wholly-owned
subsidiary, FIFS Acquisition Funding Company LLC ("FIFS Acquisition"), entered
into a $75 million non-recourse bridge financing facility with VFCC, an
affiliate of First Union National Bank, to finance the Company's acquisition of
FISC. Contemporaneously with the Company's purchase of FISC, FISC transferred
certain assets to FIFS Acquisition, consisting primarily of (i) all receivables
owned by FISC as of the acquisition date, (ii) FISC's ownership interest in
certain Trust Certificates and subordinated spread or cash reserve accounts
related to two asset securitizations previously conducted by FISC, and (iii)
certain other financial assets, including charged-off accounts owned by FISC as
of the acquisition date. These assets, along with a $1 million cash reserve
account funded at closing serve as the collateral for the bridge facility. The
facility bears interest at VFCC's commercial paper rate plus 2.35%. Under the
terms of the facility, all cash collections from the receivables or cash
distributions to the certificate holder under the securitizations are first
applied to pay FISC a servicing fee in the amount of 3% on the outstanding
balance of all owned or managed receivables and then to pay interest on the
facility. Excess cash flow available after servicing fees and interest payments
are utilized to reduce the outstanding principal balance on the indebtedness. In
addition, one-third of the servicing fee paid to FISC is also utilized to reduce
principal outstanding on the indebtedness. The bridge facility expired on August
14, 2000.

      On August 8, 2000, the Company entered into an agreement with First Union
to refinance the acquisition facility. Under the agreement, a partnership was
created in which FIFS Acquisition serves as the general partner owning 70
percent of the partnership assets and First Union Investors, Inc., an affiliate
of First Union, serves as the limited partner owning 30 percent of the
partnership assets (the "Partnership"). Pursuant to the refinancing, the
Partnership issued Class A Notes in the amount of $19,204,362 and Class B Notes
in the amount of $979,453 to VFCC, the proceeds of which were used to retire the
acquisition debt. The Class A Notes will bear interest at VFCC's commercial
paper rate plus 0.95 percent per annum and will amortize on a monthly basis by
an amount necessary to reduce the Class A Note balance as of the payment date to
75 percent of the outstanding principal balance 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 5.38 percent per annum and will amortize on a
monthly basis by an amount which will vary based on excess cash flows received
from Receivables Acquired for Investment after payment of servicing fees,
trustee and back-up servicer fees, Class A Note interest and Class A Note
principal, plus collections received on the Trust Certificates. Once the Class B
Notes have been paid in full, all cash flows received after payment of Class A
Note principal and interest, servicing fees and other costs, will be distributed
to the Partnership for subsequent distribution to the partners based upon the
respective partnership interests. The amount of the partners' cash flow will
vary depending on the timing and amount of the residual cash flows. Subsequent
to the closing of this financing, the Company accounts for First Union's limited
partnership interest in the Partnership as a minority interest.

      Substantially all of the Company's receivables are pledged to
collateralize the credit facilities. Management considers its relationship with
all of the Company's lenders and the Noteholders to be satisfactory and has no
reason to believe that the credit facilities will not be renewed.

      The Company's most significant source of cash flow is the principal and
interest payments from the receivables portfolio. The Company received such
payments in the amount of $69.4 million and $67.7 million for



                                       21
<PAGE>

the six months ended October 31, 2001 and 2000, respectively. Such cash flow
funds repayment of amounts borrowed under the FIRC credit and commercial paper
facilities and other holding costs, primarily interest expense and custodian
fees. During the six months ended, the Company generated net cash flow of $14.4
million in 2001 and required net cash flow of $22.3 million in 2000 (cash
required to acquire Receivables Held for Investment net of principal payments on
receivables) to fund the growth of its receivables portfolio.

      INTEREST RATE MANAGEMENT. The Company's warehouse credit facilities bear
interest at floating interest rates which are reset on a short-term basis while
the secured Term Notes bear interest at a fixed rate of interest. The Company's
receivables bear interest at fixed rates that do not generally vary with the
change in interest rates. Since a primary contributor to the Company's
profitability is its ability to manage its net interest spread, the Company
seeks to maximize the net interest spread while minimizing exposure to changes
in interest rates. In connection with managing the net interest spread, the
Company may periodically enter into interest rate swaps or caps to minimize the
effects of market interest rate fluctuations on the net interest spread. To the
extent that the Company has outstanding floating rate borrowings or has elected
to convert a portion of its borrowings from fixed rates to floating rates, the
Company will be exposed to fluctuations in short-term interest rates.

      The Company was previously a party to a swap agreement with Bank of
America pursuant to which the 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 connection with the issuance of the Term Notes, the Company entered
into a swap agreement with Bank of America pursuant to which the Company pays a
floating rate equal to the prevailing one month LIBOR rate plus 0.505 percent
and receives a fixed rate of 7.174 percent from the counterparty. The initial
notional amount of the swap was $167,969,000, which amortizes in accordance with
the expected amortization of the Term Notes. Final maturity of the swap was
August 15, 2002.

