DALLAS -- Hoping the end of its nearly two-year battle with banking regulators is near, First City Bancorp. said it had filed a joint reorganization plan with a Waco, Tex.-based distressed-asset acquirer.

J-Hawk Corp. will merge into First City in exchange for about 50% of the new entity's common stock. The proposed plan must still receive approval from First City shareholders and the bankruptcy court.

Since 1986, J-Hawk has acquired portfolios of distressed assets through a series of partnerships. Jim Sartain, J-Hawk's president, said the company does not intend to apply for a banking charter after the merger, nor does it intend to enter the lending business.

"Our plan is to operate just as we are operating J-Hawk today," Mr. Sartain said.

Bob Brown, First City's president and chief operating officer, said the plan would return the most value to the former bank holding company's constituents. He said other schemes, filed by "21" International Holdings, a New York company, and creditors, were not credible.

Following approval of the reorganization, which is expected in March, the Federal Deposit Insurance Corp. will return $125 million in cash and $55 million in loans and other real estate to First City. First City had sued regulators in federal court, alleging they had prematurely seized the bank's subsidiaries in 1992. The FDIC has denied any wrongdoing.

At the same time, Mr. Brown said a definitive agreement was being drafted that would require the FDIC to return an additional $70 million to $80 million in cash to First City. Under the proposed agreement, First City will use the cash, together with the $125 million the FDIC has already agreed to return, to buy between $150 million and $200 million from a pool of around $500 million of distressed loans held by Chemical Banking Corp.'s Texas Commerce Bancshares unit. In turn, Texas Commerce will release the FDIC from guarantees it has on the remaining pool of distressed loans.

Ultimately, First City will hold between $200 million and $250 million in loans and foreclosed real estate. These noncash holdings are similar to the type of assets currently managed by J-Hawk.

Cargill Financial Services, an affiliate of commodity giant Cargill Inc. of Minnetonka, Minn., is providing financing in the reorganization plan with J-Hawk. Mr. Sartain said the two companies have worked together in several limited partnerships that bought distressed assets.

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