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

FORM 10-Q

Commission File Number 0-26686

First Investors Financial Services Group, Inc.
(Exact Name of Registrant as Specified in its Charter)

        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 ý    No o.

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

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

FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
AND SUBSIDIARIES

FORM 10-Q

JULY 31, 2003

TABLE OF CONTENTS

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FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS—APRIL 30, 2003 AND JULY 31, 2003

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

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FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended July 31, 2002 and 2003
(Unaudited)

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

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FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME

For the Three Months Ended July 31, 2003

(Unaudited)

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

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FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended July 31, 2002 and 2003

(Unaudited)

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

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FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2003

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 July 31, 2003, approximately 26 percent of Receivables Held for Investment had been originated in Texas. The Company currently operates in 28 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 performs the servicing and collection functions for the portfolio of receivables under management which totaled $618 million as of July 31, 2003.

        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 a portfolio of loans previously owned or securitized by FISC and certain other financial assets including charged-off accounts owned by FISC.

        On December 24, 2002, the Company purchased a 40% ownership interest and an investment in the junior mezzanine debt of First Auto Receivables Corporation ("FARC"). FARC purchased an approximately $197.5 million portfolio of installment loan receivables from a subsidiary of Union Acceptance Corporation. FISC performs ongoing servicing and collection activities on the portfolio.

        On March 19, 2003, FISC entered into a servicing agreement with an unrelated third party to service an approximately $300 million portfolio of installment loan receivables purchased from a subsidiary of Union Acceptance Corporation.

2.     Interim Financial Information

        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 July 31, 2003, and the results of its operations for the three months ended July 31, 2002 and 2003, and its cash flows for the three months ended July 31, 2002 and 2003.

        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 accounting principles generally accepted in the United States of America 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 2003 Annual Report on Form 10-K filed July 18, 2003.

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        Treasury Stock.    On December 14, 2001, the Board of Directors authorized the Company to repurchase up to 5% of the Company's outstanding common stock. Repurchases of 170,000, 370,400 and 21,000 shares with an average price of $3.03, $3.40 and $4.03 respectively, occurred during the quarter ended January 31, 2002, July 31, 2002 and July 31, 2003, respectively. There has been no other repurchase activity.

        Income Recognition.    For Receivables Held for Investment, the Company accrues interest income monthly based upon contractual terms using the effective interest method. Interest income also includes additional amounts received upon early payoffs of certain receivables attributable to the difference between the principal balance of the receivables calculated using the Rule of 78's method and the principal balance of the receivables calculated using the effective interest method. When a receivable becomes 90 days past due, income accrual is suspended until the payments become current. When a loan is charged off or the collateral is repossessed, the remaining income accrual is written off. Other income includes late charge fees and is recognized as collected. Servicing income is accrued as it is earned and inter-company amounts are eliminated upon consolidation.

        Allowance for Credit Losses.    For receivables financed under the FIRC credit facility, the Company purchases credit enhancement insurance from third-party insurers which covers the risk of loss upon default and certain other risks. The Company established a captive insurance subsidiary to reinsure the credit enhancement insurance coverage. The credit enhancement insurance coverage for all receivables acquired in March 1994 and thereafter has been reinsured by FIIC. Beginning in October 1996, all receivables recorded by the Company were covered by credit enhancement insurance while pledged as collateral for the FIRC credit facility. Once receivables are transferred to the FIARC commercial paper facility, credit enhancement insurance is cancelled. In addition, no default insurance is purchased for core receivables originated and financed under the FIACC commercial paper facility. Accordingly, the Company is exposed to credit losses for all receivables either reinsured by FIIC or uninsured and provides an allowance for such losses.

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

        The Company calculates the allowance for credit losses in accordance with SFAS 5, Accounting for Contingencies. SFAS 114, Accounting for Creditors for Impairment of a Loan does not apply to the Company since the Receivables Held for Investment are comprised of a large group of smaller balance homogenous loans that are evaluated collectively for impairment.

        The Company applies a systematic methodology in order to determine the amount of the allowance for credit losses. The specific methodology utilized is a six-month migration analysis whereby the Company compares the aging status of each loan from six months prior to the aging loan status as of the reporting date. These factors are then applied to the aging status of each loan at the reporting

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date in order to calculate the number of loans that are expected to migrate to impaired status. The estimated number of impairments is then multiplied by estimated loss per loan, which is based on historical information. The computed reserve is then compared to the amount recorded for adequacy. The Company compares the six-month result to prior six-month periods to compare trends and evaluate any other internal or external factors that may affect collectibility. 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.

        Stock-Based Compensation.    The Company has an employee stock option plan and a non-employee director stock option plan, which are described more fully in Note 9. The Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for its plans. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation (with assumptions described in Note 9), to its stock option plans.

        Reclassifications.    Certain reclassifications have been made to the fiscal 2003 amounts to conform with the fiscal 2004 presentation.

3.     Receivables Held for Investment

        Net receivables consisted of the following:

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        Activity in the allowance for credit losses was as follows:

4.     Receivables Acquired for Investment

        Receivables Acquired for Investment are comprised of loans previously originated by Auto Lenders Acceptance Corporation and include a portfolio of warehouse loans and a portfolio of loans that were previously securitized. The securitized loans were subsequently redeemed and funded through the FIACC credit facility. These loans that were 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, 2003 and July 31, 2003:

        The carrying amount of Receivables Acquired for Investment is 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.

        Nonaccretable difference eliminations represent contractual principal and interest amounts on loans charged-off for the period ended July 31, 2003. The decrease in accretable yield is primarily due to an increase in the cumulative loss rate and slightly lower than anticipated collections.

5.     Debt

        The Company finances its loan origination through two warehouse credit facilities. The Company's credit facilities provide for one-year terms and have been renewed annually. Management of the

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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 and January 2002, the Company issued $168 million and $159 million, respectively, in asset-backed notes ("Term Notes") secured by discrete pools of receivables. Proceeds from the two 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. The weighted average interest rate for the Company's secured borrowings including the effect of program fees, dealer fees, and other comprehensive income (loss) amortization was 3.5% and 5.4% for the quarters ending July 31, 2003 and July 31, 2002, respectively.

Warehouse Facilities as of July 31, 2003

(1)

Inclusive of the effect of interest rate swaps, fees and insurance.

Warehouse Facilities—Credit Enhancement as of July 31, 2003

        FIRC—In order to obtain a lower cost of funding, the Company has agreed under the FIRC credit facility to maintain credit enhancement insurance covering all of its receivables pledged as collateral under this facility. The facility lenders are named as additional insureds under these policies. The coverages are obtained on each receivable at the time it is purchased by the Company and the applicable premiums are prepaid for the life of the receivable. Each receivable is covered by three separate credit insurance policies, consisting of basic default insurance under a standard auto loan protection policy (known as "ALPI" insurance) together with certain supplemental coverages relating to physical damage and other risks. Solely at its expense, the Company carries these coverages and neither the vehicle purchasers nor the dealers are charged for the coverages and they are usually unaware of their existence. The Company's ALPI insurance policy is written by National Union Fire Insurance Company of Pittsburgh ("National Union"), which is a wholly-owned subsidiary of American International Group.

        The premiums that the Company paid during fiscal year 2003 for its three credit enhancement insurance coverages, of which the largest component is basic ALPI insurance, represented

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approximately 3.9 percent of the principal amount of the receivables originated during the year. Aggregate premiums paid for ALPI coverage alone during the fiscal years ended April 30, 2001, 2002 and 2