      On September 27, 2000, the Company elected to terminate the floating swap
at no material gain or loss and enter into a new swap under which the Company
would pay a fixed rate of 6.30 percent on a notional amount of $100 million.
Under the terms of the swap, the counterparty had the option of extending the
swap for an additional three years to mature on April 15, 2004 at a fixed rate
of 6.42 percent. On April 15, 2001, the counterparty exercised its extension
option.

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

      In connection with the repurchase of the ALAC 97-1 Securitization and the
financing of that repurchase through the FIACC subsidiary on September 15, 2000,
FIACC entered into an interest rate swap agreement with First Union under which
FIACC pays a fixed rate of 6.76 percent as compared to the one month commercial
paper index rate. The initial notional amount of the swap is $6,408,150, which
amortizes monthly in accordance with the expected amortization of the FIACC
borrowings. The final maturity of the swap is December 15, 2001. On March 15,
2001, in connection with the repurchase of the ALAC 1998-1 Securitization and
the financing of that purchase through the FIACC subsidiary, the Company and the
counterparty modified the 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 is scheduled to amortize monthly in
accordance with the expected principal amortization of the underlying
borrowings. The expiration date of the swap was changed from December 15, 2001
to September 1, 2002.

      On October 2, 1998, in connection with the $75 million acquisition
facility, the Company, through FIFS Acquisition, entered into a series of
hedging instruments with First Union National Bank designed to hedge floating
rate borrowings under the acquisition facility 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. The notional amount
outstanding under each swap agreement amortizes based on an implied amortization
of the hedged indebtedness. Class A swap has a final maturity of December 20,
2002 while Class B swap matured on February 20, 2000. The Company also purchased
two interest rate caps, which protect the Company, and the lender against any
material increases in interest rates that may adversely affect any outstanding
indebtedness that is not fully covered by the aggregate notional amount
outstanding under the swaps. The first cap agreement


                                       22
<PAGE>

("Class A cap") enables the Company to receive payments from the counterparty in
the event that the one-month commercial paper rate exceeds 4.81 percent on a
notional amount that increases initially and then amortizes based on the
expected difference between the outstanding notional amount under Class A swap
and the underlying indebtedness. The interest rate cap expires December 20, 2002
and the cost of the cap is amortized in interest expense for the period. The
second cap agreement ("Class B cap") enables the Company to receive payments
from the counterparty in the event that the one-month commercial paper rate
exceeds 6 percent on a notional amount that increases initially and then
amortizes based on the expected difference between the outstanding notional
amount under Class B swap and the underlying indebtedness. The interest rate cap
expires February 20, 2002 and the cost of the cap is imbedded in the fixed rate
applicable to Class B swap. Pursuant to the refinance of the acquisition
facility on August 8, 2000, the Class B cap was terminated and the notional
amounts of the Class A swap and Class A cap were adjusted downward to reflect
the lower outstanding balance of the Class A Notes. The amendment or
cancellation of these instruments resulted in a gain of $418,609. This
derivative net gain is being amortized over the life of the initial derivative
instrument. In addition, the two remaining hedge instruments were assigned by
FIFS Acquisition to the Partnership.

      As of May 1, 2001 the Company had designated the three interest rate swaps
and one interest rate cap with an aggregate notional value of $130,165,759 as
cash flow hedges as defined under SFAS No. 133. Accordingly, any changes in the
fair value of these instruments resulting from the mark-to-market process are
recorded as unrealized gains or losses and reflected as an increase or reduction
in stockholders'equity through other comprehensive income. In connection with
the decision 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 rate
swap and not account for the instrument as a hedge under SFAS No. 133. As a
result, the change in fair value of both swaps is reflected in net income for
period subsequent to May 31, 2001.

DELINQUENCY AND CREDIT LOSS EXPERIENCE

      The Company's results of operations, financial condition and liquidity may
be adversely affected by nonperforming receivables. The Company seeks to manage
its risk of credit loss through (i) prudent credit evaluations, (ii) risk
management activities, (iii) effective collection procedures, and (iv) by
maximizing recoveries on defaulted loans. An allowance for credit losses of
$2,481,694 as of October 31, 2001 and $2,688,777 as of April 30, 2001 as a
percentage of the Receivables Held for Investment of $225,959,217 as of October
31, 2001 and $244,684,343 as of April 30, 2001 was 1.1% at October 31, 2001 and
April 30, 2001.

      With respect to Receivables Acquired for Investment, the Company has
established a nonaccretable loss reserve to cover expected losses over the
remaining life of the receivables. As of October 31, 2001 and April 30, 2001,
the nonaccretable loss reserve as a percentage of Receivables Acquired for
Investment was 6.3% and 8.6%, respectively. The nonaccretable portion represents
the excess of the loan's scheduled contractual principal and interest payments
over its expected cash flows.

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

      The Company retains the credit risk associated with the receivables
acquired. The Company purchases credit enhancement insurance from third party
insurers which covers the risk of loss upon default and certain other risks.
Until March 1994, such insurance absorbed substantially all credit losses. In
April 1994, the Company established a captive insurance subsidiary to reinsure
certain risks under the credit enhancement insurance coverage for all
receivables acquired in March 1994 and thereafter. In addition, receivables
financed under the Auto Trust, FIARC and FIACC commercial paper facilities do
not carry default insurance. Provisions for credit losses of $1,910,050 and
$2,328,800 have been recorded for the three months ended October 31, 2001, and
October 31, 2000, respectively, for losses on receivables which are either
uninsured or which are reinsured by the Company's captive insurance subsidiary.
Provisions for credit losses of $3,703,800 and $4,308,450 have been recorded for
the six months ended October 31, 2001 and October 31, 2000, respectively.

      The allowance for credit losses represents management's estimate of losses
for receivables that have become impaired. In making this estimate, management
analyzes portfolio characteristics in the light of its underwriting criteria,
delinquency and repossession statistics, historical loss experience, and size,
quality and concentration of the receivables, as well as external factors such
as current economic conditions. The allowance for credit losses is based on
estimates and qualitative evaluations and ultimate losses will vary from current
estimates. These estimates are reviewed periodically and as adjustments, either
positive or negative, become necessary, are reported in earnings in the period
they become known.


                                       23
<PAGE>

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

<TABLE>
<CAPTION>
                                                                        AS OF OR FOR THE SIX MONTHS ENDED OCTOBER 31,
                                                                  ---------------------------------------------------------
                                                                            2000                             2001
                                                                  ------------------------        -------------------------
                                                                   NUMBER                          NUMBER
                                                                  OF LOANS         AMOUNT         OF LOANS          AMOUNT
                                                                  --------       ---------        --------         --------
<S>                                                                    <C>          <C>                <C>           <C>
    Receivables Held for Investment:
    Delinquent amount outstanding:
    30 - 59 days...........................................            368          $4,519             242           $2,601
    60 - 89 days...........................................            121           1,479             164            1,880
    90 days or more........................................            184           2,166             327            4,116
                                                                  --------       ---------        --------         --------
    Total delinquencies....................................            673          $8,164             733           $8,597
    Total delinquencies as a percentage of
          outstanding receivables..........................           3.3%            3.2%            3.8%             3.8%
    Net charge-offs as a percentage of average
          receivables outstanding during the
          period (1).......................................                           3.4%                             3.3%

</TABLE>

(1)   The percentages have been annualized and are not necessarily indicative of
      the results for a full year.

      The total number of delinquent accounts (30 days or more) as a percentage
of the number of outstanding receivables for the Company's portfolio of
Receivables Acquired for Investment was 9.4% and 6.0% as of October 31, 2001 and
April 30, 2001, respectively.


FORWARD LOOKING INFORMATION

      Statements and financial discussion and analysis included in this report
that are not historical are considered to be forward-looking in nature.
Forward-looking statements involve a number of risks and uncertainties that may
cause actual results to differ materially from anticipated results. Specific
factors that could cause such differences include unexpected fluctuations in
market interest rates; changes in economic conditions; or increases or changes
in the competition for loans. Although the Company believes that the
expectations reflected in the forward-looking statements presented herein are
reasonable, it can give no assurance that such expectations will prove to be
correct.



                                       24

<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

      The Company's operating revenues are derived almost entirely from the
collection of interest on the receivables it retains and its primary expense is
the interest that it pays on borrowings incurred to purchase and retain such
receivables. The Company's credit facilities bear interest at floating rates
which are reset on a short-term basis, whereas its receivables bear interest at
fixed rates which do not generally vary with changes in interest rates. The
Company is therefore exposed primarily to market risks associated with movements
in interest rates on its credit facilities. The Company believes that it takes
the necessary steps to appropriately reduce the potential impact of interest
rate increases on the Company's financial position and operating performance.

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

      As of October 31, 2001, the Company had $158.9 million of floating rate
secured debt outstanding considering the effect of swap and cap agreements. For
every 1% increase in commercial paper rates or LIBOR, annual after-tax earnings
would decrease by approximately $1,009,000, assuming the Company maintains a
level amount of floating rate debt and assuming an immediate increase in rates.


                                       25
<PAGE>


                                     PART II

                                OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)   None

                                   SIGNATURES

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

                                  First Investors Financial Services Group, Inc.
                                                (Registrant)

Date:  December 14, 2001               By: /s/ TOMMY A. MOORE, JR.
                                               Tommy A. Moore, Jr.
                                     President and Chief Executive Officer

Date:  December 14, 2001                   By: /s/ BENNIE H. DUCK
                                                   Bennie H. Duck
                                Secretary, Treasurer and Chief Financial Officer




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